<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------
FORM 8-K
-------------------------------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OCTOBER 30, 1995
-------------------------------
Date of report (Date of earliest event reported)
THE ALPINE GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-9078 22-1620387
- ---------------------------- ------------------------- ----------------------
(State or other jurisdiction Commission File Number (I.R.S. Employer
of incorporation) Identification Number)
1790 Broadway, New York, New York 10019-1412
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 757-3333
-------------------------------------------------------------
(Former name or former address, if changed since last report)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 5. OTHER EVENTS.
The Alpine Group, Inc. (the "Company") is herewith filing the financial
statements described in Item 7 relating to: (i) the U.S. and Canadian copper
wire and cable business (the "Alcatel Business") of Alcatel NA Cable Systems,
Inc. and Alcatel Canada Wire, Inc. and (ii) Adience, Inc., a Delaware
corporation ("Adience"). As previously reported, the Alcatel Business and
Adience have been acquired by the Company.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The financial statements listed below are being filed herewith.
THE ALCATEL BUSINESS
UNAUDITED COMBINED FINANCIAL STATEMENTS:
Combined balance sheets at December 31, 1994 and March 31, 1995
Combined statements of changes in owners' investment for the
three years ended March 31, 1995
Combined statements of operations for the three months ended
March 31, 1994 and 1995
Combined statements of cash flows for the three months ended
March 31, 1994 and 1995
Notes to combined financial statements
ADIENCE
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Reports of independent accountants
Consolidated balance sheets at December 31, 1993 and 1994
Consolidated statements of operations for the year ended December 31, 1994,
Post-emergence six months ended December 31, 1993,
Pre-emergence six months ended June 30, 1993 and the
Pre-emergence year ended December 31, 1992
Consolidated statements of cash flows for the year ended December 31, 1994,
Post-emergence six months ended December 31, 1993,
Pre-emergence six months ended June 30, 1993 and the
Pre-emergence year ended December 31, 1992
Consolidated statements of shareholders equity (deficit) for the year
ended December 31, 1994,
Post-emergence six months ended December 31, 1993,
Pre-emergence six months ended June 30, 1993 and the
Pre-emergence year ended December 31, 1992
Notes to consolidated financial statements
-2-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE ALPINE GROUP, INC.
Date: October 30, 1995 By /s/ Bragi F. Schut
------------------------------
Bragi F. Schut
Executive Vice President
-3-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
THE ALCATEL BUSINESS
UNAUDITED COMBINED FINANCIAL STATEMENTS:
Combined balance sheets at December 31, 1994 and March 31, 1995 . . . . . . F-2
Combined statements of changes in owners' investment for the
three years ended March 31, 1995 . . . . . . . . . . . . . . . . . . . . . F-3
Combined statements of operations for the three months ended
March 31, 1994 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Combined statements of cash flows for the three months ended
March 31, 1994 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Notes to combined financial statements. . . . . . . . . . . . . . . . . . . F-6
ADIENCE
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Reports of independent accountants. . . . . . . . . . . . . . . . . . . . . F-7
Consolidated balance sheets at December 31, 1993 and 1994 . . . . . . . . .F-10
Consolidated statements of operations for the year ended December 31, 1994,
Post-emergence six months ended December 31, 1993,
Pre-emergence six months ended June 30, 1993 and the
Pre-emergence year ended December 31, 1992 . . . . . . . . . . . . . . . .F-12
Consolidated statements of cash flows for the year ended December 31, 1994,
Post-emergence six months ended December 31, 1993,
Pre-emergence six months ended June 30, 1993 and the
Pre-emergence year ended December 31, 1992 . . . . . . . . . . . . . . . .F-13
Consolidated statements of shareholders equity (deficit) for the year
ended December 31, 1994,
Post-emergence six months ended December 31, 1993,
Pre-emergence six months ended June 30, 1993 and the
Pre-emergence year ended December 31, 1992 . . . . . . . . . . . . . . . .F-14
Notes to consolidated financial statements . . . . . . . . . . . . . . . . .F-15
F-1
<PAGE>
THE COPPER CABLE GROUP OF ALCATEL NA CABLE SYSTEMS, INC. AND
ALCATEL CANADA WIRE AND CABLE, INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------ ----------
1994 1995
------------ ----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash..................................................................... $ 3,124 $ 4,849
Trade accounts receivable, less allowance for
doubtful accounts of $457 and $457, respectively........................ 29,389 25,454
Receivables from affiliates.............................................. 1,259 (8,642)
Inventories.............................................................. 36,983 34,514
Deferred income taxes.................................................... 4,123 4,123
Other current assets..................................................... 1,861 747
------------ ----------
Total current assets................................................... 76,739 61,045
Property, plant and equipment, net......................................... 42,247 39,868
Intangible asset........................................................... 366 --
------------ ----------
$ 119,352 $ 100,913
------------ ----------
------------ ----------
LIABILITIES AND OWNERS' INVESTMENT
Current liabilities:
Trade accounts payable................................................... $ 13,577 $ 15,442
Accrued liabilities...................................................... 12,184 21,927
Income taxes payable..................................................... 271 (1,001)
Payables to affiliates................................................... 40,663 12,622
------------ ----------
Total current liabilities.............................................. 66,695 48,990
Deferred income taxes...................................................... 1,440 1,440
------------ ----------
Total liabilities...................................................... 68,135 50,430
Commitments and contingencies
Owners' investment......................................................... 51,217 50,483
------------ ----------
$ 119,352 $ 100,913
------------ ----------
------------ ----------
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these balance sheets.
F-2
<PAGE>
THE COPPER CABLE GROUP OF ALCATEL NA CABLE SYSTEMS, INC. AND
ALCATEL CANADA WIRE AND CABLE, INC.
COMBINED STATEMENTS OF CHANGES IN OWNERS' INVESTMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Balance, December 31, 1994......................................................... $ 51,217
Net loss......................................................................... (734)
---------
Balance, March 31, 1995............................................................ $ 50,483
---------
---------
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-3
<PAGE>
THE COPPER CABLE GROUP OF ALCATEL NA CABLE SYSTEMS, INC. AND
ALCATEL CANADA WIRE AND CABLE, INC.
COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Net sales....................................................................... $ 37,677 $ 54,138
Cost of goods sold.............................................................. 35,906 52,339
--------- ---------
Gross margin................................................................ 1,771 1,799
Selling, general and administrative expenses.................................... 922 683
Management fees to affiliates................................................... 1,201 1,275
Administrative fees to affiliates............................................... 416 226
--------- ---------
Income (loss) from operations............................................... (768) (385)
Interest expense to affiliates, net............................................. 755 (495)
--------- ---------
Income (loss) before provision (benefit) for income taxes....................... (13) (880)
Provision (benefit) for income taxes............................................ 277 (146)
--------- ---------
Net income (loss)............................................................... $ (290) $ (734)
--------- ---------
--------- ---------
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-4
<PAGE>
THE COPPER CABLE GROUP OF ALCATEL NA CABLE SYSTEMS, INC. AND
ALCATEL CANADA WIRE AND CABLE, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1995
--------- ----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net (loss)............................................................................... $ (290) $ (734)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
--
Depreciation........................................................................... 1,464 1,569
Change in current assets and liabilities --
(Increase) decrease in:
Trade accounts receivable.............................................................. (422) (3,935)
Receivables (payables) from affiliates................................................. (9,384) 17,178
Inventories............................................................................ (2,208) (2,471)
Other current assets................................................................... (175) 1,114
Trade accounts payable................................................................. 754 1,865
Accrued liabilities.................................................................... 10,629 (11,254)
Income taxes payable................................................................... 265 (1,272)
--------- ----------
Net cash provided by operating activities............................................ 633 2,060
--------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment............................................... (1,189) (335)
--------- ----------
Net cash used for investing activities............................................... (1,189) (335)
--------- ----------
Net increase (decrease) in cash............................................................ (556) 1,725
Cash, beginning of year.................................................................... 602 3,124
--------- ----------
Cash, end of period........................................................................ $ 46 $ 4,849
--------- ----------
--------- ----------
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-5
<PAGE>
THE COPPER CABLE GROUP OF ALCATEL NA CABLE SYSTEMS, INC. AND
ALCATEL CANADA WIRE AND CABLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 1995
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. INTERIM STATEMENTS
The unaudited financial statements furnished herein reflect all normal
recurring accruals which are, in the opinion of management, necessary for a fair
presentation of the results for the periods presented. Certain reclassifications
have been made to the statement of income for the period ended March 31, 1994 to
conform to presentations adopted in the current period. These statements should
be read in conjunction with the Combined Financial Statements for the year ended
December 31, 1994.
PRINCIPLES OF COMBINATION
The combined financial statements include the copper cable operations of ACW
which are located in Winnipeg, Manitoba, and the copper cable operations of ACS
which are located in Tarboro, North Carolina; Elizabethtown, Kentucky; Fordyce,
Arkansas and Claremont, North Carolina. The combined financial statements also
include fiber optic cable and data cable operations that are part of the ACW
facility located in Winnipeg, Manitoba. These operations are not material to
Alcatel Business's operating results as presented herein. All of these
operations are managed by ACS management. All significant intercompany accounts
and transactions have been eliminated.
2. RELATED PARTIES:
Under agreements with affiliated companies, the Alcatel Business pays
service charges, research and development assessments and other service fees
(management fees). Management fees incurred by the Alcatel Business under these
agreements totaled $1,201 and $1,275 for the three months ended March 31, 1994
and 1995.
Alcatel NA, Inc. and ACW provide legal, accounting, tax, treasury,
insurance, employee benefits, data processing, transportation and other services
to the Alcatel Business. Expenses that are directly attributable to the Alcatel
Business are charged directly to the Alcatel Business. Expenses that are not
directly attributable to a particular subsidiary or business unit of Alcatel NA,
Inc. or ACW are allocated each month to all subsidiaries and business units
receiving the services. Amounts allocated are based on a particular subsidiary
or business unit's relative percentage of net sales, payroll expenses and
average total assets to the net sales, payroll expenses and average total assets
of all the subsidiaries and business units receiving services. Administrative
fees allocated to the Alcatel Business for these services totaled $416 and $226
for the three months ended March 31, 1994 and 1995. Management believes that the
administrative fees for these services would not have been materially different
if they had been incurred directly by the Alcatel Business.
F-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Adience, Inc.:
We have audited the accompanying consolidated balance sheet of Adience, Inc. (a
Delaware corporation) as of December 31, 1994, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year then
ended. We did not audit the financial statements of Information Display
Technology, Inc., which is reflected in the accompanying financial statements as
net assets of discontinued operations. The net assets of discontinued operations
represent 13.3% of total assets and the loss from discontinued operations
represents 15.0% of net loss prior to the write-down of this asset as discussed
in Note 1. The financial statements of Information Display Technology, Inc. were
audited by other auditors whose report has been furnished to us and our opinion,
insofar as it relates to the amounts included for Information Display
Technology, Inc., is based solely on the report of the other auditors. The
financial statements of Adience, Inc. for the six months ended December 31,
1993, were audited by other auditors whose report, dated March 28, 1994, except
for certain items which are as of October 12, 1994, on those statements included
an explanatory paragraph stating that those financial statements were prepared
assuming that the Company will continue as a going concern. The financial
statements of Adience, Inc. for the year ended December 31, 1992, and six months
ended June 30, 1993, were audited by other auditors whose report dated March 28,
1994, expressed an unqualified opinion on those statements. The opinion of such
auditors, however, does not cover the restatement of those statements for the
deconsolidation of Information Display Technology, Inc. as discussed in Note 1.
We have audited the adjustments described in Note 1 that were applied to restate
the December 31, 1992, June 30, 1993, and December 31, 1993, financial
statements for the deconsolidation of Information Display Technology, Inc. In
our opinion, such adjustments are appropriate and have been properly applied.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Adience, Inc. as of December 31, 1994, and the results
of its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
March 28, 1995
F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS -- POST-EMERGENCE
CONSOLIDATED FINANCIAL STATEMENTS
To the Board of Directors and Shareholders of
Adience, Inc.
In our opinion, the consolidated balance sheet and the related consolidated
statements of operations, of cash flows, and of shareholders' equity (deficit)
as of and for the 6 months ended December 31, 1993, prior to restatement (not
presented separately herein), present fairly, in all material respects, the
financial position, results of operations and cash flows of Adience, Inc., and
its subsidiaries (Adience) as of and for the 6 months ended December 31, 1993,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of Adience's management; our responsibility is
to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of Adience for any period
subsequent to December 31, 1993, nor have we examined any adjustments applied to
the 1993 financial statements.
As discussed in Note 1 to the consolidated financial statements, the Adience
Plan of Reorganization was confirmed on May 4, 1993, and was consummated on June
30, 1993. Adience has accounted for the reorganization in accordance with the
American Institute of Certified Public Accountants Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code."
Accordingly, Adience's assets and liabilities as of June 30, 1993, were restated
by management, with the assistance of independent advisors, to their reorganized
value, which approximated their fair value at the date of reorganization. The
financial statements subsequent to emergence from Chapter 11 have been prepared
using a different basis of accounting and, therefore, are not comparable to the
pre-emergence consolidated financial statements.
The accompanying consolidated financial statements have been prepared assuming
Adience will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, Adience has experienced continuing losses
from operations, has not met operating and financial plans for the 9 months
ended September 30, 1994, and has significant indebtedness that raise
substantial doubt about Adience's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
As described in Note 7, The Alpine Group, Inc., has reached agreements to
acquire a majority of the outstanding common stock and a majority of the
outstanding 11 percent Senior Secured Notes of Adience.
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
March 28, 1994, except for
Notes 1, 6 and 7, which are
as of October 12, 1994
F-8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS -- PRE-EMERGENCE
CONSOLIDATED FINANCIAL STATEMENTS
To the Board of Directors and Shareholders of
Adience, Inc.
In our opinion, the consolidated statements of operations, of cash flows, and of
shareholders' equity (deficit) for the year ended December 31, 1992 and for the
6 months ended June 30, 1993, prior to restatement (not presented separately
herein) present fairly, in all material respects, the results of operations and
cash flows of Adience, Inc., and its subsidiaries (Adience) for the year ended
December 31, 1992, and for the 6 months ended June 30, 1993, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of Adience's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. We have not
examined any adjustments applied to the 1992 and 1993 financial statements.
As discussed in Note 1 to the consolidated financial statements, the Adience
Plan of Reorganization was confirmed on May 4, 1993, and was consummated on June
30, 1993. Adience has accounted for the reorganization in accordance with the
American Institute of Certified Public Accountants Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code."
Accordingly, Adience's assets and liabilities as of June 30, 1993, were restated
by management, with the assistance of independent advisors, to their reorganized
value, which approximated their fair value at the date of reorganization.
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
March 28, 1994
F-9
<PAGE>
ADIENCE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 554 $ 3,226
Accounts receivable, less allowance (1993 - $1,015; 1994 - $835)................... 15,593 15,462
Inventories........................................................................ 15,212 9,817
Costs and estimated earnings in excess of billings on uncompleted contracts........ 328 443
Prepaid expenses, deposits and other............................................... 1,741 1,074
Deferred income taxes.............................................................. 2,918 3,508
Net assets held for sale........................................................... -- 665
------------ ------------
Total current assets........................................................... 36,346 34,195
------------ ------------
Net assets of discontinued operations................................................ 13,982 8,030
Property, plant and equipment
Land............................................................................... 2,641 2,517
Buildings.......................................................................... 10,265 10,458
Machinery and equipment............................................................ 21,703 21,377
------------ ------------
34,609 34,352
Less allowances for depreciation............................................... 3,530 6,619
------------ ------------
31,079 27,733
Other assets......................................................................... 4,175 3,866
Reorganization value in excess of amounts allocable to identifiable assets, net...... 9,190 8,130
------------ ------------
Total assets................................................................... $ 94,772 $ 81,954
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1994
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Revolving line of credit........................................................... $ 9,185 $ 12,468
Current portion of long-term obligations........................................... 759 662
Accounts payable................................................................... 8,887 9,162
Salaries, wages and withholdings................................................... 770 1,096
Payable to former shareholder...................................................... 569 494
Accrued expenses................................................................... 2,756 3,766
Accrued interest................................................................... 225 2,515
Billings in excess of costs and estimated earnings on uncompleted contracts........ 150 66
Accrued workers' compensation...................................................... 5,980 5,199
Accrued income taxes............................................................... 1,569 1,578
Deferred income taxes.............................................................. 66 23
------------ ------------
Total current liabilities...................................................... 30,916 37,029
------------ ------------
Payable to affiliate................................................................. 861 3,683
Payable to former shareholder........................................................ 3,189 1,562
Long-term obligations................................................................ 46,211 46,450
Deferred income taxes................................................................ 4,086 4,713
Shareholders' equity (deficit):
Common stock, $.01 par value; authorized 20,000,000 shares; issued and outstanding
10,000,000 shares in 1993; 10,100,000 shares in 1994.............................. 100 101
Additional paid-in capital........................................................... 23,900 23,974
Retained deficit..................................................................... (14,367) (35,142)
Foreign currency translation......................................................... (124) (416)
------------ ------------
Total shareholders' equity (deficit)........................................... 9,509 (11,483)
------------ ------------
Total liabilities and shareholders' equity (deficit)........................... $ 94,772 $ 81,954
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE>
ADIENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
POST-EMERGENCE
PRE-EMERGENCE ----------------------------
---------------------------- SIX MONTHS
YEAR ENDED SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, ENDED JUNE DECEMBER 31, DECEMBER 31,
1992 30, 1993 1993 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues........................................... $ 97,276 $ 44,431 $ 54,572 $ 96,273
Costs and expenses:
Cost of revenues..................................... 81,262 35,928 47,779 84,468
Selling, general and administrative.................. 22,829 10,510 9,302 18,180
Amortization of intangible asset..................... -- -- 9,011 1,053
------------- ------------- ------------- -------------
104,091 46,438 66,092 103,701
------------- ------------- ------------- -------------
Operating loss......................................... (6,815) (2,007) (11,520) (7,428)
Other income (expense):
Interest and other income (expense).................. (17) 245 615 574
Interest expense..................................... (13,302) (2,271) (3,781) (7,653)
------------- ------------- ------------- -------------
(13,319) (2,026) (3,166) (7,079)
------------- ------------- ------------- -------------
Loss from continuing operations before reorganization
items, income taxes and extraordinary item............ (20,134) (4,033) (14,686) (14,507)
Reorganization items:
Professional fees.................................... (950) (102) (746) --
Write-off of unamortized debt discount............... -- (455) -- --
Write-off of unamortized loan origination fees....... -- (2,065) -- --
Adjust accounts to fair value........................ -- 23,165 -- --
Other................................................ (4,848) -- -- --
------------- ------------- ------------- -------------
(5,798) 20,543 (746) --
------------- ------------- ------------- -------------
(Loss) income from continuing operations before income
taxes and extraordinary item.......................... (25,932) 16,510 (15,432) (14,507)
Income taxes (benefit)................................. (1,031) 260 (808) 319
------------- ------------- ------------- -------------
(Loss) income from continuing operations before
extraordinary item.................................... (24,901) 16,250 (14,624) (14,826)
Discontinued operations:
(Loss) income from discontinued operations (net of
taxes (benefits) of $(40), $1, $286, and $900)...... (983) 2 341 (2,610)
Loss on disposal of discontinued operations (net of
taxes (benefits) of $(791), $0, $0, and $0)......... (3,973) (400) (84) (3,339)
------------- ------------- ------------- -------------
(4,956) (398) 257 (5,949)
------------- ------------- ------------- -------------
(Loss) income before extraordinary item................ (29,857) 15,852 (14,367) (20,775)
Extraordinary item -- gain on discharge of debt........ -- 17,480 -- --
------------- ------------- ------------- -------------
Net (loss) income...................................... $ (29,857) $ 33,332 $ (14,367) $ (20,775)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings per common share:
Loss from continuing operations...................... * * $ (1.46) $ (1.48)
(Loss) income from discontinued operations........... * * 0.02 (0.59)
Extraordinary item................................... * * -- --
------------- ------------- ------------- -------------
Net loss per common share.............................. * * $ (1.44) $ (2.07)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Average common shares outstanding...................... * * 10,000 10,054
</TABLE>
- ------------------------
* Earnings per common share are not meaningful prior to June 30, 1993 due to the
reorganization - see Note 1.
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE>
ADIENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
POST-EMERGENCE
PRE-EMERGENCE ----------------------------
---------------------------- SIX MONTHS
YEAR ENDED SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, ENDED JUNE DECEMBER 31, DECEMBER 31,
1992 30, 1993 1993 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net (loss) income...................................... $ (29,857) $ 33,332 $ (14,367) $ (20,775)
Non-cash expenses and revenues included in net (loss)
income:
Depreciation and amortization........................ 5,660 1,675 11,242 6,050
Deferred income taxes................................ (2,040) -- (1,078) (6)
Provision for doubtful accounts...................... 1,880 413 360 271
Loss (income) from discontinued operations........... (345) 2 (341) 2,610
Loss on disposal of discontinued operations.......... 4,764 400 84 3,339
Loss on sale of divisions............................ -- -- 220 --
(Gain) loss on disposal of property, plant and
equipment........................................... 254 23 (170) (46)
Net assets held for sale write-down.................. -- -- -- 1,009
Inventory write-down................................. -- -- -- 1,788
Changes in operating assets and liabilities excluding
effects from disposals:
Short-term investments............................... 2,037 (4) 258 --
Accounts receivable.................................. 6,526 (2,099) 1,749 311
Inventories.......................................... 376 515 451 3,607
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... 1,333 (829) 1,032 (115)
Income tax receivable................................ (282) 2,742 288 --
Prepaid expenses, deposits and other................. 608 213 244 667
Accounts payable, salaries, wages and withholdings,
accrued expenses, workers' compensation and payable
to former shareholder............................... 7,090 3,299 (1,554) 1,418
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... (575) 601 (522) (84)
Accrued income taxes................................. -- 1,549 20 9
Payable to affiliate................................. 3,916 414 (947) 2,822
Other................................................ (1,074) 514 -- (387)
Operating cash flows from reorganization items:
Write-off of unamortized debt discount and loan
origination fees.................................... -- 2,520 -- --
Adjust accounts to fair value........................ -- (23,165) -- --
Extraordinary gain on discharge of debt.............. -- (17,480) -- --
Other................................................ 5,798 -- -- --
------------- ------------- ------------- -------------
Net cash provided (used) by operating activities....... 6,069 4,635 (3,031) 2,488
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment.............. (1,898) (635) (894) (2,278)
Proceeds from sale of property, plant and equipment.... -- -- 237 --
Proceeds from sale of divisions........................ 2,406 -- 244 --
Deferred computer costs................................ (554) (256) (765) (476)
------------- ------------- ------------- -------------
Net cash used by investing activities.................. (46) (891) (1,178) (2,754)
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings (payments) on revolving line of
credit................................................ (6,061) (4,409) 5,087 3,283
Principal payments on long-term obligations............ (867) (369) (324) (345)
------------- ------------- ------------- -------------
Net cash provided (used) by financing activities....... (6,928) (4,778) 4,763 2,938
------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents... (905) (1,034) 554 2,672
Cash and cash equivalents at beginning of period....... 1,939 1,034 0 554
------------- ------------- ------------- -------------
Cash and cash equivalents at end of period............. $ 1,034 $ 0 $ 554 $ 3,226
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Supplemental cash flow information:
Cash paid for interest............................... $ 2,973 $ 585 $ 2,977 $ 4,564
Cash paid for income taxes........................... $ 831 $ 14 $ 211 $ 327
</TABLE>
See Note 1 for significant non-cash transactions not reflected above.
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE>
ADIENCE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
RETAINED FOREIGN SHAREHOLDERS'
COMMON ADDITIONAL EARNINGS CURRENCY TREASURY EQUITY
STOCK PAID-IN CAPITAL (DEFICIT) TRANSLATION STOCK ESOP (DEFICIT)
------ --------------- --------- ----------- -------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1992................. $ 300 $ -- $ (3,475) $ 584 $ (396) $(2,151) $ (5,138)
Net loss................................. -- -- (29,857) -- -- -- (29,857)
Prepaid contribution to ESOP............. -- -- -- -- -- 818 818
Foreign currency translation
adjustment.............................. -- -- -- (500) -- -- (500)
------ ------- --------- ----- -------- ------ -------------
Balance at December 31, 1992............... 300 -- (33,332) 84 (396) (1,333) (34,677)
Net loss -- pre-emergence................ -- -- (7,313) -- -- -- (7,313)
Prepaid contribution to ESOP............. -- -- -- -- -- 470 470
Foreign currency translation
adjustment.............................. -- -- -- (44) -- -- (44)
------ ------- --------- ----- -------- ------ -------------
Balance at June 30, 1993 --
pre-emergence........................... 300 -- (40,645) 40 (396) (863) (41,564)
Adjustments for reorganization:
Extraordinary gain on discharge of
debt.................................. 55 13,145 17,480 -- -- -- 30,680
Fresh start reporting adjustments...... -- 10,896 23,165 -- 396 863 35,320
Issuance of New Common Stock........... (255) (141) -- -- -- -- (396)
------ ------- --------- ----- -------- ------ -------------
Balance at June 30, 1993 --
post-emergence............................ 100 23,900 -- 40 -- -- 24,040
Net loss................................. -- -- (14,367) -- -- -- (14,367)
Foreign currency translation
adjustment.............................. -- -- -- (164) -- -- (164)
------ ------- --------- ----- -------- ------ -------------
Balance at December 31, 1993............... 100 23,900 (14,367) (124) -- -- 9,509
Net loss................................. -- -- (20,775) -- -- -- (20,775)
Issuance of common stock................. 1 74 -- -- -- -- 75
Foreign currency translation
adjustment.............................. -- -- -- (292) -- -- (292)
------ ------- --------- ----- -------- ------ -------------
Balance at December 31, 1994............... $ 101 $ 23,974 $(35,142) $ (416) $ -- $ -- $ (11,483)
------ ------- --------- ----- -------- ------ -------------
------ ------- --------- ----- -------- ------ -------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-14
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA, UNLESS OTHERWISE NOTED)
1. BASIS OF PRESENTATION AND COMPANY REORGANIZATION
On December 21, 1994, The Alpine Group, Inc. ("Alpine") acquired
approximately 82% of the outstanding common stock, par value $.01 per share
("Adience Common Stock"), of Adience, Inc. ("Adience") from certain stockholders
of Adience. Together with the approximately 4.9% of such shares already owned by
Alpine, Alpine increased its ownership to approximately 86.9% of the outstanding
shares of Adience Common Stock.
As of December 21, 1994 Alpine and Information Display Technology, Inc.
("IDT"), a majority-owned subsidiary of Adience, entered into an Agreement and
Plan of Merger, which provides for the merger of Alpine's information display
group (a business segment of Alpine), comprised of Alpine/PolyVision, Inc.
("APV") and Posterloid Corporation ("Posterloid"), with and into two separate
wholly-owned subsidiaries of IDT formed for the purpose of acquiring APV and
Posterloid. Subsequent to the merger, Alpine intends to distribute a majority of
its ownership in the information display group, consisting of IDT, APV and
Posterloid to its stockholders. The distribution is expected to be completed in
the next six months. As a result of the planned distribution, Adience's
consolidated financial statements and notes thereto have been reclassified to
reflect the operations of IDT as discontinued for the fiscal year ended December
31, 1992, the six months ended June 30 and December 31, 1993 and the fiscal year
ended December 31, 1994. The investment in IDT has been reflected as "Net assets
of discontinued operations." The results of operations for IDT are presented in
the Consolidated Statements of Operations under the caption "Loss from
discontinued operations" (see Note 9).
The accompanying consolidated financial statements of Adience do not reflect
any adjustments related to the allocation of the Alpine purchase price to assets
and liabilities based upon their estimated fair values as of the date of
acquisition, except for the writedown of the investment in IDT.
Adience has experienced continued losses from continuing operations (before
reorganization items) both pre- and post-emergence under Chapter 11. The
continued viability of Adience is dependent upon, among other factors, the
ability to generate sufficient cash from operations, financing, or other sources
that will meet ongoing obligations over a sustained period. Management has
formulated the outline of a strategic plan with the following objectives:
streamline manufacturing operations, eliminate duplicative costs, discontinue
unprofitable product lines, improve marketing efforts and develop and introduce
new products. Management believes that the successful implementation of this
plan will enable Adience to continue as a going concern for a reasonable period.
In addition, in conjunction with the acquisition of Adience by Alpine, Alpine
has committed to provide Adience up to $3 million for the twelve months ended
December 31, 1995, to achieve its strategic plan. There can be no assurance
however, that such activities will achieve the intended improvement in results
of operations or financial position.
A Prepackaged Plan of Reorganization under Chapter 11 of the Bankruptcy Code
(the "Prepackaged Plan") was filed by Adience and the Unofficial Committee of
Noteholders of Adience on February 22, 1993. The Prepackaged Plan was confirmed
by the United States Bankruptcy Court for the Western District of Pennsylvania
on May 4, 1993 and consummated on June 30, 1993.
The Prepackaged Plan provided for a restructuring of Adience's capital
structure and allowed the holders of $66 million aggregate principal amount of
Adience's 15% Senior Subordinated Reset Notes ("Old Reset Notes") to exchange
them for $49 million aggregate principal amount of new 11% Senior Secured Notes
("New Secured Notes") due June 15, 2002, plus common stock representing 55% of
the outstanding common stock of Adience. The Prepackaged Plan included
forgiveness of accrued interest totaling approximately $8.8 million. The value
of the cash and securities distributed was $17.5 million less than the allowed
claims with the resultant gain recorded as an extraordinary gain.
F-15
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA, UNLESS OTHERWISE NOTED)
Neither Adience Canada, Inc. ("Adience Canada"), a wholly-owned subsidiary,
or IDT, a majority-owned subsidiary of Adience, guarantee the new 11% Notes
issued by Adience under the reorganization plan. The new Notes are secured by a
lien on all the assets of Adience, including the stock of IDT.
Adience Canada and IDT did not file plans of reorganization.
The sum of allowed claims plus post petition liabilities exceeded the
reorganization value of the assets of Adience immediately before the date of
consummation. Also, Adience experienced a change in control as
pre-reorganization holders of common stock received less than 50% of the new
common stock issued pursuant to the Prepackaged Plan. AICPA SOP 90-7, Financial
Reporting by Entities in Reorganization under the Bankruptcy Code ("SOP 90-7"),
requires that under these circumstances, a new reporting entity is created and
assets and liabilities should be recorded at their fair values. This accounting
treatment is referred to as "fresh start reporting". Adience's basis of
accounting for financial reporting purposes changed on June 30, 1993 as a result
of applying SOP 90-7. Specifically, application of SOP 90-7 required the
adjustment of Adience's assets and liabilities to reflect a reorganization value
generally approximating the fair value of Adience as a going concern on an
unleveraged basis, the elimination of its retained deficit, and adjustments to
its capital structure to reflect consummation of the Prepackaged Plan. Fresh
start reporting was not adopted by Adience Canada or IDT.
Adience applied SOP 90-7 in preparing its consolidated balance sheet as of
June 30, 1993. The balance sheet became the opening balance sheet for Adience,
Inc., as reorganized, on July 1, 1993. The consolidated statements of operations
and cash flows after June 30, 1993 are not comparable to the respective
financial statements prior to such date, and the consolidated results of
operations for the six months ended June 30, 1993 and the six months ended
December 31, 1993 have therefore not been aggregated.
Reorganization value at the June 30, 1993 consummation date was determined
by management with the assistance of independent advisors. The methodology
employed involved estimation of enterprise value (i.e., the market value of
Adience's debt and shareholders' equity), taking into account a discounted cash
flow analysis, as well as the capitalization of earnings and cash flow
approaches. The discounted cash flow analysis was based on five-year cash flow
projections prepared by management.
The five-year cash flow projections were based on estimates and assumptions
about circumstances and events that have not yet taken place. Such estimates and
assumptions are inherently subject to significant economic and competitive
uncertainties and contingencies beyond the control of the corporation,
including, but not limited to, those with respect to the future course of
Adience's business activity. Accordingly, there will usually be differences
between projections and actual results because events and circumstances
frequently do not occur as expected; and those differences may be material. The
assumptions included: a rate of sales growth of approximately 2.5% per annum in
excess of the anticipated rate of inflation; an increase in selling, general and
administrative expenses, after adjustment for non-recurring items, in line with
the rate of sales growth; operating profit margins for each of the five years
being approximately equal to one half of the average annual operating profit
margins achieved during the most recent profitable period of 1988-1990; and
effective tax rates of 33%.
F-16
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA, UNLESS OTHERWISE NOTED)
At June 30, 1993, the adjustment to record confirmation of the plan of $23
million was allocated to assets and liabilities as follows:
<TABLE>
<S> <C>
Inventories....................................................... $ 1,287
Property, plant and equipment..................................... 19,448
Reorganization value in excess of amounts allocable to
identifiable assets.............................................. 18,329
Intangible assets................................................. (3,032)
Deferred income taxes............................................. (1,108)
Additional paid-in capital........................................ (10,896)
Prepaid contribution to employee stock ownership plan............. (863)
---------
$ 23,165
---------
---------
</TABLE>
Current assets and liabilities were recorded at fair value. Property, plant
and equipment was recorded at reorganization value, which approximated fair
value in continued use, based on an independent appraisal. In addition, under
SOP 90-7, the long-term debt was recorded at present values on June 30, 1993.
The resulting unamortized discount is being accreted to interest expense over
the term of the Adience Senior Notes (See Note 7).
Based on the allocation of equity value in conformity with SOP 90-7, the
portion of the equity value which was not attributed to specific tangible or
identifiable intangible assets of reorganized Adience of $18,329 was reported as
"reorganization value in excess of amounts allocable to identifiable assets".
This value was initially being amortized on a straight line basis in equal
annual amounts over 9 years. On a quarterly basis, management evaluates the
recoverability of the unamortized portion of the reorganization value in excess
of amounts allocable to identifiable assets by comparing actual cash flows with
the projected cash flows used to arrive at the reorganization value. When and if
a material difference exists, management will reevaluate whether the assumptions
made in the preparation of the projected cash flows are still reasonable. If
management is of the opinion that new projected cash flows are required and that
a permanent impairment of the remaining reorganization value has occurred, a
reduction of some or all of the unamortized value is immediately recognized.
In the fourth quarter of 1993, Adience recorded a charge of $8 million to
reduce the recorded reorganization value in excess of amounts allocable to
identifiable assets based on management's comparison of actual cash flows
post-emergence through December 31, 1993, with the projected cash flows used to
arrive at the reorganization value. This comparison resulted in the preparation
of new cash flow projections, which in turn led Adience to the conclusion that
permanent impairment of the reorganization value had occurred and that an
immediate reduction of approximately 50% of the remaining unamortized value
should be recognized. This special charge increased the net loss for the six
months ended December 31, 1993 by $8 million or $.80 per share. No further
reduction to the reorganization value in excess of amounts allocable to
identifiable assets was deemed necessary during 1994. At December 31, 1993 and
1994, accumulated amortization was approximately $9,011 and $10,064,
respectively.
F-17
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA, UNLESS OTHERWISE NOTED)
The effect of the plan of reorganization and the adoption of the provisions
of SOP 90-7 in Adience's consolidated balance sheet as of June 30, 1993 was as
follows:
ADIENCE, INC.
CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1993
UNAUDITED
<TABLE>
<CAPTION>
ADJUSTMENTS TO RECORD CONFIRMATION OF THE PLAN
ADIENCE, INC. ----------------------------------------------
(DEBTOR-IN-POSSESSION) DR(CR)
PRE-CONFIRMATION DEBT EXCHANGE
BALANCE SHEET DISCHARGE OF STOCK FRESH START
-------------------- --------- -------- -----------------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents.................. $(2,219)
Short-term investments (certificate of
deposit).................................. 258
Accounts receivable, less allowance
(1993-$1,592)............................. 14,111
Intercompany accounts receivable
(payable)................................. (2,631)
Inventories................................ 13,879 $ 1,287(3)
Costs and estimated earnings in excess of
billings on uncompleted contracts......... 1,101
Income tax receivable...................... 0
Prepaid expenses, deposits and other....... 1,038 (80)(3)
Deferred income taxes...................... (921) 1,359(3)
------- --------- -------- --------
Total current assets..................... 24,616 2,566
------- --------- -------- --------
Net assets held for disposition..............
Deferred income taxes........................ (222)
Investment in subsidiaries................... 19,118
Property, plant and equipment
Land....................................... 823 1,730
Buildings.................................. 7,120 2,730
Machinery and equipment.................... 8,954 10,082
------- --------- -------- --------
16,897 14,542
Less allowances for depreciation........... 4,906 4,906
------- --------- -------- --------
11,991 19,448(3)
Other assets................................. 7,020 (2,952)(3)
Reorganization value in excess of amounts
allocable to identifiable assets............ 0 18,329(3)
------- --------- -------- --------
Total assets............................. $62,523 $ 37,391
------- --------- -------- --------
------- --------- -------- --------
<CAPTION>
ADIENCE,
INC.
REORGANIZED CONSOLIDATED
BALANCE ADIENCE ELIMIN ADIENCE, INC.
SHEET CANADA DR(CR) CONSOLIDATED
---------- -------- ----------- --------------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents.................. $(2,219) $ 35 $ 2,184 $ 0
Short-term investments (certificate of
deposit).................................. 258 258
Accounts receivable, less allowance
(1993-$1,592)............................. 14,111 2,949 17,060
Intercompany accounts receivable
(payable)................................. (2,631) 827 1,804 0
Inventories................................ 15,166 932 16,098
Costs and estimated earnings in excess of
billings on uncompleted contracts......... 1,101 259 1,360
Income tax receivable...................... 0 223 223
Prepaid expenses, deposits and other....... 958 411 4 1,373
Deferred income taxes...................... 438 0 438
---------- -------- ----------- --------------
Total current assets..................... 27,182 5,636 3,992 36,810
---------- -------- ----------- --------------
Net assets held for disposition.............. 11,833 11,833
Deferred income taxes........................ (222) 2 220 0
Investment in subsidiaries................... 19,118 (19,118) 0
Property, plant and equipment
Land....................................... 2,553 55 2,608
Buildings.................................. 9,850 629 10,479
Machinery and equipment.................... 19,036 1,931 20,967
---------- -------- ----------- --------------
31,439 2,615 34,054
Less allowances for depreciation........... 0 1,775 1,775
---------- -------- ----------- --------------
31,439 840 32,279
Other assets................................. 4,068 720 4,788
Reorganization value in excess of amounts
allocable to identifiable assets............ 18,329 18,329
---------- -------- ----------- --------------
Total assets............................. $99,914 $7,198 $ (3,073) $104,039
---------- -------- ----------- --------------
---------- -------- ----------- --------------
</TABLE>
F-18
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA, UNLESS OTHERWISE NOTED)
ADIENCE, INC.
CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1993
UNAUDITED
<TABLE>
<CAPTION>
ADJUSTMENTS TO RECORD CONFIRMATION OF THE PLAN
ADIENCE, INC. ------------------------------------------------
PRE-CONFIRMATION DR(CR)
(DEBTOR-IN-POSSESSION) DEBT EXCHANGE
BALANCE SHEET DISCHARGE OF STOCK FRESH START
-------------- --------- --------- ----------
<S> <C> <C> <C> <C>
Liabilities and shareholders' equity (deficit)
Liabilities not subject to compromise:
Current liabilities:
Revolving lines of credit..................... $ 1,914
Current portion of long term obligations...... 834
Accounts payable.............................. 6,759
Salaries, wages and withholdings.............. 583
Payable to former shareholder................. 553
Accrued expenses.............................. 2,945 $ 450 (1)
Billings in excess of costs and estimated
earnings on uncompleted contracts............ 321
Accrued workers' compensation................. 6,076
Accrued interest.............................. 0 (2,924 )(1)
Income tax payable............................ 1,549
Deferred income taxes......................... 0
------- --------- --------- --------
Total current liabilities................... 21,534 (2,474 )
Payable to former shareholder................... 3,291
Long term obligations........................... 1,531
Deferred income taxes........................... (2) $ (2,467)(3)
Liabilities subject to compromise:
Old Senior Subordinated Reset Notes........... 65,975 65,975 (1)
Accrued interest.............................. 11,758 11,758 (1)
New Senior Secured Notes...................... 0 (44,579 )(1)
Shareholders' equity (deficit):
Old common stock, $.015 par value; authorized
20,000,000 shares; issued 13,400,000
shares....................................... 300 $ 300 (2)
New common stock, $.01 par value; authorized
20,000,000 shares; issued and outstanding
10,000,000 shares............................ 0 (55 )(1) (45 )(2)
Additional paid in capital.................... 0 (13,145 )(1) 141 (2) (10,896)(3)
Retained (deficit) earnings................... (40,689) (17,480 )(1) (23,165)(3)
Foreign currency translation.................. 84
------- --------- --------- --------
(40,305) (30,680 ) 396 (34,061)
Less:
3,400,000 shares of common stock in treasury,
at cost...................................... (396) (396 )(2)
Prepaid contribution to employee stock
ownership plan (ESOP)........................ (863) (863)(3)
------- --------- --------- --------
Total shareholders' equity (deficit)........ (41,564) (30,680 ) 0 (34,924)
------- --------- --------- --------
Total liabilities and shareholders' equity
(deficit).................................. $62,523 $ 0 $ 0 $ (37,391)
------- --------- --------- --------
------- --------- --------- --------
<CAPTION>
ADIENCE, INC. CONSOLIDATED
REORGANIZED ADIENCE ELIMIN ADIENCE, INC.
BALANCE SHEET CANADA DR(CR) CONSOLIDATED
-------------- --------- ---------- --------------
<S> <C> <C> <C> <C>
Liabilities and shareholders' equity (deficit)
Liabilities not subject to compromise:
Current liabilities:
Revolving lines of credit..................... $ 1,914 $ $(2,184) $ 4,098
Current portion of long term obligations...... 834 834
Accounts payable.............................. 6,759 837 7,596
Salaries, wages and withholdings.............. 583 98 681
Payable to former shareholder................. 553 553
Accrued expenses.............................. 2,495 370 2,865
Billings in excess of costs and estimated
earnings on uncompleted contracts............ 321 351 672
Accrued workers' compensation................. 6,076 6,076
Accrued interest.............................. 2,924 2,924
Income tax payable............................ 1,549 1,549
Deferred income taxes......................... 0 51 51
------- --------- ---------- --------------
Total current liabilities................... 24,008 1,707 (2,184) 27,899
Payable to former shareholder................... 3,291 3,291
Long term obligations........................... 1,531 1,531
Deferred income taxes........................... 2,465 14 (220) 2,699
Liabilities subject to compromise:
Old Senior Subordinated Reset Notes........... 0 0
Accrued interest.............................. 0 0
New Senior Secured Notes...................... 44,579 44,579
Shareholders' equity (deficit):
Old common stock, $.015 par value; authorized
20,000,000 shares; issued 13,400,000
shares....................................... 0 10 10 0
New common stock, $.01 par value; authorized
20,000,000 shares; issued and outstanding
10,000,000 shares............................ 100 100
Additional paid in capital.................... 23,900 23,900
Retained (deficit) earnings................... (44) 5,467 5,423 0
Foreign currency translation.................. 84 44 40
------- --------- ---------- --------------
24,040 5,477 5,477 24,040
Less:
3,400,000 shares of common stock in treasury,
at cost...................................... 0 0
Prepaid contribution to employee stock
ownership plan (ESOP)........................ 0 0
------- --------- ---------- --------------
Total shareholders' equity (deficit)........ 24,040 5,477 5,477 24,040
------- --------- ---------- --------------
Total liabilities and shareholders' equity
(deficit).................................. $ 99,914 $7,198 $ 3,073 $104,039
------- --------- ---------- --------------
------- --------- ---------- --------------
</TABLE>
F-19
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA, UNLESS OTHERWISE NOTED)
The following entries record the provisions of the Plan and the adoption of
fresh start reporting:
<TABLE>
<CAPTION>
DEBIT CREDIT
--------- -----------
<C> <S> <C> <C>
(1) RECORD DEBT DISCHARGE:
Accrued expenses......................................................................... 450
Liabilities subject to compromise:
Old Senior Subordinated Reset Notes.................................................... 65,975
Accrued interest....................................................................... 11,758
Discount on New Senior Secured Notes..................................................... 4,500
New Senior Secured Notes............................................................... 49,079
Accrued interest....................................................................... 2,924
New common stock....................................................................... 55
Additional paid-in capital............................................................. 13,145
Gain on debt discharge................................................................. 17,480
(2) RECORD EXCHANGE OF STOCK FOR STOCK:
Old common stock......................................................................... 300
Additional paid-in capital............................................................... 141
New common stock....................................................................... 45
Treasury stock......................................................................... 396
(3) RECORD ASSETS AND LIABILITIES AT FAIR VALUE UNDER FRESH START REPORTING AND ELIMINATE
RETAINED DEFICIT:
Inventories.............................................................................. 1,287
Deferred income taxes.................................................................... 1,359
Property, plant and equipment............................................................ 19,448
Reorganization value in excess of amounts allocable to identifiable assets............... 18,329
Prepaid expenses, deposits and other................................................... 80
Other assets........................................................................... 2,952
Deferred income taxes.................................................................. 2,467
Retained deficit....................................................................... 23,165
Additional paid-in capital............................................................. 10,896
Prepaid ESOP contribution.............................................................. 863
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Adience and
Adience Canada. All material intercompany accounts and transactions have been
eliminated from the consolidated financial statements.
The accounts of IDT are included in the consolidated balance sheets under
the caption "Net assets of discontinued operations." The intercompany payable to
IDT is separately disclosed in the accompanying balance sheets since the right
of offset does not exist between the companies (see Note 1).
CASH FLOW REPORTING
Cash and cash equivalents include all highly liquid investments with a
maturity of three months or less.
F-20
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA, UNLESS OTHERWISE NOTED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market with cost determined
on the first-in, first-out (FIFO) or average cost method. Inventories consist
primarily of raw materials of $4,474 and $3,197, work-in-process of $2,088 and
$1,643 and finished goods of $8,650 and $4,977 at December 31, 1993 and 1994,
respectively.
REVENUE RECOGNITION
Approximately 48% of 1992, 34% of the six months ended June 30, 1993, 51% of
the six months ended December 31, 1993 and 42% of 1994 revenues were recorded on
the percentage of completion method of accounting, measured on the basis of
costs incurred to estimated total costs which approximates contract performance
to date. Provisions for losses on uncompleted contracts are made if it is
determined that a contract will ultimately result in a loss.
Substantially all remaining revenue is comprised of direct product shipments
to customers and short duration refractory material sales, installation and
maintenance work, which are recorded as revenue when shipped and/or installed.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment was stated at cost. In conjunction with the
adoption of fresh start reporting, all property, plant and equipment was
adjusted to reflect reorganization value, which approximates fair value in
continued use, based on an independent appraisal. Improvements to existing
equipment that materially extend the life of properties are capitalized as
incurred.
Expenditures for normal maintenance and repairs are charged to expense as
incurred and amounted to $4,174 in 1992, $2,010 for the six months ended June
30, 1993, $2,292 for the six months ended December 31, 1993 and $4,139 in 1994.
Depreciation expense is computed using the straight-line method based upon the
estimated useful lives of the respective assets. Amortization of assets under
capital leases is included in depreciation expense.
GOODWILL
Goodwill resulting from acquisitions accounted for on the purchase method of
accounting, was being amortized over 15 to 40 years on the straight-line method.
Goodwill relating to domestic acquisitions was written off in conjunction with
fresh start reporting. Remaining goodwill will be amortized over 15 years.
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS
Reorganization value in excess of amounts allocable to identifiable assets
is amortized on a straight-line basis over its estimated useful life (see Note
1).
INCOME TAXES
Deferred income taxes are recorded to reflect certain items of income and
expense recognized in different periods for financial reporting and tax
purposes. Adience accounts for income taxes in accordance with the liability
method.
In 1992, Adience adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (SFAS No. 109), which requires an asset and
liability approach in accounting for income taxes. Prior to 1992, Adience
applied the provisions of SFAS No. 96. There was no cumulative effect for this
change in accounting principle as of January 1, 1992. However, as of December
31, 1993 and December 31, 1994, a deferred asset was recognized and an
offsetting valuation reserve has been established for carryforwards not meeting
the "more likely than not" criterion under SFAS No. 109.
F-21
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA, UNLESS OTHERWISE NOTED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS
The fair values of financial instruments approximate their recorded values
as of December 31, 1993 and 1994.
CONCENTRATIONS OF CREDIT RISK
Adience's products are sold and revenues are derived from companies in
diversified industries. Credit is extended to customers based upon an evaluation
of the customers' financial condition and generally collateral is not required.
At December 31, 1993 and December 31, 1994, accounts receivable from customers
in the steel and steel-related industries total approximately $9,548 and $9,054,
respectively. Credit losses relating to customers in the steel and steel-related
industries have been within management's expectations.
RECLASSIFICATIONS
Certain items in the December 31, 1992, June 30, 1993 and December 31, 1993
financial statements have been reclassified and restated to conform with changes
in classification adopted and required in 1994.
EARNINGS PER COMMON SHARE
Earnings per common share is computed by dividing income or loss by the
weighted average number of shares outstanding. Earnings per share for
pre-emergence periods is not presented since such information is not comparable
with post-emergence earnings per share.
F-22
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA, UNLESS OTHERWISE NOTED)
3. PRO FORMA RESULTS OF OPERATIONS (UNAUDITED)
The following consolidating pro forma statement of operations reflects the
financial results of Adience as if the reorganization had been effective January
1, 1993:
ADIENCE, INC.
CONSOLIDATING PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
ADIENCE
PRO FORMA PRO FORMA
PRO FORMA ADJUSTMENTS INCOME ADIENCE ADIENCE, INC.
ADIENCE -------------------------- STATEMENT CANADA CONSOLIDATED
12/31/93 DEBIT CREDIT 12/31/93 12/31/93 12/31/93
---------- ------------ ------------ ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues.................... $ 85,833 $ 85,833 $ 13,170 $ 99,003
Costs and expenses:
Cost of revenues.............. 73,720 $ 571(1) 74,291 9,987 84,278
Selling, general and
administrative............... 17,184 $ 145(1) 17,039 2,628 19,667
Amortization of intangible
asset........................ 9,011 9,011 9,011
---------- ------------ ------ ---------- ----------- --------
99,915 571 145 100,341 12,615 112,956
---------- ------------ ------ ---------- ----------- --------
Operating (loss) profit......... (14,082) (14,508) 555 (13,953)
Other income (expense):
Interest and other income..... 770 770 90 860
Interest expense.............. (6,051) 1,297(2) (7,348) (1) (7,349)
---------- ------------ ------ ---------- ----------- --------
(5,281) 1,297 0 (6,578) 89 (6,489)
---------- ------------ ------ ---------- ----------- --------
(Loss) income from continuing
operations before
reorganization items and income
taxes.......................... (19,363) (21,086) 644 (20,442)
Reorganization items:
Professional fees............. (848) 848(3) 0 0
Write-off of unamortized debt
discount..................... (455) 455(3) 0 0
Write-off of unamortized loan
fees......................... (2,065) 2,065(3) 0 0
Adjust accounts to fair
value........................ 23,165 23,165(3) 0 0
---------- ------------ ------ ---------- ----------- --------
19,797 23,165 3,368 0 0 0
---------- ------------ ------ ---------- ----------- --------
Income (loss) from continuing
operations before income
taxes.......................... 434 (21,086) 644 (20,442)
Income taxes (benefit).......... (926) (926) 378 (548)
---------- ------------ ------ ---------- ----------- --------
Income (loss) from continuing
operations..................... $ 1,360 $ 25,033 $ 3,513 $ (20,160) $ 266 $ (19,894)
---------- ------------ ------ ---------- ----------- --------
---------- ------------ ------ ---------- ----------- --------
<FN>
- ------------------------
(1) Reflects a six month impact of additional depreciation expense resulting
from the write-up of property, plant and equipment and the reduction of
goodwill amortization which was written off in conjunction with fresh start
reporting.
</TABLE>
F-23
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA, UNLESS OTHERWISE NOTED)
3. PRO FORMA RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
<TABLE>
<S> <C>
(2) Interest expense on reorganized long-term debt.
(3) Elimination of the effect of non-recurring reorganization items on
operations.
</TABLE>
4. CONTRACTS IN PROGRESS
The status of contract costs on uncompleted construction contracts was as
follows:
<TABLE>
<CAPTION>
COSTS AND ESTIMATED BILLINGS IN EXCESS
EARNINGS IN EXCESS OF COSTS AND
OF BILLINGS ESTIMATED EARNINGS TOTAL
--------------------- ------------------- ---------
<S> <C> <C> <C>
December 31, 1993:
Costs and estimated earnings...................................... $ 352 $ 138 $ 490
Billings.......................................................... 24 288 312
----- ----- ---------
$ 328 $ 150 $ 178
----- ----- ---------
----- ----- ---------
December 31, 1994:
Costs and estimated earnings...................................... $ 460 $ 102 $ 562
Billings.......................................................... 17 168 185
----- ----- ---------
$ 443 $ 66 $ 377
----- ----- ---------
----- ----- ---------
</TABLE>
5. OTHER ASSETS
Included in other assets are the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1994
------------- -------------
<S> <C> <C>
Notes receivable from former shareholder (Note 10)................................... $ 669 $ --
Notes receivable from sale of discontinued operations and other (Note 9)............. 155 --
Goodwill and organization costs...................................................... 609 931
Loan origination fees................................................................ 705 624
Investments.......................................................................... 376 397
Pension asset........................................................................ 780 823
Deferred computer costs.............................................................. 667 840
Cash surrender value of life insurance policies...................................... 15 15
Other................................................................................ 199 236
------ ------
$ 4,175 $ 3,866
------ ------
------ ------
</TABLE>
F-24
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA, UNLESS OTHERWISE NOTED)
6. LINES OF CREDIT
On the consummation date of the plan of reorganization, June 30, 1993,
Adience entered into a financing agreement with Congress Financial Corporation
("Congress") that had a renewal date of June 30, 1994 (the "Renewal Date").
Certain revisions were made to the terms of the agreement during 1994 and 1995,
including the extension of the Renewal Date to June 30, 1996. The facility
remains in effect year to year thereafter, unless terminated upon sixty days
written notice by either party on the anniversary of the Renewal Date in any
year. Under the revised agreement, Adience may request loan advances not to
exceed the lesser of $14 million or available collateral (85% of eligible
accounts receivable less than 90 days, 50% of eligible bagged inventory plus 30%
of eligible raw material and finished goods inventory which does not constitute
bagged inventory). The loan is collateralized by accounts receivable, inventory,
fixed assets, intangible assets and Adience's shares of IDT. In addition, IDT
has guaranteed the Adience line of credit and has pledged as collateral its own
accounts receivable, inventory and equipment. The interest rate on the loan is
2.5% over the prime rate (effective rate of 11% at December 31, 1994). At
December 31, 1994, Adience had borrowed $12,468 under the credit facility
including checks in transit of $1,689.
In addition, IDT entered into a financing agreement with Congress, that
expires June 30, 1995. The facility remains in effect year to year thereafter,
unless terminated upon sixty days written notice by either party on the
anniversary of the Renewal Date in any year. If the Congress facility is not
renewed or if alternate financing is not obtained, management believes that IDT
will be able to generate sufficient cash flow from operations to meet its
working capital needs. Certain revisions were also made to the terms of the
agreement during 1994. Under the revised agreement, IDT may request loan
advances not to exceed the lesser of $5 million or available collateral (85% of
eligible accounts receivable less than 90 days plus 30% of eligible raw material
and finished goods inventory). The loan is collateralized by accounts
receivable, inventory and fixed assets. Adience guarantees IDT's debt to
Congress. The interest rate on the loan is 2.5% over the prime rate. At December
31, 1994, IDT had borrowed $800 under the credit facility. Letters of credit
issued under the facility totaled $700 at December 31, 1994, which reduced the
availability under the financing arrangement in a like amount.
Alpine intends to pursue a long-term financing in 1995 to refinance the
Adience existing credit line, as well as for other purposes as deemed
appropriate (see Note 7).
Both Adience and IDT pay commitment fees on the unused portion of their
credit facility of 0.5% per annum. Under the terms of the financing agreements,
both companies are required to maintain certain financial ratios and meet other
financial conditions. The agreements do not allow the companies to incur
additional indebtedness, pay cash dividends, make certain investments, advances
or loans and limits annual capital expenditures. As of December 31, 1994,
Adience and IDT were in compliance with the covenants of their respective
agreements. Adience's ability to continue to comply with such conditions is
dependent upon Adience's ability to achieve specified levels of sales,
profitable operations and borrowing availability. Waivers or amendments may be
required in the future to ensure compliance. Inability to achieve compliance in
the future could affect Adience's access to further borrowings or require it to
secure additional capital by other means.
F-25
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA, UNLESS OTHERWISE NOTED)
7. LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1994
------------ ------------
<S> <C> <C>
Senior Secured Notes due 2002, interest at 11% $ 49,079 $ 49,079
Capital lease obligations.................................................. 745 587
Notes payable with monthly installments of principal interest of $22
through December 1997, interest at 10%.................................... 836 653
Other (interest ranges from 10% to 13%).................................... 560 556
------------ ------------
51,220 50,875
Less: current portion...................................................... 759 662
------------ ------------
50,461 50,213
Discount on New Senior Secured Notes 4,250 3,763
------------ ------------
$ 46,211 $ 46,450
------------ ------------
------------ ------------
</TABLE>
In connection with the Plan of Reorganization, $49,079 of Adience Senior
Secured Notes with an annual interest rate of 11% (the "Adience Senior Notes")
were issued under an indenture agreement dated as of June 30, 1993. The Adience
Notes are redeemable at the option of Adience after December 15, 1997. The
Adience Notes are not guaranteed by the subsidiaries of Adience. The Adience
Notes are secured by a lien on all the assets of Adience, including the stock of
IDT.
Adience, on a consolidated basis, has agreed to certain restrictive
covenants which are customary for such financings including, among other things,
limitations on additional indebtedness, limitations on asset sales and
restrictions on the payment of dividends.
As part of Alpine's acquisition of Adience, Alpine entered into a debt
exchange agreement, dated as of October 11, 1994, as amended (the "Debt Exchange
Agreement"), with the holders of approximately 90% in principal amount of the
Adience Senior Notes, pursuant to which Alpine has the option to cause such
holders to exchange their Adience Senior Notes, in the principal amount of $44
million plus accrued interest, for a combination of approximately $35.3 million
in cash and other non-cash consideration. If the exchange does not occur prior
to June 30, 1995, the Debt Exchange Agreement may be terminated by either Alpine
or the Adience Senior Note holders. The Debt Exchange Agreement also allows
Adience to defer the December 15, 1994 and June 15, 1995 interest payments due
to such holders of the Adience Senior Notes until the date the debt exchange
occurs, or if such debt exchange does not occur, then all accrued interest will
be due on December 15, 1995.
Alpine intends to pursue a long-term financing in 1995 to provide for the
redemption at a discount of the Adience Senior Notes.
Principal maturities of long-term obligations are as follows:
<TABLE>
<S> <C>
1995....................................................... $ 662
1996....................................................... 540
1997....................................................... 428
1998....................................................... 122
1999....................................................... 44
Thereafter................................................. 49,079
---------
$ 50,875
---------
---------
</TABLE>
F-26
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA, UNLESS OTHERWISE NOTED)
7. LONG-TERM OBLIGATIONS (CONTINUED)
Property, plant and equipment at December 31, 1993 and 1994 includes equipment,
automobiles and trucks under capital leases with a net book value of $1,497 and
$1,370, respectively. During the year ended 1993, the six months ended June 30
and December 31, 1993, and the year ended 1994 Adience incurred capital lease
obligations of $524, $90, $309 and $265, respectively.
8. OPERATING LEASES
Adience leases certain buildings, machinery, and equipment under both short-
and long-term lease arrangements. Future minimum lease commitments under
non-cancelable operating leases are not significant. Rental expense relating to
such leases was approximately $1,600 in 1992, $800 for the six months ended June
30, 1993, $1,000 for the six months ended December 31, 1993 and $1,900 in 1994.
9. DISCONTINUED OPERATIONS
Alpine and IDT entered into an Agreement and Plan of Merger, dated as of
December 21, 1994, which provides for the merger of two of Alpine's
subsidiaries, APV and Posterloid, with and into two separate wholly-owned
subsidiaries of IDT formed for the purpose of acquiring APV and Posterloid (the
"IDT Merger") (see Note 1). After the IDT Merger, Alpine intends to distribute
to its stockholders, or otherwise dispose of a substantial portion of IDT common
stock owned by Alpine.
In connection with the IDT Merger and Distribution, Adience's consolidated
financial statements and notes thereto have been reclassified to reflect the
operations of IDT as discontinued. In conjunction with this treatment, the
Company recorded a non-cash charge of $3,339 to write-down the investment in IDT
to estimated fair market value. The impact of the write-down on 1994 earnings
was $0.33 per share.
Net assets of discontinued operations consist primarily of accounts
receivable of $11,453 and $9,258, inventories of $3,438 and $3,812 and property,
plant and equipment of $1,738 and $1,506 at December 31, 1993 and 1994,
respectively. Accounts payable and accrued expenses include $5,204 and $5,885 at
December 31, 1993 and 1994, respectively, related to IDT's operations.
During 1992, Adience's Geotec operation was sold for approximately $1.1
million in cash and $1.2 million in notes receivable, after concluding that
Geotec's operations no longer fit Adience's long-term strategic plans. In
addition, Adience's Hotwork division, which provided preheating services to
refractory maintenance companies, was sold during 1992 for $1.2 million in cash.
During the six months ended June 30, 1993 and December 31, 1993, adjustments to
the previously reported loss were made on these sales of approximately $400 and
$84, respectively, which has been reflected as an additional loss on the
disposal of discontinued operations in the consolidated statements of
operations.
In November 1991, Adience sold its wholly owned subsidiary, Energy
Technology, Inc. ("Entec"), for approximately $6.5 million. In addition, during
1991, Adience sold certain assets and all of the businesses of its Texas
operations ("Texops"), Chemsteel, Inc., and Ward Duct Connectors, Inc. During
1992, an adjustment to the previously reported gain was made on these sales of
approximately $1.1 million, which has been reflected as an additional loss on
disposal of discontinued operations in the consolidated statements of
operations.
The operating results of the discontinued operations are shown separately in
the accompanying consolidated statements of operations. Net revenues of
discontinued operations were $61,499, $23,740, $24,307 and $32,365 for the year
ended December 31, 1992, the six months ended June 30 and December 31, 1993 and
the year ended December 31, 1994, respectively.
F-27
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA, UNLESS OTHERWISE NOTED)
10. RELATED PARTY TRANSACTIONS
In connection with the plan of reorganization, Adience entered into a new
multi-year agreement signed in 1994, to be effective as of October 1, 1992, with
the former principal shareholder, Chairman of the Board and Chief Executive
Officer and a severance compensation agreement with his son for a period of
seven and five years, respectively. The present value of these payments has been
reflected in "Reorganization items-other" and total approximately $4.8 million
for the year ended December 31, 1992.
Note receivable from the former principal shareholder of Adience (current
portion included in "Prepaid expenses, deposits and other"; 1993--$515;
long-term portion included in "Other assets"; 1993--$669) has been netted
against amounts payable to the former principal shareholder in the accompanying
December 31, 1994 consolidated balance sheet.
Steib & Company, a New York general partnership, was granted options to
purchase 1,275,000 shares of Company common stock as partial compensation for
services to be performed under an advisory agreement with the Company. Steven S.
Elbaum, a member of the Company's Board of Directors, is a general partner of
Steib & Company. Total amounts paid during 1994 related to the advisory
agreement amounted to $188.
In connection with Alpine's acquisition of substantially all of Adience's
common stock, Alpine purchased 5.8% of Adience's common stock from Steib &
Company ("Steib"). Alpine reimbursed Steib & Company for costs incurred by Steib
in connection with Steib's investment in the Adience common stock. In connection
with these transactions, a three year advisory agreement between Adience and
Steib was canceled, as was Steib's option to purchase 1,275,000 shares of
Adience common stock.
11. RESEARCH AND DEVELOPMENT EXPENSE
Adience incurred research and development expense of $1,191, $541, $541 and
$1,102 for the year ended December 31, 1992, the six months ended June 30 and
December 31, 1993 and year ended December 31, 1994, respectively.
12. INCOME TAXES
(Loss) income from continuing operations before income taxes, and
extraordinary item consisted of:
<TABLE>
<CAPTION>
PRE-EMERGENCE POST-EMERGENCE
----------------------------------- ------------------------------------
YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1992 JUNE 30, 1993 DECEMBER 31, 1993 DECEMBER 31, 1994
----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Domestic................... $ (26,531) $ 15,864 $ (15,430) $ (15,191)
Canadian................... 599 646 (2) 684
-------- ------- -------- --------
$ (25,932) $ 16,510 $ (15,432) $ (14,507)
-------- ------- -------- --------
-------- ------- -------- --------
</TABLE>
F-28
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA, UNLESS OTHERWISE NOTED)
12. INCOME TAXES (CONTINUED)
Federal, foreign, and state income taxes (benefits) from continuing
operations consisted of the following:
<TABLE>
<CAPTION>
PRE-EMERGENCE POST-EMERGENCE
----------------------------------- ------------------------------------
YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1992 JUNE 30, 1993 DECEMBER 31, 1993 DECEMBER 31, 1994
----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Current:
Federal......................... $ (3,105) $ -- $ -- $ (4,297)
Foreign......................... 338 261 113 345
State........................... 200 -- 149 --
------- ------- ------- -------
Total current................. (2,567) 261 262 (3,952)
------- ------- ------- -------
Deferred:
Federal......................... (5,924) 4,215 (627) (668)
Foreign......................... 23 -- 38 (26)
State........................... (902) 504 (125) --
Reorganization valuation
adjustment..................... -- (1,108) -- --
Change in valuation allowance... 8,339 (3,612) (356) 4,965
------- ------- ------- -------
Total deferred................ 1,536 (1) (1,070) 4,271
------- ------- ------- -------
Total income tax provision
(benefit).................... $ (1,031) $ 260 $ (808) $ 319
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The effective income tax rate from continuing operations varied from the
statutory federal income tax (benefit) rate as follows:
<TABLE>
<CAPTION>
PRE-EMERGENCE POST-EMERGENCE
--------------------------- ----------------------------
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, JUNE 30, DECEMBER 31, DECEMBER 31,
1992 1993 1993 1994
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Statutory federal income tax rate.............. (34.0)% 35.0% (35.0)% (35.0)%
Increases (decreases):
State income taxes, net federal tax
benefit..................................... (3.6) 1.5 -- --
Effect on Canadian income taxes.............. 0.6 0.1 1.0 2.2
Change in valuation allowance................ 33.1 (11.2) (1.3) 31.2
Amortization of reorganization value......... -- -- 21.4 2.5
Other reorganization adjustments............. -- (4.4) 9.9 --
Provision recorded to reorganization value... -- (3.3) -- --
Asset write-up for books..................... -- (3.1) -- --
Non taxable debt discharge................... -- (17.7) -- --
Reduction in NOL carryforward................ -- 3.1 -- --
Other items.................................. (0.1) 1.6 (1.2) 1.3
------ ------ ------ ------
(4.0)% 1.6% (5.2)% 2.2%
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
F-29
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA, UNLESS OTHERWISE NOTED)
12. INCOME TAXES (CONTINUED)
Deferred tax liabilities (assets) are comprised of the following at December
31, 1993 and December 31, 1994:
<TABLE>
<CAPTION>
1993 1994
---------- ----------
<S> <C> <C>
Property, plant and equipment................................................... $ 7,245 $ 6,263
Pension accrual................................................................. 287 287
Accounting method change from LIFO.............................................. 618 309
---------- ----------
Gross deferred tax liabilities.............................................. 8,150 6,859
---------- ----------
Inventory reserves.............................................................. (225) (853)
Accrued commissions and labor costs............................................. (4,041) (2,829)
Bad debt reserve................................................................ (428) (352)
State income & sales/use tax liability.......................................... (25) (24)
Environmental liability......................................................... (620) (707)
IRS interest accrual............................................................ (400) (400)
Inventory Section 263A costs.................................................... (214) (214)
NOL carryforwards............................................................... (5,274) (9,604)
Foreign tax credits............................................................. (543) (510)
Minimum tax credits............................................................. (402) (402)
Other........................................................................... (144) (101)
---------- ----------
Gross deferred tax assets................................................... (12,316) (15,996)
Valuation allowance............................................................. 5,400 10,365
---------- ----------
Net deferred tax liability...................................................... $ 1,234 $ 1,228
---------- ----------
---------- ----------
</TABLE>
SFAS 109 requires a valuation allowance when it is "more likely than not
that some portion or all of the deferred tax assets will not be realized." It
further states that "forming a conclusion that a valuation allowance is not
needed is difficult when there is negative evidence such as cumulative losses in
recent years." The ultimate realization of this deferred income tax asset
depends on Adience's ability to generate sufficient taxable income in the
future. While Adience believes that the deferred income tax asset will be fully
or partially realized by future operating results, losses in recent years and a
desire to be conservative make it appropriate to record a valuation allowance.
As of December 31, 1994, Adience has a net operating loss carryforward for
domestic federal income tax purposes of approximately $24,000 which will expire
in 2007, 2008 and 2009. Minimum tax and foreign tax credits of $912 are also
available to offset federal income tax liabilities to the extent that regular
tax exceeds tentative minimum tax in subsequent years. Upon consummation of the
Plan of Reorganization, Adience had an ownership change, as defined by Section
382 of the Internal Revenue Code, which may limit Adience's ability to utilize
the pre-ownership change portion of its net operating loss and/or credit. In
addition under the provisions of SOP 90-7, subsequent utilization of net
operating loss carryforwards will be reflected as an adjustment to
reorganization value in excess of amounts allocable to identifiable assets or
paid-in capital. An examination of Adience's consolidated U.S. income tax
returns for 1988 through 1990 is currently underway. Any resulting adjustments
for those years will impact Adience's net operating loss carryforwards.
F-30
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA, UNLESS OTHERWISE NOTED)
13. EMPLOYEE BENEFITS
EMPLOYEE STOCK OWNERSHIP PLAN
During 1989, Adience established an Employee Stock Ownership Plan ("ESOP")
for most salaried and certain hourly U.S. employees who meet minimum age and
service requirements. To fund the ESOP, Adience borrowed $2.5 million repayable
over five years in equal quarterly payments plus interest. Proceeds of this
borrowing were loaned to the ESOP on the same terms and used by the ESOP, along
with cash contributions from Adience, to purchase 646,875 shares of Adience's
common stock from its principal shareholder during 1989 and 1990. In connection
with the Reorganization, the ESOP shares were reduced by 55% to 291,093 shares.
Effective June 30, 1993 all shares held by the ESOP were allocated to the ESOP
participants' accounts. On July 1, 1993, Adience suspended any future
recognition of expense related to the ESOP. Accordingly, Adience has no
intention at this time to issue more shares of its common stock to the ESOP.
Contributions to the ESOP charged to expense for the the year ended 1992 and six
months ended June 30, 1993 amounted to $625 and $355, respectively.
OTHER EMPLOYEE BENEFIT PLANS
During 1992, Adience initiated a 401(k) Savings Plan. This plan covers
substantially all non-bargaining employees, including those employed by IDT, who
meet minimum age and service requirements. Adience matches employee
contributions of up to 8 percent of compensation at a rate of 25 percent. In
addition, effective January 1, 1994, Adience declared a discretionary
contribution equal to 3 percent of employees' salaries. Amounts charged against
income totaled $93 for the year ended December 31, 1992, $63 for the six months
ended June 30, 1993, $58 for the six months ended December 31, 1993 and $415 for
the year ended December 31, 1994.
Adience and subsidiaries maintain various defined benefit pension plans
covering substantially all hourly employees. The plans provide pension benefits
based on the employee's years of service or the average salary for a specific
number of years of service. Adience's funding policy is to make annual
contributions to the extent deductible for federal income tax purposes.
Plan assets and projected benefit obligations for service to date for
Adience's defined benefit pension plans aggregated approximately $6,811 and
$5,900, respectively, at December 31, 1994. The comparable amounts at December
31, 1993 were $6,786 (assets) and $5,785 (obligations). The components of net
periodic pension cost for the year ended December 31, 1992, the six months ended
June 30 and December 31, 1993 and the year ended December 31, 1994 are not
material to the consolidated financial statements. Plan assets are invested in
cash, short-term investments, equities, and fixed income instruments. The
actuarial present value of the projected benefit obligation at December 31, 1993
and 1994 was determined using a weighted average discount rate of 7.5%. The
expected long-term rate of return on plan assets was 7.5% at December 31, 1993
and 1994.
Certain union employees of Adience and subsidiaries are covered by
multi-employer defined benefit retirement plans. Expense relating to these plans
amounted to $782, $474, $619 and $1,138 for the year ended December 31, 1992,
the six months ended June 30, 1993 and December 31, 1993 and the year ended
December 31, 1994, respectively.
In December 1990, the Financial Accounting Standards Board issued SFAS No.
106 "Employers' Accounting for Postretirement Benefits Other Than Pensions"
(SFAS No. 106), that requires that the projected future cost of providing
postretirement benefits, such as health care and life insurance, be recognized
as an expense as employees render service instead of when the benefits are paid.
Adience currently provides only life insurance benefits to certain of its hourly
and salaried employees on a fully insured basis. Adoption of SFAS No. 106 did
not have a material impact on Adience's consolidated financial
F-31
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA, UNLESS OTHERWISE NOTED)
13. EMPLOYEE BENEFITS (CONTINUED)
statements. In November 1992, the Financial Accounting Standards Board issued
new rules that require that the projected future cost of providing
postemployment benefits be recognized as an expense as employees render service
instead of when the benefits are paid. Adience believes its accrual for
postemployment benefits (workers' compensation) is adequate.
14. STOCK PLANS
On May 24, 1994, the Board of Directors of Adience adopted the 1994 Stock
Option Plan ("Stock Option Plan") and 1994 Directors Stock Grant Plan ("Stock
Grant Plan"). Under the Stock Option Plan, 1,250,000 shares have been reserved
for issuance upon the exercise of stock options, which may be granted to
employees by the Compensation Committee of the Company's Board of Directors.
Under the Stock Option Plan, options generally become exercisable six months
following the date of grant or over a period determined by the Board of
Directors and expire ten years from the date of grant. The Stock Option Plan
provides for the option price to be paid in cash, shares of Adience's common
stock owned by the option holder, or a combination of such shares and cash. As
of December 31, 1994, 225,000 options have been granted under the Stock Option
Plan. Each option granted entitles the holder to acquire one share of Adience
common stock at an exercise price not to be less that the fair market value of
the underlying shares on the date of grant. There is currently no public market
for the common stock.
The Stock Grant Plan provides that up to 300,000 shares of common stock may
be granted to the members of the Board of Directors, at no cost to the
directors. The Stock Grant Plan authorized the automatic grant of 10,000 shares
of common stock to each director on June 13, 1994, and 10,000 shares of common
stock to each director on the date of each of the next two successive annual
meetings of shareholders of Adience provided the director is then re-elected to
the board, up to an aggregate of not more than 30,000 shares for each director.
These grants have been made in lieu of a cash retainer which would have been
paid to each director.
The aggregate fair market value of the shares granted under the Stock Grant
Plan is considered unearned compensation at the time of grant and compensation
is earned ratably over the year. Adience recognized $75 in expense for the year
ended December 31, 1994.
15. COMMITMENTS AND CONTINGENCIES
At December 31, 1994, Adience had $200 in irrevocable standby letters of
credit outstanding, not reflected in the accompanying consolidated financial
statements, as guarantees in force for various insurance policies, performance
and bid bonds. These instruments are usually for a period of one year or the
duration of the contract. The letters of credit reduce Adience's availability
under the Congress credit facility.
In February 1992, IDT was cited by the Ohio Environmental Protection Agency
(the "Ohio EPA") for violations of Ohio's hazardous waste regulations, including
speculative accumulation of waste (holding waste on-site beyond the legal limit)
and illegal disposal of hazardous waste on the site of its Alliance, Ohio
manufacturing facility. IDT had $783 accrued at December 31, 1993 for the clean
up of this site. This amount is included under the caption "Net assets of
discontinued operations" in the accompanying balance sheet.
In December 1993, IDT and Adience signed a consent order with the Ohio EPA
and Ohio Attorney General which required IDT and Adience to pay to the State of
Ohio a civil penalty of $200 (of which IDT paid $175 and Adience paid $25) and
to remediate the site in accordance with specified cleanup goals. In addition,
the consent order requires the payment of stipulated penalties of up to $1 per
day for failure to satisfy certain requirements of the consent order including
milestones in the closure plan. In October 1994, IDT and Adience filed a
proposed amendment to the consent order which would allow IDT and Adience to
establish risk-based cleanup goals, an approach which has been approved by the
Ohio EPA for other
F-32
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA, UNLESS OTHERWISE NOTED)
15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
contaminated sites. If the Ohio EPA approves this proposed amendment, use of
this approach is expected to reduce the extent and cost of remediation required
at this site. The Ohio EPA has not yet responded to this proposed amendment. At
December 31, 1994, environmental accruals amounted to $750, which represents
management's reasonable estimate of the amounts remaining to be incurred in this
matter, including the costs of effecting the closure plan, bonding and insurance
costs, penalties and legal and consultants' fees. This amount is included under
the caption "Net assets of discontinued operations" in the accompanying balance
sheet. Since 1991, Adience and IDT have together paid $693 (excluding the civil
penalty) for the environmental clean-up related to the Alliance facility. If the
Ohio EPA does not accept the proposed amendment to the consent order, the cost
of the remediation may exceed the amounts currently accrued.
Under the acquisition agreement pursuant to which IDT acquired the property
from Adience in 1990, Adience represented and warranted that, except as
otherwise disclosed to IDT, no hazardous material has been stored or disposed of
on the property. No disclosure of storage or disposal of hazardous material on
the site was made. Accordingly, Adience is required to indemnify IDT for any
losses in excess of $250. IDT has notified Adience that it is claiming the right
to indemnification for all costs in excess of $250 incurred by IDT in this
matter and has received assurance that Adience will honor such claim. Since
1991, Adience has reimbursed IDT $643; if Adience is financially unable to honor
its remaining obligation, such costs would be borne by IDT.
Adience is also engaged in various other legal actions arising in the
ordinary course of business. Management believes, after discussions with
internal and external counsel, that the ultimate outcome of the proceedings will
not have a material adverse effect on Adience's consolidated financial position.
F-33
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA, UNLESS OTHERWISE NOTED)
16. QUARTERLY DATA AND FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
The following table sets forth selected highlights for each of the fiscal
quarters during the year ended December 31, 1994 and the six months ended June
30 and December 31, 1993:
<TABLE>
<CAPTION>
PRE-EMERGENCE POST-EMERGENCE
---------------------- --------------------------
QUARTER ENDED 1993 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- --------------------------------------------------------------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Net revenues................................................... $ 21,881 $ 22,550 $ 25,327 $ 29,245
Cost of revenues............................................... 17,323 18,605 21,562 26,217
Operating loss................................................. (84) (1,923) (959) (10,561)
(Loss) income before extraordinary item........................ (1,930) 17,782 (2,265) (12,102)
Net (loss) income.............................................. (1,930) 35,262 (2,265) (12,102)
Loss per common share before extraordinary item................ * * $ (0.23) $ (1.21)
Net loss per common share...................................... * * $ (0.23) $ (1.21)
Average common shares outstanding.............................. * * 10,000 10,000
</TABLE>
<TABLE>
<CAPTION>
POST-EMERGENCE
--------------------------------------------------
QUARTER ENDED 1994 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- --------------------------------------------------------------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Net revenues................................................... $ 22,126 $ 23,287 $ 27,796 $ 23,064
Cost of revenues............................................... 19,255 19,523 22,777 22,913
Operating (loss) profit........................................ (1,867) (1,186) 647 (5,022)
Loss before extraordinary item................................. (3,885) (2,795) (1,225) (12,870)
Net loss....................................................... (3,885) (2,795) (1,225) (12,870)
Net loss per common share...................................... $ (0.39) $ (0.28) $ (0.12) $ (1.28)
Average common shares outstanding.............................. 10,000 10,019 10,100 10,100
* Earnings per common share are not meaningful prior to June 30, 1993 due to the reorganization -- see Note 1.
</TABLE>
Fourth quarter results for 1994 include a non-cash charge of $2.8 million
related to asset write-downs at Adience. Certain assets of Adience were
evaluated for disposition, and the net book value of these assets was adjusted
to estimated fair market value. The impact of these asset write-downs on fourth
quarter results was $0.28 per common share. These write-downs resulted from
Adience's business improvement program which includes selling non strategic
assets and reassessing the net realizable value of certain inventory product
lines in light of the current economic environment and the related impact on
estimated revenue levels for those product lines.
Additionally, fourth quarter results were reduced by a non-cash charge of
$3.3 million to write-down the investment in IDT to estimated fair market value.
The impact of the write-down on the net loss per common share was $0.33. See
Note 9 to Consolidated Financial Statements for further detail.
Losses from discontinued operations totaled $2.7 million for the fourth
quarter ending December 31, 1994 or $0.27 per common share.
Net loss per common share for the fourth quarter of 1993 included a special
charge of $8 million for write-down of Adience's reorganization value in excess
of amounts allocable to identifiable assets and a $314 loss on the sale of two
divisions. Excluding these adjustments, net loss per common share for the fourth
quarter was $(0.38).
F-34
