<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-10555
------------------------
POLYVISION CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 13-3482597
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4862 36TH STREET
LONG ISLAND CITY, NEW YORK 11101
(Address of principal executive offices) (Zip Code)
(718) 729-1050
(Registrant's telephone number, including area code)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
The number of shares outstanding of the registrant's Common Stock, par value
$.001 per share, as of December 14, 1998, was 14,092,750.
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the requirements of Form 10-Q and, therefore,
do not include all information and footnotes required by generally accepted
accounting principles. However, in the opinion of management, all adjustments
(which, except as disclosed elsewhere herein, consist only of normal recurring
accruals) necessary for a fair presentation of the results of operations for the
relevant periods have been made. Results for the interim periods are not
necessarily indicative of the results to be expected for the year. These
financial statements should be read in conjunction with the summary of
significant accounting policies and the notes to the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the year
ended April 30, 1998.
2
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1998 1998
----------- ----------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.............................................................. $ 165 $ 291
Accounts receivable, (less allowance for doubtful accounts of: October 1998, $843;
April 1998, $795).................................................................... 8,403 7,267
Inventories............................................................................ 4,911 4,519
Costs and estimated earnings in excess of billings on uncompleted contracts............ 1,390 719
Other current assets................................................................... 531 453
----------- ----------
Total current assets................................................................. 15,400 13,249
Property, plant and equipment, net....................................................... 1,535 1,513
Goodwill, (less accumulated amortization: October 1998, $1,612; April 1998, $1,540)...... 3,620 3,692
Other assets............................................................................. 11 10
----------- ----------
Total assets......................................................................... $ 20,566 $ 18,464
----------- ----------
----------- ----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term borrowings.................................................................. $ 3,736 $ 2,965
Current maturities of long-term debt................................................... 302 240
Accounts payable....................................................................... 2,286 2,499
Accrued expenses....................................................................... 1,819 2,014
Billings in excess of costs and estimated earnings on uncompleted contracts............ 325 379
----------- ----------
Total current liabilities............................................................ 8,468 8,097
Long-term debt, less current maturities.................................................. 102 160
Indebtedness to The Alpine Group, Inc.................................................... 13,026 12,560
Other long-term liabilities.............................................................. 368 1,122
----------- ----------
Total liabilities.................................................................... 21,964 21,939
----------- ----------
Commitment and contingencies
Stockholders' deficit:
Series A Preferred stock, at liquidation value......................................... 25,731 25,731
Common stock, $.001 par value; authorized 25,000,000 shares, issued and outstanding
8,608,095 shares..................................................................... 9 9
Capital in excess of par value......................................................... 38,679 38,668
Accumulated deficit.................................................................... (65,817) (67,883)
----------- ----------
Total stockholders' deficit.......................................................... (1,398) (3,475)
----------- ----------
Total liabilities and stockholders' deficit........................................ $ 20,566 $ 18,464
----------- ----------
----------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
3
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
OCTOBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Net sales.................................................................................... $ 10,929 $ 9,540
Cost of goods sold........................................................................... 7,701 6,828
--------- ---------
Gross profit............................................................................... 3,228 2,712
Selling, general and administrative expenses................................................. 2,218 1,976
--------- ---------
Operating profit........................................................................... 1,010 736
Interest (expense)........................................................................... (234) (211)
Other income (expense), net.................................................................. (67) 318
--------- ---------
Income before income taxes................................................................. 709 843
Provision for income taxes................................................................... -- --
--------- ---------
Net income................................................................................. 709 843
Preferred stock dividends.................................................................... -- 515
--------- ---------
Net income applicable to common stock...................................................... $ 709 $ 328
--------- ---------
--------- ---------
Net income per share of common stock:
Basic...................................................................................... $ 0.08 $ 0.04
--------- ---------
--------- ---------
Diluted.................................................................................... $ 0.08 $ 0.04
--------- ---------
--------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
OCTOBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Net sales................................................................................... $ 21,950 $ 18,039
Cost of goods sold.......................................................................... 15,444 12,710
--------- ---------
Gross profit.............................................................................. 6,506 5,329
Selling, general and administrative expenses................................................ 4,341 3,936
--------- ---------
Operating profit (loss)................................................................... 2,165 1,393
Interest (expense).......................................................................... (450) (362)
Other income (expenses), net................................................................ (85) 309
--------- ---------
Income before income taxes and extraordinary gain......................................... 1,630 1,340
Provision for income taxes.................................................................. -- --
--------- ---------
Income before extraordinary gain.......................................................... 1,630 1,340
Extraordinary gain on early extinguishment of debt.......................................... 436 --
--------- ---------
Net income................................................................................ 2,066 1,340
Preferred stock dividends................................................................... -- 1,029
--------- ---------
Net income applicable to common stock..................................................... $ 2,066 $ 311
--------- ---------
--------- ---------
Net income per share of common stock:
Basic:
Income before extraordinary gain........................................................ $ 0.19 $ 0.04
Extraordinary gain on early extinguishment of debt...................................... 0.05 --
--------- ---------
Net income per basic share of common stock............................................ $ 0.24 $ 0.04
--------- ---------
--------- ---------
Diluted:
Income before extraordinary gain........................................................ $ 0.19 $ 0.04
Extraordinary gain on early extinguishment of debt...................................... 0.05 --
--------- ---------
Net income per diluted share of common stock.......................................... $ 0.24 $ 0.04
--------- ---------
--------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
5
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
OCTOBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income................................................................................ $ 2,066 $ 1,340
Non-cash items included in net income:
Depreciation and amortization............................................................. 218 161
Compensation expense for stock grants..................................................... 9 47
Deferred interest......................................................................... 275 (229)
Gain on extinguishment of debt............................................................ (436) --
Changes in operating assets and liabilities:
Accounts receivable..................................................................... (1,136) (991)
Inventory............................................................................... (392) (193)
Other current assets.................................................................... (79) (276)
Costs and estimated earnings in excess of billings on uncompleted contracts............. (671) (1,531)
Accounts payable and accrued liabilities................................................ (408) (42)
Billings in excess of costs and estimated earnings on uncompleted contracts............. (54) 71
--------- ---------
Cash used for operating activities........................................................ (608) (1,643)
--------- ---------
Cash flows from investing activities
Purchases of property, plant and equipment................................................ (168) (368)
--------- ---------
Cash used for investing activities........................................................ (168) (368)
--------- ---------
Cash flows from financing activities
Short-term borrowings..................................................................... 771 1,701
Repayments of long-term borrowings........................................................ (121) (416)
Borrowings on Alpine promissory note...................................................... -- 549
--------- ---------
Cash provided by financing activities..................................................... 650 1,834
--------- ---------
Net decrease in cash and cash equivalents................................................... (126) (177)
Cash and cash equivalents at beginning of period.......................................... 291 415
--------- ---------
Cash and cash equivalents at end of period................................................ $ 165 $ 238
--------- ---------
--------- ---------
Supplemental disclosures:
Cash paid for interest.................................................................... $ 178 $ 175
--------- ---------
--------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
6
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 31, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of PolyVision Corporation and its wholly-owned subsidiaries
("PolyVision" or the "Company"). Certain reclassifications have been made to the
prior period presentation to conform to the current period.
2. EARNINGS PER SHARE
The computation of basic and diluted earnings per share for the three and
six months ended October 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED OCTOBER 31, 1998 ENDED OCTOBER 31, 1998
----------------------------------- -------------------------------------
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
---------- ---------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share before extraordinary
gain.......................................... $ 709,000 8,584,929 $ 0.08 $ 1,630,000 8,573,345 $ 0.19
----- -----
----- -----
Dilutive impact of stock options and grants..... -- 143,401 -- 211,201
---------- ---------- ------------ ----------
Diluted earnings per share before extraordinary
gain.......................................... $ 709,000 8,728,330 $ 0.08 $ 1,630,000 8,784,546 $ 0.19
---------- ---------- ----- ------------ ---------- -----
---------- ---------- ----- ------------ ---------- -----
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED OCTOBER 31, 1997 ENDED OCTOBER 31, 1997
------------------------------------ --------------------------------------
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
----------- ---------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net income.................................... $ 843,000 $ 1,340,000
Less: Preferred stock dividends............... (515,000) (1,029,000)
----------- -------------
Basic earnings per share...................... 328,000 8,540,762 $ 0.04 311,000 8,540,762 $ 0.04
---------- ----- ---------- -----
---------- ----- ---------- -----
Dilutive impact of stock options and grants... -- -- -- --
----------- ---------- ------------- ----------
Diluted earnings per share.................... $ 328,000 8,540,762 $ 0.04 $ 311,000 8,540,762 $ 0.04
----------- ---------- ----- ------------- ---------- -----
----------- ---------- ----- ------------- ---------- -----
</TABLE>
7
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 31, 1998
3. INVENTORIES
At October 31, 1998 and April 30, 1998, the components of inventories were
as follows:
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1998 1998
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
Raw materials.......................................................... $ 4,215 $ 3,814
Work in process........................................................ 447 395
Finished goods......................................................... 249 310
----------- -----------
$ 4,911 $ 4,519
----------- -----------
----------- -----------
</TABLE>
4. CONTRACTS IN PROGRESS
The status of contract costs on uncompleted construction contracts were as
follows:
<TABLE>
<CAPTION>
BILLINGS IN
COSTS AND EXCESS
ESTIMATED OF COSTS AND
EARNINGS IN ESTIMATED
EXCESS OF BILLINGS EARNINGS NET
------------------ ---------------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
October 31, 1998:
Costs and estimated earnings................................... $ 5,410 $ 3,450 $ 8,860
Billings....................................................... (4,020) (3,775) (7,795)
------- ------- ---------
$ 1,390 $ (325) $ 1,065
------- ------- ---------
------- ------- ---------
April 30, 1998:
Costs and estimated earnings................................... $ 4,400 $ 4,015 $ 8,415
Billings....................................................... (3,681) (4,394) (8,075)
------- ------- ---------
$ 719 $ (379) $ 340
------- ------- ---------
------- ------- ---------
</TABLE>
Accounts receivable at October 31, 1998 and April 30, 1998 include amounts
billed but not yet paid by customers under retainage provisions of $1.2 million
and $1.0 million, respectively. Such amounts are generally due within one year.
5. EXTRAORDINARY ITEM
On June 9, 1998, the Company entered into an agreement with Connecticut
Innovations Inc. ("CII") pursuant to which, in exchange for 9,509 shares of The
Alpine Group, Inc. ("Alpine") common stock (which the Company acquired from
Alpine and funded by an increase in indebtedness to Alpine) and a $0.1 million
promissory note, CII terminated a Development Agreement originally entered into
to finance product development costs at a Company subsidiary (since
discontinued). As a result of this agreement, the Company recorded an
extraordinary gain of $0.4 million during the six months ended October 31, 1998.
8
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 31, 1998
6. SUBSEQUENT EVENT
On November 20, 1998, the Company announced that it had completed the
acquisition of all of the outstanding common stock of Alliance International
Group, Inc. ("Alliance") for approximately $75 million, consisting of $67.0
million in cash and assumed debt and an $8.0 million 10% convertible
subordinated promissory note due 2007. The acquisition was funded through $85
million in senior debt facilities (consisting of a $60 million senior secured
debt facility and a $25 million senior subordinated debt facility) and the
purchase by Alpine of $5 million of the Company's 9% Series C Convertible
Preferred Stock. Proceeds of the debt facilities and preferred stock issuance
were utilized to (i) finance the acquisition, (ii) repay certain Alliance
indebtedness, (iii) repay existing outstanding bank debt of the Company, and
(iv) pay related transaction expenses.
Alliance manufactures ceramic-coated steel for writing surfaces and also
produces proprietary projection screen surfaces and various building components
using ceramic steel. The acquisition will be accounted for using the purchase
method. The purchase price will be allocated based upon the estimated fair value
of assets and liabilities at the date of acquisition. The excess of the purchase
price over the net assets acquired is being amortized on a straight-line basis
over 30 years.
Prior to the Alliance acquisition, the Company reached an agreement with
Alpine, its largest shareholder, pursuant to which Alpine exchanged $25.2
million Series A Preferred Stock and associated accrued dividends and
indebtedness of approximately $7.5 million for approximately 5.2 million shares
of the Company's common stock and approximately $12.5 million of 9% Series B
Convertible Preferred Stock. As a result, Alpine owns approximately 48% of the
Company's current outstanding shares of common stock, including 17% of such
shares previously owned.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company, though its subsidiaries, Greensteel, Inc. ("Greensteel") and
Posterloid Corporation ("Posterloid"), operates in two industry segments.
Greensteel manufactures and sells custom-designed and engineered writing,
projection and other visual display surfaces (such as porcelain chalkboards and
markerboards), custom cabinets, and workstation and conference center casework
to schools, health care facilities, offices and other institutions throughout
North America. Posterloid manufactures and sells indoor and outdoor menuboard
display systems to the fast food and convenience store industries and changeable
magnetic display signs used primarily by banks to display interest rates,
currency exchange rates and other information.
RESULTS OF OPERATIONS
The following table provides financial information about each business
segment for the three and six months ended October 31, 1998 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31 OCTOBER 31
-------------------- --------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
--------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales:
Greensteel........................................................ $ 9,228 $ 7,933 $ 18,487 $ 15,027
Posterloid........................................................ 1,701 1,607 3,463 3,012
--------- --------- --------- ---------
Consolidated.................................................... 10,929 9,540 21,950 18,039
Gross profit:
Greensteel........................................................ $ 2,580 $ 2,108 $ 5,179 $ 4,193
Posterloid........................................................ 648 604 1,327 1,136
--------- --------- --------- ---------
Consolidated.................................................... 3,228 2,712 6,506 5,329
Gross profit percentage:
Greensteel........................................................ 28.0% 26.6% 28.0% 27.9%
Posterloid........................................................ 38.1% 37.6% 38.3% 37.7%
Consolidated.................................................... 29.5% 28.4% 29.6% 29.5%
Selling, general and administrative expenses:
Greensteel........................................................ $ 1,713 $ 1,535 $ 3,346 $ 3,089
Posterloid........................................................ 505 441 995 847
--------- --------- --------- ---------
Consolidated.................................................... 2,218 1,976 4,341 3,936
Operating profit:
Greensteel........................................................ $ 867 $ 573 $ 1,833 $ 1,104
Posterloid........................................................ 143 163 332 289
--------- --------- --------- ---------
Consolidated.................................................... 1,010 736 2,165 1,393
Bookings:
Greensteel........................................................ $ 9,879 $ 8,926 $ 21,296 $ 16,408
Posterloid........................................................ 1,623 1,722 3,423 3,137
--------- --------- --------- ---------
Consolidated.................................................... 11,502 10,648 24,719 19,545
Backlog:
Greensteel........................................................ $ 19,114 $ 13,255
Posterloid........................................................ 728 698
--------- ---------
Consolidated.................................................... 19,842 13,953
</TABLE>
10
<PAGE>
THREE AND SIX MONTHS ENDED OCTOBER 31, 1998, COMPARED WITH THREE AND SIX MONTHS
ENDED OCTOBER 31, 1997
The Company's net sales for the three months ended October 31, 1998
increased 14.6% to $10.9 million, as compared to net sales of $9.5 million for
the three months ended October 31,1997. For the six months ended October 31,
1998, net sales increased 21.7% to $22.0 million, as compared to net sales of
$18.0 million for the six months ended October 31, 1997.
Greensteel's net sales increased 16.3% to $9.2 million and 23.0% to $18.5
million, respectively, for the three and six months ended October 31, 1998, as
compared to $7.9 million and $15.0 million, respectively for the three and six
months ended October 31, 1997. The increase was due primarily to continuing
strong demand in the educational visual display market combined with the
Company's price competitive position and improving customer support. Total
second quarter fiscal 1998 bookings for Greensteel were $9.9 million, as
compared to $8.9 million for the same period in fiscal 1997, an increase of 1.0
million, or 10.7%. The Company ended the quarter with a backlog of $19.1
million, representing an increase of 44.2% compared to the end of the October
1997 quarter.
Posterloid's net sales for the three and six months ended October 31, 1998
were $1.7 million and $3.5 million, respectively, as compared to $1.6 million
and $3.0 million, respectively, for the three and six months ended October 31,
1997, an increase of 5.8% and 15.0%, respectively. Posterloid's bookings for the
three months ended October 1998 were $1.6 million, a decrease of 5.7%, as
compared to the three months ended October 1997. Posterloid's bookings for the
six months ended October 31, 1998 were $3.4 million, an increase of 9.1% as
compared to the six months ended October 31, 1997. Posterloid's backlog at
October 31, 1998 was consistent with that at October 31, 1997.
The Company's gross profit for the three months ended October 31, 1998
increased 19.0% to $3.2 million, as compared to $2.7 million for the three
months ended October 31, 1997. For the six months ended October 31, 1998, gross
profit increased 22.1% to $6.5 million, as compared to $5.3 million for the six
months ended October 31, 1997. The Company's gross profit percentage increased
to 29.5% and 29.6%, respectively, for the three and six months ended October 31,
1998, as compared to 28.4% and 29.5%, respectively, for the three and six months
ended October 31, 1997.
The gross profit at Greensteel increased 22.4% to $2.6 million for the three
months ended October 31, 1998, as compared to $2.1 million for the three months
ended October 31, 1997. For the six months ended October 31, 1998, Greensteel's
gross profit increased 23.5% to $5.2 million, as compared to $4.2 million for
the six months ended October 31, 1997. Greensteel's gross profit percentage
increased to 28% for the three months and six month periods ended October 31,
1998 as compared to 26.6% and 27.9%, respectively, for the three months and six
month periods ended October 31, 1997. The increase in Greensteel's gross profit
margin is primarily attributable to manufacturing cost reductions resulting from
profit improvement initiatives, improved cost absorption resulting from
increased production volumes and product mix.
The gross profit at Posterloid increased by 7.3% to $0.6 million for the
three months ended October 31, 1998, as compared to $0.6 million for the three
months ended October 31, 1997. For the six months ended October 31, 1998,
Posterloid's gross profit increased 16.8% to $1.3 million, as compared to $1.1
million for the six months ended October 31, 1997. Posterloid's gross profit
percentage increased to 38.1% and 38.3%, respectively, for the three and six
months ended October 31, 1998 as compared to 37.6% and 37.7% for the three and
six months ended October 31, 1997.
Selling, general and administrative expenses for the three months ended
October 31, 1998 were $2.2 million, as compared to $2.0 million for the three
months ended October 31, 1997. For the six months ended October 31, 1998,
selling, general and administrative expenses were $4.3 million, as compared to
$3.9 million for the six months ended October 31, 1997. Most of this increase
was due to additional selling expenses associated with an increase in
commissions paid.
11
<PAGE>
On June 9, 1998, the Company entered into an agreement with Connecticut
Innovations Inc., pursuant to which a Development Agreement, originally entered
into to finance product development costs at a Company subsidiary, was
terminated. As a result of this agreement, the Company recorded an extraordinary
gain of $0.4 million during the six months ended October 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended October 31, 1998, the Company used $0.6 million
in cash to support operating activities, consisting of $2.1 million in cash
flows generated from operations (net income plus non-cash charges) reduced by
$2.7 million in cash flows used for net working capital changes. Working capital
changes included seasonal increases in accounts receivable of $1.1 million,
inventories of $0.4 million, and costs in excess of billings of $0.1 million,
and decrease in accounts payable and accrued expenses of $0.4 million. Cash
provided by financing consisted of an increase of $0.8 million in the revolving
line of credit.
At October 31, 1998, the Company had outstanding debt of $17.2 million which
consisted principally of $13.0 million in debt due to Alpine and $3.7 million
due under the Company's existing revolving credit facility. On November 20,
1998, the Company, in conjunction with the acquisition of Alliance (see Note 6
to the accompanying consolidated financial statements), entered into a $60
million senior credit agreement ("Credit Agreement") and a $25 million 12.5%
senior subordinated credit agreement ("Senior Notes"). Concurrent with the
financing, Alpine purchased $5 million of 9% Series C Convertible Preferred
Stock of the Company.
The Credit Agreement consists of a $25 million term loan A, a $20 million
term loan B and a $15 million revolving credit facility. Proceeds from the
financing were used to (i) pay $33 million, representing the cash portion of the
acquisition price, (ii) refinance approximately $34 million of Alliance's
existing credit facilities, (iii) refinance approximately $4 million under
PolyVision's existing credit facility and (iv) pay related transaction expenses.
The Company expects to have approximately $12 million in undrawn availability
under its revolving credit facility. Obligations under the Credit Agreement and
Senior Notes are secured by substantially all of the assets of the Company and
by the common stock of each of the Company's domestic and foreign subsidiaries.
The Credit Agreement and Senior Notes contain customary performance and
financial covenants.
In November, the Company reached an agreement with Alpine, pursuant to which
Alpine exchanged $25.2 million Series A Preferred Stock and associated accrued
dividends and indebtedness of approximately $7.5 million for approximately 5.2
million shares of the Company's common stock and approximately $12.5 million of
9% Series B Convertible Preferred Stock.
Following the completion of the acquisition and related refinancing, the
Company expects to have total outstanding debt of approximately $85 million.
Over the next 12 months, the Company has debt service commitments and
anticipated capital expenditures of approximately $9-$10 million. Management
anticipates that the Company will generate sufficient cash flows from operating
activities to meet its annual commitments, however, should any shortfall arise
due to working capital fluctuations and other factors, cash and funds
availability under the revolving credit facility should be sufficient to cover
such shortfalls.
YEAR 2000
During fiscal 1998 and 1997, the Company established project teams
responsible for identifying and resolving Year 2000 issues. These efforts
include identification and review of internal operating systems and
applications, and customer projects and services, as well as discussions with
information providers and other key suppliers to the business. Remediation costs
for problems identified thus far are not expected to be material to the
Company's consolidated financial position, liquidity or results of operations.
The Company has established a timetable for resolving Year 2000 issues so as not
to interrupt ongoing operations.
12
<PAGE>
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. These forward-looking
statements are based largely on the Company's expectations and are subject to a
number of risks and uncertainties, certain of which are beyond the Company's
control. Actual results could differ materially from these forward-looking
statements as a result of, among other factors, risks related to the Company's
history of operating losses and accumulated deficit; future capital
requirements; competition, technological advances and seasonality; environmental
matters; dependence on the construction market generally; and other risks. In
light of these risks and uncertainties, there can be no assurance that the
forward-looking information contained in this report will in fact occur.
13
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule.
(b) Reports on Form 8-K
None.
14
<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 thereunto duly authorized.
<TABLE>
<S> <C>
POLYVISION CORPORATION
Date: December 15, 1998 By: /s/ JOSEPH A. MENNITI
----------------------------------------------
Joseph A. Menniti
CHIEF EXECUTIVE OFFICER
(AND PRINCIPAL FINANCIAL OFFICER)
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> OCT-31-1998
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0
25,731
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