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 March 31, 1999
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 number 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.)
48-62 36th Street
Long Island City, New York 11101
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (718) 433-2170
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
the 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 May 7, 1999 was 14,117,891 shares.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share amounts)
(Unaudited) (Audited)
March 31, December 31,
1999 1998
ASSETS
CURRENT ASSETS:
Cash $ 4,010 $ 4,841
Accounts receivable, net of allowance for
doubtful accounts of $2,446 and $2,519 17,598 17,883
Inventories 14,252 13,084
Costs and estimated earnings in excess of
billings on uncompleted contracts 894 838
Prepaid expenses and other current assets 1,627 1,532
Deferred taxes 942 942
Total current assets 39,323 39,120
Property, plant and equipment, net 17,273 17,768
Goodwill, net 61,366 61,402
Deferred financing costs, net 3,527 3,661
Other assets 265 257
TOTAL ASSETS $121,754 $122,208
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 186 $ 235
Current maturities of long-term debt 794 363
Accounts payable 9,685 7,223
Accrued expenses 10,930 12,283
Billings in excess of costs and estimated
earnings on uncompleted contracts 445 503
Total current liabilities 22,040 20,607
Long-term debt, less current maturities 72,115 74,511
Deferred taxes 5,301 5,418
Accrued dividends 580 178
Excess of assets over purchase price
of acquisition 254 256
Other noncurrent liabilities 259 317
TOTAL LIABILITIES $100,549 $101,287
SHAREHOLDERS' EQUITY:
Series B Preferred Stock, $.01 par value,
at $50 per share liquidation value;
300,000 shares authorized; 256,951 shares
issued and outstanding at March 31, 1999
and December 31, 1998 $ 12,848 $ 12,848
Series C Preferred Stock, $.01 par value,
at $50 per share liquidation value;
150,000 shares authorized; 100,000 shares
issued and outstanding at March 31, 1999
and December 31, 1998 5,000 5,000
Common Stock, $.001 par value, 25,000,000
shares authorized; 14,117,891 and
14,092,750, shares issued and outstanding
at March 31, 1999 and December 31, 1998,
respectively 14 14
Additional paid-in capital 70,777 70,750
Retained deficit (68,768) (67,783)
Cumulative foreign currency
translation adjustment 1,334 92
Total shareholders' equity 21,205 20,921
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $121,754 $122,208
The accompanying notes are an integral part of these consolidated
financial statements.
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(amounts in thousands, except per share amounts)
(Unaudited)
Three months ended
March 31,
1999 1998
NET SALES $22,288 $8,368
COST OF GOODS SOLD 15,065 5,813
GROSS PROFIT 7,223 2,555
Selling, general and administrative 4,974 2,266
Research and development 193 -
Amortization of goodwill 423 36
INCOME FROM OPERATIONS 1,633 253
Interest expense, net (2,122) (237)
Other income, net 106 31
INCOME (LOSS) BEFORE INCOME TAXES (383) 47
INCOME TAXES 200 -
NET INCOME (LOSS) (583) 47
PREFERRED STOCK DIVIDENDS (402) (172)
NET LOSS APPLICABLE
TO COMMON SHAREHOLDERS $ (985) $ (125)
Net income (loss) per share of common stock:
Basic and Diluted
Income (loss) before preferred stock dividends (0.04) 0.01
Preferred stock dividends (0.03) (0.02)
Net loss per basic and diluted share
of common stock $(0.07) $(0.01)
Average common shares outstanding
Basic and Diluted 14,117 8,562
The accompanying notes are an integral part of these consolidated
financial statements.
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(Unaudited)
Three months ended
March 31,
1999 1998
Cash flows from operating activities:
Net income (loss) $ (583) $ 47
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Depreciation and amortization 1,141 108
Amortization of deferred financing costs
and accretion of debt discount 494 -
Compensation expense for stock grants 2 (12)
Deferred income tax benefit (117) -
Change in assets and liabilities:
Accounts receivable 285 1,325
Inventories (1,168) (122)
Other current assets (151) (15)
Other assets (8) -
Accounts payable and accrued expenses 1,109 (1,208)
Other liabilities (27) 158
Cash provided by operating activities 977 281
Cash flows from investing activities:
Purchase of fixed assets (568) (38)
Other (206) -
Cash used for investing activities (774) (38)
Cash flows from financing activities:
Net short-term repayments (82) (127)
Repayments of long-term borrowings (668) -
Proceeds from exercise of stock options 25 -
Advances from The Alpine Group, Inc. - 4
Cash used for financing activities (725) (123)
Effect of exchange rate changes on cash (309) -
Increase (decrease) in cash (831) 120
Cash at beginning of period 4,841 283
Cash at end of period $4,010 $ 403
Supplemental disclosures:
Interest paid $ 769 $ 73
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1999
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
However, there has been no material change in the information disclosed
in PolyVision's annual financial statements dated December 31, 1998,
except as disclosed herein. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months
ended March 31, 1999 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999. For further
information, refer to the consolidated financial statements and footnotes
thereto included in PolyVision's Annual Report on Form 10-K for the eight
months ended December 31, 1998.
2. Inventories
The components of inventories are as follows at March 31, 1999 and
December 31, 1998 (in thousands):
March 31, December 31,
1999 1998
Raw materials $7,686 $7,035
Work in process 606 476
Finished goods 5,960 5,573
$14,252 $13,084
3. Contracts in Progress
The status of contract costs on uncompleted construction contracts was
as follows at March 31, 1999 (in thousands):
Costs and Estimated Billings in Excess of
Earnings in Excess of Costs and Estimated
Billings Earnings Total
Costs and estimated
earnings $5,161 $2,509 $7,670
Billings 4,267 2,954 7,221
$ 894 $ (445) $ 449
The status of contract costs on uncompleted construction contracts was as
follows at December 31, 1998 (in thousands):
Costs and Estimated Billings in Excess of
Earnings in Excess of Costs and Estimated
Billings Earnings Total
Costs and estimated
earnings $5,022 $2,473 $7,495
Billings 4,184 2,976 7,160
$ 838 $ (503) $ 335
Accounts receivable at March 31, 1999 and December 31, 1998 included
amounts billed but not yet paid by customers under retainage provisions
of approximately $1,096,000 and $1,122,000, respectively. Such amounts
are generally due within one year.
4. Restructuring Charge
During the eight months ended December 31, 1998, PolyVision recorded a
nonrecurring restructuring charge of $500,000 related to the costs to be
incurred in closing one of PolyVision's manufacturing facilities. The
manufacturing facility closed was operated by PolyVision prior to the
purchase of Alliance International Group, Inc. ("Alliance"), and the
production was moved into an Alliance facility. The plan to close the
facility was in place as of December 31, 1998, and production ceased
February 1999. The activities performed by this facility will continue to
be performed at the Alliance facility. PolyVision does not anticipate
a decline in revenues or operating profit due to the closing of the
facility.
The $500,000 charge recorded in 1998 represented approximately $160,000
of employee severance and other employee termination costs, $100,000 of
unsalable inventory which was disposed, and $240,000 of facility costs,
including utilities, maintenance, insurance, and real estate taxes,
incurred while PolyVision cleaned the facility and attempted to sell it.
Of the 23 employees at the facility, 22 were terminated as a result of
the closing. As of March 31, 1999, $320,000 of these costs were paid
and charged against the liability, including payment of $130,000 of
employee severance costs and disposal of approximately $100,000 of
unsalable inventory during the quarter.
5. Acquisition of Alliance International Group
In November 1998, PolyVision acquired from Wind Point Partners III, L.P.
and certain minority stockholders all of the outstanding common stock of
Alliance for $75.8 million. The acquisition was accounted for using the
purchase method, and accordingly, the results of operations of Alliance
have been included in the consolidated financial statements on a
prospective basis from the date of the acquisition.
Pro Forma Financial Data (Unaudited)
Unaudited pro forma results of operations, which give effect to the Alliance
acquisition as if the purchase occurred on January 1, 1998, are presented
below. The pro forma amounts reflect acquisition-related purchase
accounting adjustments, including adjustments to depreciation and
amortization expense and interest expense on acquisition debt and certain
other adjustments, together with related income tax effects. The pro
forma financial information does not purport to be indicative of either
the results of operations that would have occurred had the acquisition
taken place at the beginning of the periods presented or of future results
of operations.
Three months ended
March 31,
1999 1998
Net sales $22,288 $20,854
Loss from continuing operations
before income taxes (383) (1,606)
Loss from continuing operations (583) (1,605)
Preferred stock dividends (402) (402)
Net loss applicable to common stock $(985) $(2,007)
Net loss per basic and diluted share
of common stock
Loss from continuing operations (0.04) (0.11)
Preferred stock dividends (0.03) (0.03)
Net loss per share of commons stock $(0.07) $(0.14)
6. Comprehensive Income
Total comprehensive income for the three months ended March 31, 1999
and 1998 was as follows(in thousands):
March 31,
1999 1998
Net income (loss) $(583) $ 47
Other comprehensive income:
Foreign currency translation
adjustment 1,242 -
Total comprehensive income $ 659 $ 47
7. Segment Reporting
PolyVision currently conducts business in three industry segments:
visual display surfaces and casework through Greensteel, menuboard
display systems through Posterloid, and ceramicsteel surfaces through
Alliance. Domestic ceramicsteel surfaces are produced through Alliance
America and foreign ceramicsteel surfaces are produced through Alliance
Europe. Included in the column "Other" are corporate expenses.
The majority of goodwill associated with the purchase of Alliance has
been preliminarily allocated to Alliance America. The accounting policies
of the segments are the same as described in the summary of significant
accounting policies included in the footnotes of PolyVision's Annual
Report on Form 10-K for the eight months ended December 31, 1998.
PolyVision evaluates segment performance based on income from operations.
Sales for each segment are based on location of the third-party customer.
All significant intercompany transactions between segments have been
eliminated. PolyVision's selling, general and administrative expenses are
charged to each segment based on the region where the expenses are incurred.
As a result, the components of operating income for one segment may not
be comparable to another segment.
The following provides information about each business segment for
March 31, 1999 and March 31, 1998 (in thousands):
Three months ended March 31, 1999
Greensteel Posterloid Alliance Alliance Other Consol.
America Europe
Net sales $6,733 $1,834 $5,588 $8,133 $ - $22,288
Operating income (loss)
192 197 684 562 (2) 1,633
Depreciation and
amortization 51 58 693 33 - 1,141
Three months ended March 31, 1998
Greensteel Posterloid Other Consolidated
Net sales $6,666 $1,702 $ - $8,368
Operating income (loss)
111 131 11 253
Depreciation and
amortization 55 53 - 108
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table summarizes, for the periods presented, the respective
amounts of Greensteel, Posterloid, and Alliance, PolyVision's primary
industry segments (in thousands, except percentages):
(Unaudited)
Three Months Ended
March 31,
1999 1998
Net sales
Greensteel $6,733 $6,666
Posterloid 1,834 1,702
Alliance 13,721 -
22,288 8,368
Gross profit
Greensteel 1,737 1,919
Posterloid 698 636
Alliance 4,788 -
7,223 2,555
Gross profit margin 32.4% 30.5%
Greensteel 25.8% 28.8%
Posterloid 38.1% 37.4%
Alliance 34.9% -
Selling, general and administrative expenses
Greensteel 1,547 1,808
Posterloid 465 469
Alliance 2,960 -
Corporate 2 (11)
4,974 2,266
Amortization of goodwill
Greensteel (2) -
Posterloid 36 36
Alliance 389 -
423 36
Research and development
Alliance 193 -
Operating income (loss)
Greensteel 192 111
Posterloid 197 131
Alliance 1,246 -
Corporate (2) 11
1,633 253
Net interest expense 2,122 237
Other income (106) (31)
RESULTS OF OPERATIONS
Net sales for the quarter ended March 31, 1999 totaled $22,288,000, an
increase of $13,920,000 over the prior year three month period. Most of
this increase, $13,721,000, was due to the inclusion of the results of
Alliance which was purchased on November 20, 1998. For the three months
ended March 31, 1999, Greensteel's net sales increased $67,000 and
Posterloid's net sales increased $132,000, over the prior year three month
period due to increases in business activity.
Gross profit for the quarter ended March 31, 1999 totaled $7,223,000,
compared to $2,555,000 in the prior year quarter, an increase of
$4,668,000. Alliance contributed $4,788,000 in gross profit during the
current year period. Greensteel's gross profit declined $182,000 during
the three months ended March 31, 1999 from $1,919,000 in the prior year
quarter to $1,737,000 in the current year quarter. This decline is
primarily attributed to product mix. Posterloid's gross profit increased
to $698,000 in the three months ended March 31, 1999 from $636,000 in the
prior year period. Gross profit margin, as a percent of sales revenue,
increased from 30.5% in the prior year period to 32.4% in the current
year period. This increase was principally due to the purchase of
Alliance on November 20, 1998. Due to the nature of its business,
Alliance's gross profit margin is normally higher than Greensteel's gross
profit margin. Posterloid's gross profit margin also increased from
37.4% to 38.1%, due to increased production volume. Greensteel's gross
profit margin declined from 28.8% to 25.8%, for the reason discussed above.
Selling, general and administrative costs, including research and
development, in the three months ended March 31, 1999 were $5,167,000,
an increase of $2,901,000, over the prior year's three month total of
$2,266,000. During the current year period, Alliance incurred $3,153,000
of selling, general and administrative costs in its normal and customary
business activities. Greensteel's costs declined $261,000 in the current
year quarter when compared to the prior year, while Posterloid's costs
remained relatively the same. The cost reductions at Greensteel were
principally due to a decline in professional fees, reduced bad debt
expense and other administrative cost reductions.
Amortization expense increased to $423,000 during the three months ended
March 31, 1999 compared to $36,000 during the prior year period. This
increase of $387,000 is due to the goodwill recorded as a result of the
purchase of Alliance.
Net interest expense in the three month period ended March 31, 1999
increased to $2,122,000 from $237,000 in the prior year period. Most
of the increase is due to the purchase of Alliance.
Income tax expense during the three months ended March 31, 1999 was
$200,000. There was no income tax expense recorded in the prior year
three month period. The current year expense relates principally to
income taxes for the European business income of Alliance.
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")
EBITDA provides additional information relating to PolyVision's ability to
service indebtedness. However, EBITDA should not be considered as an
alternative to net income as a measure of PolyVision's operating results
or to cash flows as a measure of liquidity.
For the quarter ended March 31, 1999, EBITDA was $2,904,000, an increase
of $2,512,000 over EBITDA of $392,000 in the prior year comparable period.
Most of the increase was due to the purchase of Alliance.
LIQUIDITY AND CAPITAL RESOURCES
During the three month period ended March 31, 1999, PolyVision generated
cash from operating activities of $977,000, and repaid $750,000 of bank
debt. Additionally, PolyVision purchased $568,000 of capital equipment
during the period.
PolyVision believes its current cash position and unused credit
facilities, when combined with cash flows generated from current
operations, are adequate to meet PolyVision's current liquidity needs
during the next 12 months. As of March 31, 1999, PolyVision had
approximately $14,000,000 of unused credit facilities.
YEAR 2000 COMPLIANCE
Overview
The year 2000 ("Y2K") problem is the result of computer programs having
been written using two digits (rather than four) to define the applicable
year, thus not properly recognizing dates after December 31, 1999.
During 1998, PolyVision began 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. At this time, based upon the efforts taken to date and those
yet to be taken, PolyVision does not expect any serious disruptions in its
business operations and, therefore, does not anticipate any material
negative effect upon its revenues or earnings as a result of the Y2K issue.
Remediation costs for problems identified thus far are not expected to be
material to PolyVision's consolidated financial position, liquidity or
results of operations. PolyVision has established a timetable for
resolving Year 2000 issues so as not to interrupt ongoing operations.
PolyVision's State of Readiness
The Year 2000 project plan, including assessment, improvement, testing and
implementation has been established. The assessment phase is 80% complete
and should be completed in July 1999 upon receipt of all remaining vendor
and supplier Y2K readiness inquiries.
Assessment of the Year 2000 compliance of third parties with whom
PolyVision has material relationships is in process. PolyVision's material
third party relationships include the following:
(a) Raw material vendors: PolyVision's raw material purchases are through
third party raw material vendors. Most mission critical raw material
vendors have responded to PolyVision's Y2K readiness inquiry;
(b) Equipment vendors: The response to the Y2K readiness inquiries from
equipment vendors, which includes all embedded chip equipment, is 80%
complete;
(c) Service providers: The response to the Y2K readiness inquiries from
third party service providers, which includes utilities, phone service
and all facility related services, is 75% complete; and
(d) Software vendors: PolyVision has upgraded most purchased software to
Y2K compliant version and is in the testing phase.
The responses received, thus far, from PolyVision's third party vendors
and suppliers indicate compliance on or before October 1, 1999.
The preliminary assessment of internal IT and non-IT systems has been
completed. Internal non-complaint items have been identified and
prioritization of internal non-compliant items is in process. A system
for tracking remediation has been established and non-compliant items
identified are expected to be completed in June 1999. Based on the
findings of the planning and assessment phases completed to date,
PolyVision does not believe independent verification and validation
processes will be necessary.
Costs to Address PolyVision's Year 2000 Issues
The current estimate of the cost of remediation and equipment and software
replacement is approximately $500,000 and is summarized below.
PolyVision is installing a new computer system at its manufacturing facility
in France and Denmark. The cost of computer hardware/software for these
locations will approximate $250,000 and $80,000, respectively. PolyVision's
computer system in Belgium is being upgraded to adequately handle the Year
2000 compliance issues, at an approximate cost of $150,000. Management
believes its other computer systems are Year 2000 Compliant.
Risks of PolyVision's Year 2000 Issues and PolyVision's Contingency Plans
A reasonable worst case Y2K scenario is not known at this time. This
determination will be made after the receipt of the remaining material
third party questionnaires. However, the shipment of product to customers
is expected to continue with minimal interruption and no material loss of
revenues is anticipated. The Y2K project has had minimal impact on the
schedule of other major IT projects.
PolyVision continues to develop and monitor its contingency planning.
Each manufacturing facility is incorporating Year 2000 into their existing
contingency plans. This planning will ensure that: (i) adequate levels of
inventory will be on hand to mitigate the impact of any potential
short-term disruptions in production; (ii) adequate supply of raw materials
will be available from alternate sources; and (iii) the necessary backup
measures for computer processing are identified.
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 PolyVision's expectations and are subject
to a number of risks and uncertainties, certain of which are beyond
PolyVision's control. Actual results could differ materially from these
forward-looking statements as a result of, among other factors,
risks related to PolyVision's history of operating losses and accumulated
deficit; future capital requirements; competition, technical 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISLOSURES ABOUT MARKET RISK
PolyVision's exposure to market risk primarily relates to interest rates
on long-term debt. For example, a one percent increase in interest rates
affecting PolyVision's floating rate debt would increase the interest
expense during the three months ended March 31, 1999 by approximately
$110,000 and PolyVision's budgeted interest expense for the year ending
December 31, 1999 by approximately $450,000.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
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
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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.
POLYVISION CORPORATION
Date: May 11, 1999 By: /s/ Joseph A. Menniti
Joseph A. Menniti
Chief Executive Officer
Date: May 11, 1999 By: /s/ Richard J. Still
Richard J. Still
Chief Financial Officer
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17,848
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