<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 ON
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): NOVEMBER 20, 1998
POLYVISION CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEW YORK 1-10555 13-3482597
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification
of incorporation) No.)
</TABLE>
<TABLE>
<S> <C>
48-62 36(TH) STREET, LONG ISLAND CITY, 11101
NEW YORK (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (718) 729-1050
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CURRENT REPORT ON FORM 8-K/A
POLYVISION CORPORATION
NOVEMBER 20, 1998
This Amendment No. 1 amends Item 7 of the Current Report on Form 8-K dated
November 20, 1998 (the "Current Report"), of PolyVision Corporation
("PolyVision"), a New York corporation (the "Company"), filed with the
Securities and Exchange Commission on December 7, 1998, relating to the
Company's acquisition of Alliance International Group, Inc. ("Alliance"), to
include the information set forth below:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
In accordance with Item 7(a), attached as Exhibit 99.2 are the audited
balance sheets of Alliance as of December 31, 1997 and 1996, respectively,
and the related audited statements of income, shareholders' equity, and cash
flows for the years ended December 31, 1997, 1996 and 1995, respectively,
and the accompanying notes. Attached as Exhibit 99.3 are the unaudited
condensed consolidated balance sheets of Alliance as of September 30, 1998
and December 31, 1997, respectively, and the related unaudited condensed
consolidated statements of income and cash flows for the nine months ended
September 30, 1998 and 1997, respectively, and the accompanying notes.
(b) PRO FORMA FINANCIAL INFORMATION.
In accordance with Item 7(b), attached as Exhibit 99.4 are the unaudited
pro forma financial statements and accompanying notes for PolyVision and
Alliance combined. The pro forma financial information included herein
reflects the pro forma effects of the acquisition of Alliance which occurred
on November 20, 1998. Such pro forma financial statements (including
appropriate pro forma adjustments) reflect (a) the condensed consolidated
historical statements of income of PolyVision for the fiscal year ended
April 30, 1998 combined with the unaudited condensed historical statement of
income of Alliance for the 12 month period ended April 30, 1998, and (b) the
unaudited condensed consolidated historical balance sheet and statement of
income of PolyVision as of October 31, 1998 and for the six months then
ended combined with the unaudited condensed historical balance sheet and
statement of operations of Alliance as of October 31, 1998 and for the six
months then ended.
The unaudited pro forma combined statements of income for the 12 months
ended April 30, 1998 and for the six months ended October 31, 1998 give
effect to the above-referenced transactions as if they had occurred on May
1, 1997.
The unaudited pro forma balance sheet of PolyVision at October 31, 1998
and the pro forma statements of income are based upon preliminary estimates
of values, transaction costs, and preliminary appraisals associated with
PolyVision's acquisition of Alliance. The actual recording of the
transactions will be based on final appraisals, values and transaction
costs. Accordingly, the actual recording of the transactions can be expected
to differ from the financial statements presented herein.
The pro forma statements of income do not necessarily represent the
results of operations that might have occurred had the transactions been
consummated as of the dates referred to above, nor are they necessarily
indicative of future operations of PolyVision. Such pro forma statements
should be read in conjunction with the Consolidated Financial Statements of
PolyVision filed in its most recent report on Form 10-K, together with the
respective notes thereto.
2
<PAGE>
(c) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
99.2 Audited balance sheets of Alliance as of December 31, 1997 and 1996, respectively, and the related
audited statements of income, shareholders' equity, and cash flows for the years ended December 31,
1997, 1996 and 1995, respectively, and the accompanying notes
99.3 Unaudited condensed consolidated balance sheets of Alliance as of September 30, 1998 and December 31,
1997, respectively, and the related unaudited condensed consolidated statements of income and cash
flows for the nine months ended September 30, 1998 and 1997, respectively, and the accompanying notes
99.4 Unaudited pro forma financial statements and accompanying notes for PolyVision and Alliance combined.
</TABLE>
3
<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.
<TABLE>
<S> <C> <C>
POLYVISION CORPORATION
By: /s/ Richard J. Still
-----------------------------------------
Richard J. Still
Dated: February 3, 1999 Chief Financial Officer
</TABLE>
4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------- ---------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
99.2 Audited balance sheets of Alliance as of December 31, 1997 and 1996, respectively, and the
related audited statements of income, shareholders' equity, and cash flows for the years ended
December 31, 1997, 1996 and 1995, respectively, and the accompanying notes....................
99.3 Unaudited condensed consolidated balance sheets of Alliance as of September 30, 1998 and
December 31, 1997, respectively, and the related unaudited condensed consolidated statements
of income and cash flows for the nine months ended September 30, 1998 and 1997, respectively,
and the accompanying notes....................................................................
99.4 Unaudited pro forma financial statements and accompanying notes for PolyVision and Alliance
combined......................................................................................
</TABLE>
5
<PAGE>
EXHIBIT 99.2
CONSOLIDATED FINANCIAL STATEMENTS
ALLIANCE INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
ALLIANCE INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.......................................................... 1
Audited Consolidated Financial Statements
Consolidated Balance Sheets............................................................. 2
Consolidated Statements of Income....................................................... 4
Consolidated Statements of Shareholders' Equity......................................... 5
Consolidated Statements of Cash Flows................................................... 6
Notes to Consolidated Financial Statements.............................................. 7
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Alliance International Group, Inc.
We have audited the accompanying consolidated balance sheets of Alliance
International Group, Inc. and subsidiaries (the "Company") as of December 31,
1997 and 1996, and the related consolidated statements of income, shareholders'
equity, and cash flows for the three month period ended December 31, 1997, the
nine month period ended October 2, 1997, and the years ended December 31, 1996
and 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Alliance International Group, Inc. and subsidiaries at December 31, 1997 and
1996, and the consolidated results of their operations and their cash flows for
the three month period ended December 31, 1997, the nine month period ended
October 2, 1997, and the years ended December 31, 1996 and 1995 in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Atlanta, Georgia
May 22, 1998
1
<PAGE>
ALLIANCE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------
<S> <C> <C>
1997 COMPANY
(PURCHASE 1996 PREDECESSOR
ACCOUNTING) (HISTORICAL)
-------------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 1,735,062 $ 3,506,396
Trade accounts receivable, less allowances of $1,538,000
in 1997 and $1,377,000 in 1996....................................... 9,665,722 13,491,081
Inventories:
Raw materials and supplies........................................... 2,750,686 3,189,754
Work in process and finished goods................................... 4,247,416 3,427,468
-------------------- ----------------
6,998,102 6,617,222
Prepaid expenses....................................................... 571,689 774,319
Other current assets................................................... 260,106 31,537
-------------------- ----------------
Total current assets..................................................... 19,230,681 24,420,555
Other assets:
Goodwill............................................................... 27,005,087 16,230,595
Closure assets......................................................... 536,804 536,804
Deferred tax assets.................................................... 941,785 995,164
Other noncurrent assets................................................ 336,959 664,885
-------------------- ----------------
28,820,635 18,427,448
Property, plant and equipment:
Land and improvements.................................................. 578,327 1,365,374
Buildings.............................................................. 7,877,412 9,883,837
Machinery and equipment................................................ 8,058,532 17,777,197
Construction in progress............................................... 330,826 505,513
-------------------- ----------------
16,845,097 29,531,921
Less allowance for depreciation........................................ 324,811 18,449,874
-------------------- ----------------
16,520,286 11,082,047
-------------------- ----------------
Total assets............................................................. $ 64,571,602 $ 53,930,050
-------------------- ----------------
-------------------- ----------------
</TABLE>
2
<PAGE>
ALLIANCE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------
1997 COMPANY
(PURCHASE 1996 PREDECESSOR
ACCOUNTING) (HISTORICAL)
-------------------- ----------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable................................................. $ 6,306,198 $ 6,804,300
Accrued compensation and commissions................................... 2,672,058 3,330,984
Accrued other expenses................................................. 3,073,490 2,297,288
Income taxes payable................................................... 129,864 289,025
Current maturities of long-term obligations and capital
leases............................................................... 1,893,156 14,669,572
-------------------- ----------------
Total current liabilities................................................ 14,074,766 27,391,169
Long-term liabilities:
Long-term obligations, less current maturities......................... 35,391,982 7,422,403
Deferred tax liabilities............................................... 4,550,553 2,554,437
Accrued pension........................................................ 411,273 578,396
Capital grant--foreign................................................. -- 208,637
Other liabilities...................................................... 390,131 465,683
-------------------- ----------------
40,743,939 11,229,556
Shareholders' equity:
Cumulative senior preferred stock, non-voting, par value
$.01 per share--authorized, issued and outstanding
110,000 shares....................................................... -- 1,100
Cumulative redeemable junior preferred stock, non-voting,
par value $.01 per share--authorized, issued and
outstanding 20,000 shares (stated at aggregate liquidation
preference).......................................................... -- 2,000,000
Common Stock, par value $.001 per share--authorized
2,500,000 shares, issued and outstanding 1,000,000 shares............ -- 1,000
Common Stock A, par value $.01 per share--authorized
150,000 shares, issued and outstanding 86,500 shares................. 865 --
Common Stock B, par value $.01 per share--authorized
150,000 shares, issued and outstanding 83,000 shares................. 830 --
Additional paid-in capital............................................. 9,428,305 18,397,900
Accumulated deficit.................................................... (182,337) (5,716,823)
Equity adjustments for foreign currency translation.................... 505,234 626,148
-------------------- ----------------
Total shareholders' equity............................................... 9,752,897 15,309,325
-------------------- ----------------
Total liabilities and shareholders' equity............................... $ 64,571,602 $ 53,930,050
-------------------- ----------------
-------------------- ----------------
</TABLE>
See accompanying notes.
3
<PAGE>
ALLIANCE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE
MONTH
PERIOD NINE MONTH
ENDED PERIOD
DECEMBER ENDED YEAR ENDED DECEMBER 31
31, OCTOBER 2, ----------------------
1997 1997 1996 1995
---------- ---------- ---------- ----------
COMPANY
(PURCHASE
ACCOUNTING) PREDECESSOR (HISTORICAL)
---------- ----------------------------------
<S> <C> <C> <C> <C>
Net sales................................. $14,417,990 $44,390,993 $61,759,616 $68,424,531
Cost of products sold..................... 9,820,501 29,539,587 41,343,722 49,052,595
---------- ---------- ---------- ----------
Gross profit.............................. 4,597,489 14,851,406 20,415,894 19,371,936
Expenses:
Selling and advertising................. 1,316,762 3,805,176 5,394,431 6,202,471
Provision for bad debt.................. 29,339 84,015 172,417 205,587
Administrative and general.............. 1,680,264 5,396,470 7,707,482 7,469,738
---------- ---------- ---------- ----------
3,026,365 9,285,661 13,274,330 13,877,796
---------- ---------- ---------- ----------
Operating income.......................... 1,571,124 5,565,745 7,141,564 5,494,140
Other income (expense).................... 33,448 79,392 (20,313) 324,131
Gain (loss) on foreign exchange (net)..... 75,542 91,168 166,184 (153,490)
---------- ---------- ---------- ----------
1,680,114 5,736,305 7,287,435 5,664,781
Other deductions:
Interest expense........................ 939,210 1,456,141 1,992,354 2,427,358
Amortization of goodwill and other
intangible assets..................... 317,107 416,448 525,035 806,392
Miscellaneous........................... 416,864 825,536 1,495,723 512,663
---------- ---------- ---------- ----------
1,673,181 2,698,125 4,013,112 3,746,413
---------- ---------- ---------- ----------
Income before income taxes................ 6,933 3,038,180 3,274,323 1,918,368
Income tax expense (benefit):
Current................................. 340,845 329,731 967,843 301,532
Deferred................................ (151,575) (6,426) (64,307) 69,126
---------- ---------- ---------- ----------
189,270 323,305 903,536 370,658
---------- ---------- ---------- ----------
Net income (loss)......................... $ (182,337) $2,714,875 $2,370,787 $1,547,710
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes.
4
<PAGE>
ALLIANCE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SENIOR JUNIOR ADDITIONAL
PREDECESSOR PREFERRED PREFERRED COMMON COMMON COMMON PAID-IN
(HISTORICAL) STOCK STOCK STOCK STOCK A STOCK B CAPITAL
- ------------------------------------------------ ----------- ------------ ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994.................... $ 1,100 $ 2,000,000 $ 1,000 $ -- $ -- $ 18,397,900
Net income.................................... -- -- -- -- -- --
Translation adjustment........................ -- -- -- -- -- --
----------- ------------ ----------- ----- ----- -------------
Balance at December 31, 1995.................... 1,100 2,000,000 1,000 -- -- 18,397,900
Net income.................................... -- -- -- -- -- --
Translation adjustment........................ -- -- -- -- -- --
----------- ------------ ----------- ----- ----- -------------
Balance at December 31, 1996.................... 1,100 2,000,000 1,000 -- -- 18,397,900
Net income.................................... -- -- -- -- -- --
Translation adjustment........................ -- -- -- -- -- --
----------- ------------ ----------- ----- ----- -------------
Balance at October 2, 1997...................... $ 1,100 $ 2,000,000 $ 1,000 $ -- $ -- $ 18,397,900
----------- ------------ ----------- ----- ----- -------------
----------- ------------ ----------- ----- ----- -------------
<CAPTION>
EQUITY
ADJUSTMENTS
FOR FOREIGN
PREDECESSOR ACCUMULATED CURRENCY
(HISTORICAL) DEFICIT TRANSLATION TOTAL
- ------------------------------------------------ ------------- ------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1994.................... $ (9,635,320) $ 507,965 $ 11,272,645
Net income.................................... 1,547,710 -- 1,547,710
Translation adjustment........................ -- 1,186,765 1,186,765
------------- ------------- -------------
Balance at December 31, 1995.................... (8,087,610) 1,694,730 14,007,120
Net income.................................... 2,370,787 -- 2,370,787
Translation adjustment........................ -- (1,068,582) (1,068,582)
------------- ------------- -------------
Balance at December 31, 1996.................... (5,716,823) 626,148 15,309,325
Net income.................................... 2,714,875 -- 2,714,875
Translation adjustment........................ -- (2,084,798) (2,084,798)
------------- ------------- -------------
Balance at October 2, 1997...................... $ (3,001,948) $ (1,458,650) $ 15,939,402
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
SENIOR JUNIOR ADDITIONAL
COMPANY PREFERRED PREFERRED COMMON COMMON COMMON PAID-IN
(PURCHASE ACCOUNTING) STOCK STOCK STOCK STOCK A STOCK B CAPITAL
- ------------------------------------------------ ----------- ------------ ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 3, 1997...................... $ -- $ -- $ -- $ -- $ -- $ --
Issuance of 86,500 shares of Common Stock A,
par value $0.01 per share................... -- -- -- 865 -- 8,649,135
Issuance of 83,000 shares of Common Stock B,
par value $0.01 per share................... -- -- -- -- 830 779,170
Net loss...................................... -- -- -- -- -- --
Translation adjustment........................ -- -- -- -- -- --
----------- ------------ ----------- ----- ----- -------------
Balance at December 31, 1997.................... $ -- $ -- $ -- $ 865 $ 830 $ 9,428,305
----------- ------------ ----------- ----- ----- -------------
----------- ------------ ----------- ----- ----- -------------
<CAPTION>
EQUITY
ADJUSTMENTS
FOR FOREIGN
COMPANY ACCUMULATED CURRENCY
(PURCHASE ACCOUNTING) DEFICIT TRANSLATION TOTAL
- ------------------------------------------------ ------------- ------------- -------------
<S> <C> <C> <C>
Balance at October 3, 1997...................... $ -- $ -- $ --
Issuance of 86,500 shares of Common Stock A,
par value $0.01 per share................... -- -- 8,650,000
Issuance of 83,000 shares of Common Stock B,
par value $0.01 per share................... -- -- 780,000
Net loss...................................... (182,337) -- (182,337)
Translation adjustment........................ -- 505,234 505,234
------------- ------------- -------------
Balance at December 31, 1997.................... $ (182,337) $ 505,234 $ 9,752,897
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
5
<PAGE>
ALLIANCE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE
MONTH
PERIOD NINE MONTH
ENDED PERIOD
DECEMBER ENDED YEAR ENDED DECEMBER 31
31, OCTOBER 2, -------------------------
1997 1997 1996 1995
---------- ----------- ----------- ------------
COMPANY
(PURCHASE
ACCOUNTING) PREDECESSOR (HISTORICAL)
---------- --------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................. $ (182,337) $ 2,714,875 $ 2,370,787 $ 1,547,710
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation....................... 169,604 1,447,689 2,155,324 2,504,318
Amortization....................... 317,107 416,448 525,035 806,392
Deferred income tax expense........ 12,266 (116,179) (64,307) 69,126
(Gain) loss on sale of equipment... -- 8,459 (27,800) --
Decrease (increase) in operating
assets:
Trade accounts and notes
receivable................... 3,030,282 795,077 (866,511) 1,727,096
Inventories.................... 114,359 (495,239) (65,987) (63,418)
Other current assets........... 520,391 (257,551) 5,395 412,463
Increase (decrease) in operating
liabilities:
Accounts payable............... (1,647,714) (67,342) 734,816 (2,494,723)
Accrued compensation and
commissions.................. (115,035) (543,891) 25,041 54,308
Accrued other expenses......... 265,791 318,699 (578,002) 906,027
Income taxes payable........... (62,851) (56,310) 1,887 (623,103)
---------- ----------- ----------- ------------
Net cash provided by operating
activities........................... 2,421,863 4,164,735 4,215,678 4,846,196
INVESTING ACTIVITIES
Purchases of property, plant, and
equipment............................ (856,382) (2,150,716) (1,244,421) (2,067,039)
Other investing activities, net........ -- -- 467,851 (108,846)
---------- ----------- ----------- ------------
Net cash used in investing
activities........................... (856,382) (2,150,716) (776,570) (2,175,885)
FINANCING ACTIVITIES
Proceeds from revolving line of credit
and long-term borrowings............. 5,986,401 20,892,944 27,070,875 28,378,138
Principal repayments on revolving line
of credit and long-term borrowings... (7,384,248) (22,247,802) (28,299,819) (30,104,831)
Payments under capital leases.......... (60,978) (138,882) (114,256) (235,774)
Other financing activities, net........ -- -- 100,345 (32,160)
---------- ----------- ----------- ------------
Net cash used in financing
activities........................... (1,458,825) (1,493,740) (1,242,855) (1,994,627)
Effect of exchange rate changes on
cash................................. 83,714 (786,510) (108,688) 45,737
---------- ----------- ----------- ------------
Increase (decrease) in cash and cash
equivalents.......................... 190,370 (266,231) 2,087,565 721,421
Cash and cash equivalents at beginning
of period............................ 1,544,692 3,506,396 1,418,831 697,410
---------- ----------- ----------- ------------
Cash and cash equivalents at end of
period............................... $1,735,062 $ 3,240,165 $ 3,506,396 $ 1,418,831
---------- ----------- ----------- ------------
---------- ----------- ----------- ------------
</TABLE>
See accompanying notes.
6
<PAGE>
ALLIANCE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. CORPORATE REORGANIZATION
PURCHASE
Alliance International Group Holdings, Inc. ("AIGH") was formed on August
26, 1997 by Wind Point Partners III, L.P. ("WPP") for the purpose of acquiring,
on October 2, 1997, the common stock of Alliance International Group, Inc. (the
"Predecessor"). WPP contributed $9,430,000 of capital to form AIGH.
The accompanying financial statements through October 2, 1997 have been
prepared on the basis of historical costs of the Predecessor. The consolidated
financial statements at December 31, 1997 and for the period from October 3,
1997 to December 31, 1997 include the effects of the formation of AIGH and the
subsequent purchase of the Predecessor.
On October 2, 1997, AIGH purchased the common stock of the Predecessor for
$7,780,000. The acquisition was accounted for as a purchase and, accordingly,
the purchase price was allocated to the assets of the Predecessor based on their
estimated fair values. Additionally AIGH raised funds to purchase the
Predecessor's preferred stock and retire the Predecessor's debt through credit
facilities of $25,145,000 with Fleet Capital Corporation ("Fleet") and
Kredietbank NV ("Kredietbank") as well as subordinated debt of $10,500,000 with
Northwestern Mutual Life Insurance Company ("NML"). Also $806,000 of cash was
provided from various subsidiaries of AIGH to retire Predecessor debt.
All of the preferred stock and outstanding cumulative dividends of the
Predecessor was redeemed for $19,276,000 and paid from proceeds received by
AIGH. The Predecessor's debt of $15,345,000 and the transaction costs of
$3,480,000 was paid from proceeds received by AIGH.
The transaction resulted in goodwill of $27,422,000 which is being amortized
over a period of 30 years.
On October 3, 1997, the Predecessor was merged with and into AIGH under the
name AIGH.
On January 27, 1998, AIGH changed its name to Alliance International Group,
Inc. (the "Company").
ORGANIZATION
COMPANY
Alliance International Group, Inc., formerly named Alliance International
Group Holdings, Inc. was incorporated in the State of Delaware on August 26,
1997. The Company owns 100% of the common stock of the Predecessor. The
Predecessor owns 100% of the common stock of Alliance Europe N.V. ("AE"), a
Belgian corporation, Alliance Pacific Ceramicsteel, Ltd. ("AP"), a Hong Kong
corporation, and Alliance America Corporation ("AA"), a domestic corporation.
The Company and its subsidiaries are engaged in the development, manufacture
and sale of light-gauge ceramicsteel products used for visual communications
(such as premium writing surfaces), infrastructure needs (such as wall cladding
and tunnel lining), and other commercial applications. The Company's sales are
international in scope, with primary markets in North America and Europe. The
Predecessor was engaged in the same business as the Company and in the same
markets.
7
<PAGE>
ALLIANCE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
1. CORPORATE REORGANIZATION (CONTINUED)
PREDECESSOR
Alliance International Group, Inc. (the "Predecessor") was incorporated in
the State of Georgia on August 8, 1984. The Predecessor owns 100% of the common
stock of Alliance Europe N.V., a Belgian corporation, Alliance Pacific
Ceramicsteel, Ltd., a Hong Kong corporation, and Alliance America Corporation, a
domestic corporation.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Significant intercompany accounts and transactions have
been eliminated in consolidation.
The consolidated financial statements of AE include the accounts of its
wholly-owned subsidiaries: Alliance Pentagon A/S, Denmark, Alliance Graphics
N.V., Belgium, and Aubecq S.A., France.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and trade
accounts receivable.
The Company maintains cash and cash equivalents with various financial
institutions. The financial institutions are located in various countries and
Company policy is designed to limit exposure to any one institution. The Company
performs periodic evaluations of the relative credit standing of those financial
institutions that are considered in the Company's investment strategy. Trade
receivables are unsecured and the Company is at risk to the extent such amounts
become uncollectible.
FOREIGN OPERATIONS
Consolidated net income includes foreign earnings in addition to amounts
received in the United States. Consolidated net income includes net income
earned by European subsidiaries of $520,000, $1,137,000, $874,000 and $195,000
in the three month period ended December 31, 1997, the nine month period ended
October 2, 1997, and the years ended December 31, 1996 and 1995, respectively.
Income before income taxes includes income earned by European subsidiaries of
$679,000, $1,488,000, $1,570,000 and $444,000 in the three month period ended
December 31, 1997, the nine month period ended October 2, 1997, and the years
ended December 31, 1996 and 1995, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, trade accounts
receivable, accounts payable, and long-term obligations. Cash, trade accounts
receivable and accounts payable are stated at cost, which approximates fair
value. The fair values of the Company's long-term obligations are determined
using discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements. As of December 31,
1997, the carrying amount reported in the balance sheet for long-term
obligations approximates fair value.
8
<PAGE>
ALLIANCE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH FLOW INFORMATION
The Company considers highly liquid short-term investments with a maturity
of three months or less when purchased to be cash equivalents.
The Statement of Cash Flows for the three-month period ended December 31,
1997 has been presented assuming the acquisition referred to in Note 1 occurred
October 2, 1997 and therefore presents the cash flows of the business for the
three month period from October 3, 1997 to December 31, 1997.
INVENTORIES
Inventories are valued at the lower of cost or market with cost being
determined by the last-in, first-out (LIFO) method for domestic inventory
(approximately 46% and 38% of total inventory in 1997 and 1996, respectively)
and by the first-in, first-out (FIFO) method for foreign inventory. Current
replacement cost exceeded the LIFO carrying values of domestic inventory by
approximately $792,000 at December 31, 1997 and $697,000 at December 31, 1996.
INTANGIBLES
Goodwill represents the cost in excess of the fair value of net assets
acquired. It is being amortized on the straight-line method over the estimated
future years to be benefited. The Predecessor generally amortized goodwill over
40 years. The goodwill recorded by the Company that arose on the purchase of the
Predecessor is being amortized over 30 years (see Note 1).
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Provisions for depreciation
and amortization are computed principally using the straight-line method by AA
and the declining balance method by AE, based on the estimated useful lives of
the assets.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense when incurred, and
amounted to approximately $117,000, $472,000, $716,000 and $864,000 in the three
month period ended December 31, 1997, the nine month period ended October 2,
1997, and the years ended December 31, 1996 and 1995, respectively.
WARRANTY CLAIMS
Provisions for warranty claims have been made based upon estimated amounts
which have been incurred.
REVENUE RECOGNITION
The Company recognizes revenue from sales upon delivery, when no significant
obligations remain.
9
<PAGE>
ALLIANCE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain 1996 and 1995 amounts have been reclassified to conform to the 1997
presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Estimates made by the Company relate primarily to accounts
receivable allowances and warranty accruals. Actual results may differ from
those estimates.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1, 1996 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF." SFAS No. 121
requires that certain long-lived assets to be held and used be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Additionally, SFAS No. 121
requires that certain long-lived assets to be disposed of be reported at the
lower of carrying amount or fair value less costs to sell. The impact of the
adoption of this standard was not material to the Company's consolidated
earnings or financial position.
In June 1997 the FASB issued Statement No. 130 REPORTING COMPREHENSIVE
INCOME ("Statement 130") which establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains, and
losses) in financial statements. Statement 130 is effective for fiscal years
beginning after December 15, 1997. The Company will adopt Statement 130 in 1998,
and does not expect the effect of such adoption to be material to its
consolidated financial statements.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
In June 1997 the FASB also issued Statement No. 131 DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION ("Statement 131") which
establishes standards for the way public business enterprises report information
about operating segments in annual financial statements, and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. Operating segments are components of
an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Statement 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. Statement 131 is effective for financial statements for
periods beginning after December 15, 1997. The Company will adopt Statement 131
in 1998 and does not expect the effect of adoption to be material to its
consolidated financial statements.
10
<PAGE>
ALLIANCE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM OBLIGATIONS
Long-term obligations are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
COMPANY
(PURCHASE PREDECESSOR
ACCOUNTING) (HISTORICAL)
------------- -------------
Subordinated notes................................................................. $ 10,500,000 $ 10,810,000
Domestic term loan, maturing October 1, 2002....................................... 11,850,000 --
Domestic revolving loan, maturing October 1, 2002.................................. 4,289,635 --
Foreign general bank loans, maturing October 1, 2002............................... 3,464,156 --
Foreign revolver bank loans, maturing October 1, 2002.............................. 5,900,000 --
Payment-in-kind deferred interest notes............................................ -- 1,122,000
Equipment and real estate term loans............................................... -- 2,336,000
Revolving credit loan.............................................................. -- 802,504
Foreign general bank loans, bearing interest at various rates (3.85% to 9.0%) and
maturing in various years through 2012........................................... -- 5,332,259
Short term notes payable to banks.................................................. 758,518 701,543
Foreign government advances; non-interest bearing.................................. 304,121 479,273
Other.............................................................................. 218,708 508,396
------------- -------------
37,285,138 22,091,975
Less amounts due within one year................................................... 1,893,156 14,669,572
------------- -------------
$ 35,391,982 $ 7,422,403
------------- -------------
------------- -------------
</TABLE>
COMPANY
On October 2, 1997, the Company entered into several credit agreements
including revolving and term loans and subordinated debt that provided financing
of $37,895,000 for the purchase of the Predecessor and retirement of the
Predecessor debt.
A domestic credit agreement was entered into which allows for financing up
to $34,000,000, $19,350,000 of which is made available upon the Company's
request under a revolving loan ("Domestic Revolver") and term loan ("Domestic
Term"). The domestic credit agreement allows the Company to elect to use either
prime plus 1.00%, or London Interbank Offered Rate ("LIBOR") plus 2.50% for the
Domestic Revolver and prime plus 1.50%, or LIBOR plus 2.75% for the Domestic
Term. The Domestic Term is a secured promissory note for $11,850,000 secured by
accounts receivable, inventory, equipment, general intangibles, and investment
property of the Company. The Domestic Revolver is for up to $7,500,000 with
certain limitations based on the current assets of the Company.
A portion of the credit agreement above includes a foreign credit line which
allows for financing up to 499,009,875 Belgian Francs ("BEF") (approximately
$13,473,000) which is made available upon the Company's request under a
revolving ("Foreign Revolver") and term loan ("Foreign Term"). The foreign
credit agreement allows the Company to elect to use either prime plus 0.50% or
Brussels Interbank Offered Rate ("BIBOR") plus 2.50% for the Foreign Revolver
and BIBOR plus 2.75% for the Foreign Term. The Foreign Term is a secured
promissory note for BEF 188,271,125 (approximately $5,083,000) secured by
accounts receivable, inventory, equipment, general intangibles, and investment
property of the
11
<PAGE>
ALLIANCE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM OBLIGATIONS (CONTINUED)
Company. The Foreign Revolver is for up to BEF 310,738,750 (approximately
$8,390,000) with certain limitations based on the current assets of the Company.
There is commitment fee of 0.50% per annum of the average monthly amount of
the unused portion of the Domestic Revolver and the Foreign Revolver.
The Company entered into a credit agreement for senior subordinated notes of
$10,500,000 bearing interest at 12% payable semiannually and maturing September
15, 2005. AE is limited by the lender to $4,700,000 of the notes. In connection
with these borrowings by the Company, warrants were issued for the purchase of
shares of the Company's common stock with an expiration date of October 3, 2007.
The following table summarizes outstanding warrants at December 31, 1997:
<TABLE>
<S> <C>
Number of shares..................................................... 7,897
Exercise price per share............................................. $ 0.01
</TABLE>
The domestic and foreign credit agreements and subordinated notes subject
the Company to certain restrictions and covenants related to, among others, AA
and AE fixed charge coverage ratio, earnings before interest, taxation,
depreciation and amortization ("EBITDA"), funded debt to EBITDA, interest
coverage, and net worth.
AE has received advances from the Belgian government to partially finance
expenses incurred in penetrating new overseas markets and in developing a new
production process.
Aggregate maturities of the Company's long-term obligations are
approximately $1,893,156 in 1998, $2,163,698 in 1999, $2,634,069 in 2000,
$4,703,693 in 2001, and $24,197,191 in 2002 and thereafter.
Interest paid for the nine months ended October 2, 1997 and the three months
ended December 31, 1997 totaled $1,484,071 and $584,026 respectively.
PREDECESSOR
During 1987, the Predecessor issued $17,750,000 of subordinated notes to a
related party bearing interest at 14% and maturing on December 31, 1997.
Interest on these notes was payable quarterly.
During 1989, the Predecessor entered into a supplement to the subordinated
note agreement and borrowed an additional $1,250,000 under a promissory note
bearing interest at 14% and maturing December 31, 1997.
During 1992, the Predecessor executed promissory notes payable to a related
party in the amount of $2,810,000. The notes bore interest at 15% and were due
in 1997. These notes were executed in lieu of interest payments on certain of
the Predecessor's long-term obligations. On December 31, 1992, these notes and
$8,190,000 of the Predecessor's subordinated notes to a related party were
exchanged for 110,000 shares of senior preferred stock (see Note 9). In
addition, the interest rate on the remaining $10,810,000 of subordinated notes
was renegotiated to a rate of 10%. AIG exercised its right to issue notes as
interest payments in 1993. The total value of the notes issued was $1,122,000
and the stated interest rate was also 10%. These notes were due December 31,
1997. AA guaranteed the repayment of these notes and the Predecessor pledged the
shares of AA's common stock as security. These subordinated notes contained, in
addition to other covenants, requirements with respect to payment of dividends
and net worth. At
12
<PAGE>
ALLIANCE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM OBLIGATIONS (CONTINUED)
December 31, 1996, the Predecessor was not in compliance with certain of these
covenants. However, the Predecessor obtained waivers of these covenants from its
lender.
In connection with these borrowings by the Predecessor, warrants were issued
for the purchase of shares of the Predecessor's common stock with expiration
dates ranging from 1997 through 2002. The following table summarizes outstanding
warrants at December 31, 1996 which were subsequently canceled as of October 2,
1997 as a result of the purchase of the Predecessor.
<TABLE>
<S> <C>
Number of shares.............................................. 972,842.21
Exercise price per share...................................... $7.78--$8.00
</TABLE>
The available borrowings under the revolving credit loan were $5,000,000.
The revolving credit loan bore interest at the prime rate plus .75% and expired
October 2, 1997. The equipment and real estate term loans bore interest at the
prime rate plus .75%. These loans were payable in monthly installments totaling
$24,333 plus interest, with the balance due on November 30, 1999.
These loans contained, in addition to other covenants, requirements with
respect to leverage, tangible net worth, capital expenditures and dividends.
Substantially all of AA's assets (approximately $21 million) had been pledged as
collateral on the above obligations. AE's multicurrency revolving credit
facility from Kredietbank N.V. guarantees advances made by a Belgian bank. The
total available borrowings under the facility at December 31, 1996 were BEF
275,000,000, (approximately $8,671,000) while the outstanding balance was BEF
146,500,000 (approximately $4,619,000). Payments were due based upon a
predetermined reduction schedule. The facility bore interest at rates ranging
from a fixed rate of 8.5% to BIBOR plus .75 to 1.0%. During 1996, the BIBOR
ranged from 3.1% to 3.8%. This loan facility contained certain covenants which
AE and its subsidiaries were obligated to comply with. At December 31, 1996, AE
was in compliance with the debt covenants.
AE also had a loan outstanding with a Danish bank totaling approximately
$713,000. This loan bore interest at 9% and was repayable in quarterly
installments of 131,586 Danish Kroners (approximately $22,000), including
interest.
At December 31, 1996, foreign general bank loans were secured by certain
land, buildings and pledges on net assets totaling approximately $8,350,000.
AE received advances from the Belgian government to partially finance
expenses incurred in penetrating new overseas markets and in developing a new
production process.
Interest paid in 1996 and 1995 totaled $2,183,000 and $2,656,000,
respectively.
4. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
13
<PAGE>
ALLIANCE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
Components of the net deferred tax liability as of December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
<S> <C> <C>
1996 1997
------------ ------------
<CAPTION>
COMPANY
(PURCHASE PREDECESSOR
ACCOUNTING) (HISTORICAL)
------------ ------------
<S> <C> <C>
Deferred tax asset
Net operating loss carryforwards.................................................... $ 1,694,610 $ 1,922,546
Deferred tax liabilities
Recognition of assets acquired in prior business combinations at pre-tax amounts.... 2,906,053 1,043,412
Depreciation........................................................................ 710,841 710,859
Taxes on unremitted earnings of foreign subsidiaries................................ 634,392 597,574
Other............................................................................... 299,267 202,592
------------ ------------
Total deferred tax liabilities........................................................ 4,550,553 2,554,437
------------ ------------
Deferred tax asset valuation allowance................................................ (752,825) (927,382)
------------ ------------
Net deferred tax liability............................................................ $ 3,608,768 $ 1,559,273
------------ ------------
------------ ------------
</TABLE>
The Company's approximate consolidated net operating losses for federal
income tax purposes are as follows:
<TABLE>
<CAPTION>
YEAR OF EXPIRATION
- --------------------------------------------------------------------------------
<S> <C>
2008............................................................................ $ 280,000
2007............................................................................ 1,450,000
2006............................................................................ 1,568,000
------------
$ 3,298,000
------------
------------
</TABLE>
14
<PAGE>
ALLIANCE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
Significant components of income tax expense are as follows:
<TABLE>
<CAPTION>
THREE MONTH NINE MONTH YEAR ENDED
PERIOD ENDED PERIOD ENDED DECEMBER 31
DECEMBER 31, OCTOBER 2, -----------------------
1997 1997 1996 1995
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
COMPANY
(PURCHASE
ACCOUNTING) PREDECESSOR (HISTORICAL)
------------ -------------------------------------
Current:
Federal................................................... $ 152,673 $ (141,392) $ 58,559 $ --
State..................................................... 16,567 95,079 111,700 194,768
Foreign................................................... 171,605 376,044 797,584 106,764
------------ ------------ ----------- ----------
Total current............................................... 340,845 329,731 967,843 301,532
Deferred:
Federal................................................... (111,657) 10,708 -- --
State..................................................... (26,722) 7,794 37,972 (73,000)
Foreign................................................... (13,196) (24,928) (102,279) 142,126
------------ ------------ ----------- ----------
Total deferred.............................................. (151,575) (6,426) (64,307) 69,126
------------ ------------ ----------- ----------
$ 189,270 $ 323,305 $ 903,536 $ 370,658
------------ ------------ ----------- ----------
------------ ------------ ----------- ----------
</TABLE>
The following table summarizes the significant differences between the US
Federal statutory rate and the Company's effective tax rate for financial
statement purposes.
<TABLE>
<CAPTION>
YEAR ENDED
THREE MONTH NINE MONTH DECEMBER 31
PERIOD ENDED PERIOD ENDED ------------------------
DEC 31, 1997 OCT 2, 1997 1996 1995
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
COMPANY
(PURCHASE
ACCOUNTING) PREDECESSOR (HISTORICAL)
------------ --------------------------------------
Income tax provision at statutory rate of 34%.............. $ 2,357 $1,032,981 $ 1,113,270 $ 652,245
State income taxes, net.................................... (10,155) 102,873 149,672 121,768
International rate differences............................. (72,389) (154,721) 159,295 117,830
Change in valuation allowance.............................. 352,588 (527,145) (598,334) (519,374)
Other, net................................................. (83,232) (130,683) 79,453 (1,811)
------------ ------------ ------------ ----------
Income tax provision....................................... $ 189,169 $ 323,305 $ 903,356 $ 370,658
------------ ------------ ------------ ----------
------------ ------------ ------------ ----------
</TABLE>
Income taxes of approximately $331,100, $359,600, $1,055,000 and $815,000
were paid by the Company, principally AE, during the three month period ended
December 31, 1997, the nine month period ended October 2, 1997 and the years
ended December 31, 1996 and 1995, respectively.
5. PLANT CLOSURE
Assets which are held for sale have been recorded as closure assets at
estimated net realizable value. Subsequent to December 31, 1997 the Company
entered into a contract to sell these assets to a third party at an amount which
exceeds this carrying value. The Company is indemnified by a prior owner of the
land and building for costs of environmental clean-up.
15
<PAGE>
ALLIANCE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. EMPLOYEE BENEFIT PLANS
AA, at the sole discretion of its Board of Directors, has the authority to
contribute profit sharing payments for the accounts of eligible employees. The
Plan also allows employee contributions, and in addition, the Company will make
a matching contribution equal to 50% of the participant's contribution not to
exceed $1,000 annually for each union participant and $1,050 annually for each
non-union participant. This plan covers substantially all domestic employees and
contributions vest to the participants at 20% per year. Amounts expensed under
this plan were $31,000, $187,000, $235,000 and $301,000 in the three month
period ended December 31, 1997, the nine month period ended October 2, 1997, and
the years ended December 31, 1996 and 1995, respectively.
AE maintains a defined contribution pension plan covering all AE employees.
Contributions to the plan are paid by both AE and by the employees. AE's
contributions are allocated on the basis of gross salaries. Pension expense for
the three month period ended December 31, 1997, the nine month period ended
October 2, 1997, and the year ended December 31, 1996 and 1995 was approximately
$64,000, $195,000, $312,000, and $337,000 respectively.
The Predecessor had an agreement with an officer whereby upon the attainment
by the Company of certain performance goals, on the earlier of the officer's
termination of employment or March 31, 1999, the officer would be entitled to
additional aggregate compensation of approximately $1.2 million. The performance
goals had not been attained at the date of the purchase of the Predecessor, when
the officer's employment was terminated. No amounts relating to this agreement
were paid at the date of the termination and no amounts were recognized in the
Predecessor's financial statements for the years ended December 31, 1996 and
1995, or for the nine months ended October 2, 1997.
In 1995, the Predecessor revised an existing agreement to provide a former
officer with a retirement annuity of $5,184 per month beginning in April 1995.
The obligations under the agreement transferred to the Company at the date of
the purchase of the Predecessor. Under the amended agreement, the Company is
obligated to provide the former officer with an annuity of $9,738 per month for
60 months and an annuity of $1,317 per month for the remainder of the officer's
life. Both payments began in April 1995. Certain amounts classified in other
noncurrent assets will be used to service this obligation.
7. COMMITMENTS AND CONTINGENCIES
From time to time, the Company becomes party to various claims and legal
actions arising during the ordinary course of business. Management, after
reviewing with legal counsel all actions and proceedings, believes that the
aggregate losses are adequately provided for and additional losses, if any,
would not have a material effect on the Company's financial position. Losses
resulting from certain claims and lawsuits will be mitigated by indemnification
agreements from former shareholders.
Under agreements with the Belgian Government, AE is entitled to certain
investment incentives such as long-term credits with interest subsidy, capital
subsidies, accelerated depreciation for tax purposes and exemption from certain
local taxes, among others. In connection therewith, AE has made commitments,
primarily relating to the amount of capital investment and number of persons to
be employed. If AE defaults on these commitments, it could lose and/or be
required to repay the aforementioned incentives. Management considers, however,
that the required conditions are being reasonably fulfilled and that no
repayment of incentives received or accrued through December 31, 1997 will
occur.
16
<PAGE>
ALLIANCE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
During 1991, the Predecessor became a defendant in lawsuits resulting from
the termination of a manager who claimed an indemnity of $630,000 (BEF 20
million). This case was settled in 1996 through a payment of $126,000 (BEF 4
million).
8. COMMON STOCK
The Company has authorized 150,000 shares of Class A common stock, par value
$0.01 per share and 150,000 of Class B common stock, par value $0.01 per share.
Holders of Class B common stock are generally entitled to one vote per share.
Holders of Class A common stock are entitled to votes per share in accordance
with a formula set forth in the Certificate of Incorporation. Class A common
stock precedes class B common stock in the event of liquidation of the Company.
9. PREFERRED STOCK
The holders of senior preferred stock were entitled to cumulative dividends
at a rate of 10% per annum per share. The Predecessor was obligated to pay
dividends in arrears to senior preferred shareholders before dividends could be
paid to any other shareholders. Cumulative dividends in arrears on all
outstanding senior preferred stock totaled $4,400,000 at December 31, 1996. The
dividends were payable upon declaration by the Board of Directors. The senior
preferred stock was non-voting and preceded all other stock in the event of
liquidation of the Predecessor.
In 1991, 20,000 shares of junior preferred stock were issued by the
Predecessor. The holders of junior preferred stock were entitled to cumulative
dividends which accrued on a daily basis at the effective rate per annum of 10%
per share calculated as a percentage of $100, provided that such dividends did
not exceed $10 per share in any calendar year. The Company was obligated to pay
dividends in arrears to junior preferred shareholders before dividends could be
paid to common shareholders. Cumulative dividends in arrears on all outstanding
junior preferred stock totaled $1,141,000 at December 31, 1996. The dividends
were payable upon declaration by the Board of Directors. The junior preferred
stock was redeemable by the Predecessor at the redemption price of $100 per
share, plus any accrued but unpaid dividends, until April 9, 2001. Mandatory
redemption would occur on April 9, 2001 at the same price. The preferred stock
was non-voting and preceded common stock in the event of liquidation of the
Predecessor.
All preferred stock and outstanding cumulative dividends was redeemed at the
date of the purchase of the Predecessor. See Note 1.
10. STOCK OPTION PLAN
At December 31, 1996, the Predecessor had two stock-based compensation
plans, which are described below. The Predecessor applied APB Opinion 25 and
related Interpretations in accounting for its plans. No compensation cost was
recognized for its fixed stock option plans as the exercise price for all
options granted exceeded the fair value of the Predecessor's common stock. Had
compensation cost for the Predecessor's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of FASB Statement 123, the Predecessor's net
income and earnings per share would not have been materially different from that
reported by applying APB Opinion 25 and related Interpretations.
In 1993, the Predecessor adopted a stock option plan applicable to officers
and key employees of AIG and its subsidiaries. Under the plan, up to 216,465
options to purchase common stock could be granted and
17
<PAGE>
ALLIANCE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLAN (CONTINUED)
outstanding at any one time. The options granted under this plan were
exercisable 15 years from the grant date and would expire not more than 15 years
and six months from the grant date. The Predecessor reserved 216,465 shares of
its common stock for issuance upon exercise of the above options.
In 1994, the Predecessor entered into a separate option plan which granted
an officer of the Predecessor 219,205 options. These options would become
exercisable with respect to 21,921 shares on December 31 of each of the years
1994 - 1998. The remaining options would be exercisable upon the attainment of
certain performance goals in 1994 - 1998. The performance goal was not achieved
in 1996 and 1995. The plan also contained provisions for catch-up vesting of
these performance based options. The options granted under this plan would
expire no later than January 1, 2009. At December 31, 1996 the Predecessor had
286,205 options outstanding and 65,763 options exercisable under the two plans.
The exercise price per share was $8.00.
At the date of the purchase of the Predecessor, the stock option plan was
terminated and all related options were canceled as of October 2, 1997.
18
<PAGE>
ALLIANCE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. OPERATIONS BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
UNITED STATES EUROPE OTHER ELIMINATIONS CONSOLIDATED
------------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
COMPANY (PURCHASE ACCOUNTING)
THREE MONTH PERIOD
ENDED DECEMBER 31, 1997
Net sales to unaffiliated customers....... $ 5,920,710 $ 8,497,280 -- -- $ 14,417,990
Transfers between geographic areas........ -- 13,213 -- (13,213) --
------------- ------------- ---------- ------------- -------------
Total....................................... $ 5,920,710 $ 8,510,493 -- $ (13,213) $ 14,417,990
------------- ------------- ---------- ------------- -------------
------------- ------------- ---------- ------------- -------------
Operating profit (loss)................... $ 488,866 $ 1,090,383 $ (8,125) -- $ 1,571,124
Depreciation and amortization............. $ 196,631 $ 290,080 -- -- $ 486,711
Capital expenditure....................... $ 732,358 $ 124,024 -- -- $ 856,382
Identifiable assets at December 31,
1997.................................... $ 37,259,175 $ 27,496,186 $ 14,089 $ (197,848) $ 64,571,602
PREDECESSOR (HISTORICAL)
NINE MONTH PERIOD ENDED OCTOBER 2, 1997
Net sales to unaffiliated customers....... $ 19,887,421 $ 24,503,572 -- -- $ 44,390,993
Transfers between geographic areas........ -- 275,653 -- (275,653) --
------------- ------------- ---------- ------------- -------------
Total....................................... $ 19,887,421 $ 24,779,225 -- $ (275,653) $ 44,390,993
------------- ------------- ---------- ------------- -------------
------------- ------------- ---------- ------------- -------------
Operating profit.......................... $ 2,793,851 $ 2,771,894 -- -- $ 5,565,745
Depreciation and amortization............. $ 843,084 $ 1,021,053 -- -- $ 1,864,137
Capital expenditure....................... $ 1,761,418 $ 389,298 -- -- $ 2,150,716
YEAR ENDED DECEMBER 31, 1996
Net sales to unaffiliated customers....... $ 25,692,141 $ 36,067,475 -- -- $ 61,759,616
Transfers between geographic areas........ -- 1,621,424 -- $ (1,621,424) --
------------- ------------- ---------- ------------- -------------
Total....................................... $ 25,692,141 $ 37,688,899 -- $ (1,621,424) $ 61,759,616
------------- ------------- ---------- ------------- -------------
------------- ------------- ---------- ------------- -------------
Operating profit (loss)................... $ 2,854,267 $ 4,354,264 $ (10,451) $ (56,516) $ 7,141,564
Depreciation and amortization............. $ 1,015,306 $ 1,665,053 -- -- $ 2,680,359
Capital expenditure....................... $ 760,164 $ 484,257 -- -- $ 1,244,421
Identifiable assets at December 31,
1996.................................... $ 21,883,679 $ 22,519,701 $ 25,863 $ 9,500,807 $ 53,930,050
YEAR ENDED DECEMBER 31, 1995
Net sales to unaffiliated customers....... $ 28,969,535 $ 39,454,996 -- -- $ 68,424,531
Transfers between geographic areas........ -- -- -- -- --
------------- ------------- ---------- ------------- -------------
Total....................................... $ 28,969,535 $ 39,454,996 -- -- $ 68,424,531
------------- ------------- ---------- ------------- -------------
------------- ------------- ---------- ------------- -------------
Operating profit (loss)................... $ 2,394,314 $ 3,250,992 $ (8,247) $ (142,919) $ 5,494,140
Depreciation and amortization............. $ 1,521,637 $ 1,789,073 -- -- $ 3,310,710
Capital expenditure....................... $ 328,168 $ 1,738,871 -- -- $ 2,067,039
</TABLE>
19
<PAGE>
ALLIANCE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. OPERATIONS BY GEOGRAPHIC AREA (CONTINUED)
Transfers between the geographic areas primarily represent intercompany
export sales and are accounted for based on established sales prices between the
related companies. In computing operating profit (loss), no allocations of
general corporate expenses have been made.
Identifiable assets of geographical areas are those assets related to the
operations in each area. United States assets consists of all other operating
assets of the Company.
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
INCOME (LOSS) NET INCOME
NET SALES GROSS PROFIT BEFORE TAXES (LOSS)
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
FISCAL 1997
First quarter......................................... $ 11,454,434 $ 3,073,317 $ (696,183) $ (677,696)
Second quarter........................................ 15,848,367 5,909,507 1,820,754 1,660,428
Third quarter......................................... 17,088,192 5,868,582 1,913,609 1,732,143
Fourth quarter........................................ 14,417,990 4,597,489 6,933 (182,337)
------------- ------------- ------------- ------------
$ 58,808,983 $ 19,448,895 $ 3,045,113 $ 2,532,538
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
FISCAL 1996
First quarter......................................... $ 12,029,139 $ 3,226,122 $ (748,586) $ (634,412)
Second quarter........................................ 16,643,530 6,203,328 1,957,805 1,554,378
Third quarter......................................... 17,945,561 6,160,368 2,057,649 1,621,513
Fourth quarter........................................ 15,141,386 4,826,076 7,455 (170,692)
------------- ------------- ------------- ------------
$ 61,759,616 $ 20,415,894 $ 3,274,323 $ 2,370,787
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
</TABLE>
13. YEAR 2000 DATE CONVERSION (UNAUDITED)
The Company recognizes the need to ensure its operations will not be
adversely impacted by year 2000 software failures. The Company intends to take
the actions necessary to ensure that systems and applications will recognize and
process information in the year 2000 and beyond. While efforts are underway and
no estimate of the cost of this effort has been determined, management currently
does not expect the cost of the year 2000 compliance to be material to its
consolidated financial statements.
14. EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF INDEPENDENT AUDITORS' REPORT
ACQUISITION OF THE COMPANY
On November 20, 1998, PolyVision Corporation acquired all of the outstanding
capital stock of the Company for $75 million, consisting of $67 million in cash
and $8 million in a 10% convertible subordinated promissory note due 2007. The
purchase price was determined as a result of arm's length negotiations between
the parties.
SALE OF CLOSURE ASSETS
On June 19, 1998, the assets recorded on the December 31, 1997 and 1996
balance sheets as closure assets (see note 5) were sold to a third party at an
amount which approximated their carrying value at those dates.
20
<PAGE>
EXHIBIT 99.3
ALLIANCE INTERNATIONAL GROUP, INC. & SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
<CAPTION>
ASSETS
<S> <C> <C>
Current assets:
Cash & cash equivalents.......................................................... $ 2,317,118 $ 1,735,062
Trade accounts receivable--net................................................... 13,392,498 9,665,722
Inventory--net................................................................... 6,813,679 6,998,102
Other current assets............................................................. 985,669 831,795
------------- -------------
Total current assets........................................................... 23,508,964 19,230,681
Property, plant and equipment, net................................................. 15,222,689 16,520,286
Goodwill, net...................................................................... 26,899,502 27,005,087
Closure assets..................................................................... -- 536,804
Deferred tax assets................................................................ 941,785 941,785
Other non-current assets........................................................... 340,269 336,959
------------- -------------
Total assets................................................................... $ 66,913,209 $ 64,571,602
------------- -------------
------------- -------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable................................................................. $ 6,417,245 $ 6,306,198
Accrued expenses................................................................. 6,917,599 5,745,548
Accrued taxes.................................................................... 1,641,038 169,864
Current maturities of long-term obligations and capital leases................... 2,158,727 1,893,156
------------- -------------
Total current liabilities...................................................... 17,134,609 14,114,766
Long-term liabilities
Long-term debt obligations, less current maturities.............................. 34,558,243 35,391,982
Deferred taxes................................................................... 4,489,263 4,550,553
Other liabilities................................................................ 807,556 761,404
------------- -------------
Total long-term liabilities.................................................... 39,855,062 40,703,939
Shareholders' equity
Common stock A................................................................... 865 865
Common stock B................................................................... 875 830
Additional paid in capital....................................................... 9,473,259 9,428,305
Retained earnings (deficit)...................................................... 344,445 (182,337)
Foreign currency translation adjustment.......................................... 104,094 505,234
------------- -------------
Total shareholders' equity..................................................... 9,923,538 9,752,897
------------- -------------
Total liabilities and shareholders' equity......................................... $ 66,913,209 $ 64,571,602
------------- -------------
------------- -------------
</TABLE>
<PAGE>
ALLIANCE INTERNATIONAL GROUP & SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Net sales.......................................................................... $ 47,641,299 $ 44,390,993
Cost of goods sold................................................................. 32,182,914 29,539,587
------------- -------------
Gross profit....................................................................... 15,458,385 14,851,406
Selling and advertising.......................................................... 4,133,290 3,805,176
Administrative and general....................................................... 5,577,425 5,480,485
Amortization of goodwill......................................................... 731,166 416,448
------------- -------------
Total operating expenses........................................................... 10,441,881 9,702,109
Operating profit................................................................... 5,016,504 5,149,297
------------- -------------
Interest income.................................................................. 13,751 44,121
Interest expense................................................................. (2,493,644) (1,456,141)
Other expense, net............................................................... (433,828) (699,097)
------------- -------------
Total other expense................................................................ (2,913,721) (2,111,117)
Income before taxes................................................................ 2,102,783 3,038,180
Income tax expense................................................................. 1,576,001 323,305
------------- -------------
Net income......................................................................... $ 526,782 $ 2,714,875
------------- -------------
------------- -------------
</TABLE>
<PAGE>
ALLIANCE INTERNATIONAL GROUP, INC. & SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income........................................................................... $ 526,782 $ 2,714,875
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................... 2,800,128 1,864,137
Deferred income taxes............................................................ (61,290) (116,179)
Loss on sale of equipment........................................................ 51,085 8,459
Decrease (increase) in operating assets:
Trade accounts and notes receivable............................................ (3,726,776) 795,077
Inventories.................................................................... 184,423 (495,239)
Other assets................................................................... (156,970) (257,551)
Increase (decrease) in operating liabilities:
Accounts payable............................................................... 358,371 (67,342)
Accrued other expenses......................................................... 998,645 (225,192)
Income taxes payable........................................................... 1,471,174 (56,310)
Other liabilities.............................................................. (27,767) --
------------ -------------
Net cash provided by operating activities............................................ 2,417,805 4,164,735
INVESTING ACTIVITIES
Purchase of property, plant and equipment............................................ (520,469) (2,150,716)
Sale of property, plant and equipment................................................ 485,719 --
Cash paid for acquisition costs...................................................... (467,693) --
Other investing activities, net...................................................... (214) --
------------ -------------
Net cash used in investing activities................................................ (502,657) (2,150,716)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and long-term borrowing....................... 815,099 20,892,944
Principal repayments on revolving line of credit and long-term borrowing............. (1,764,706) (22,247,802)
Payments under capital leases........................................................ (78,149) (138,882)
Proceeds from issuance of stock...................................................... 45,000 --
------------ -------------
Net cash used in financing activities................................................ (982,756) (1,493,740)
Exchange rate effect on cash......................................................... (350,336) (786,510)
------------ -------------
Net increase (decrease) in cash and cash equivalents................................. 582,056 (266,231)
Cash and cash equivalents at beginning of period..................................... 1,735,062 3,506,396
------------ -------------
Cash and cash equivalents at end of period........................................... $ 2,317,118 $ 3,240,165
------------ -------------
------------ -------------
</TABLE>
<PAGE>
ALLIANCE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of Alliance International Group, Inc. and its wholly owned
subsidiaries (the "Company" or "Alliance"). Certain reclassifications have been
made to the prior period presentation to conform to the current presentation.
The condensed consolidated financial statements of Alliance included herein
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements reflect all
adjustments, which are of a normal recurring nature, to present fairly the
Company's financial position, results of operations and cash flows at the dates
and for the periods presented. These condensed consolidated financial statements
should be read in conjunction with the Company's audited financial statements
and notes thereto included in the Company's audited financial statements for the
year ended December 31, 1997. Interim results of operations are not necessarily
indicative of results to be expected for the year.
2. INVENTORIES
At September 30, 1998 and December 31, 1997, components of inventories were
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Raw materials and supplies.......................................................... $ 2,759,506 $2,750,686
Work in process and finished goods.................................................. 4,054,173 4,247,416
------------- ------------
Total............................................................................... $ 6,813,679 $6,998,102
------------- ------------
------------- ------------
</TABLE>
3. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which requires
companies to disclose components of comprehensive income, defined as the total
of net income and all other non-owner changes in equity. This statement requires
disclosure only; therefore, its adoption has no effect on the Company's
financial position or results of operations.
Total comprehensive income for the nine months ended September 30, 1998 and
1997 was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
<S> <C> <C>
1998 1997
----------- -------------
Net income............................................................................ $ 526,782 $ 2,714,875
Other comprehensive income:
Foreign currency translation adjustment............................................. (401,140) (2,114,798)
----------- -------------
Total comprehensive income............................................................ $ 125,642 $ 600,077
----------- -------------
----------- -------------
</TABLE>
<PAGE>
EXHIBIT 99.4
POLYVISION CORPORATION & SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE TWELVE MONTHS ENDING APRIL 30, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ALLIANCE
POLYVISION INTERNATIONAL PRO FORMA
CORPORATION GROUP ADJUSTMENTS PRO FORMA
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales................................................................ $34,167 $60,667 $94,834
Cost of goods sold....................................................... 24,286 40,463 $ 327(A) 65,076
----------- ------------- ----------- ---------
Gross profit............................................................. 9,881 20,204 (327) 29,758
Selling, general and administrative.................................... 8,344 12,243 20,587
Research and development............................................... -- 443 443
Amortization of goodwill............................................... 145 832 619(B) 1,596
----------- ------------- ----------- ---------
Total operating expenses............................................. 8,489 13,518 619 22,626
Operating profit (loss).................................................. 1,392 6,686 (946) 7,132
Interest income........................................................ -- 30 30
Interest expense....................................................... (839) (2,889) (4,927)(C) (8,655)
Other income (expense)................................................. 472 (778) 210(D) (96)
----------- ------------- ----------- ---------
Total other expense, net............................................. (367) (3,637) (4,717) (8,721)
Income (loss) before taxes............................................... 1,025 3,049 (5,663) (1,589)
Income tax expense (benefit)............................................. 15 1,232 (1,715)(E) (468)
----------- ------------- ----------- ---------
Net income (loss)........................................................ 1,010 1,817 (3,948) (1,121)
Preferred stock dividends................................................ 1,545 -- 61(F) 1,606
----------- ------------- ----------- ---------
Net income (loss) available to common shareholders....................... $ (535) $ 1,817 $(4,009) $(2,727)
----------- ------------- ----------- ---------
----------- ------------- ----------- ---------
Earnings (loss) per share of common stock:
Basic.................................................................. $ (0.06) $ (0.19)
----------- ---------
----------- ---------
Diluted................................................................ $ (0.06) $ (0.19)
----------- ---------
----------- ---------
Average common shares outstanding:
Basic.................................................................. 8,562 5,531(G) 14,093
----------- ----------- ---------
----------- ----------- ---------
Diluted................................................................ 8,562 8,514(G) 17,076
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
<PAGE>
POLYVISION CORPORATION & SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDING OCTOBER 31, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ALLIANCE
POLYVISION INTERNATIONAL PRO FORMA
CORPORATION GROUP ADJUSTMENTS PRO FORMA
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales................................................................ $21,950 $35,329 $57,279
Cost of goods sold....................................................... 15,444 23,444 $ 107(A) 38,995
----------- ------------- ----------- ---------
Gross profit............................................................. 6,506 11,885 (107) 18,284
Selling, general and administrative.................................... 4,269 6,536 10,805
Research and development............................................... -- 227 227
Amortization of goodwill............................................... 72 526 200(B) 798
----------- ------------- ----------- ---------
Total operating expenses............................................. 4,341 7,289 200 11,830
Operating profit (loss).................................................. 2,165 4,596 (307) 6,454
Interest income........................................................ -- 14 14
Interest expense....................................................... (450) (1,685) (2,192)(C) (4,327)
Other income (expense)................................................. (85) (315) 180(D) (220)
----------- ------------- ----------- ---------
Total other expense, net............................................. (535) (1,986) (2,012) (4,533)
Income (loss) before taxes............................................... 1,630 2,610 (2,319) 1,921
Income tax expense (benefit)............................................. -- 1,749 (720)(E) 1,029
----------- ------------- ----------- ---------
Net income (loss) from continuing operations............................. 1,630 861 (1,599) 892
Preferred stock dividends................................................ -- -- 803(F) 803
----------- ------------- ----------- ---------
Net income (loss) from continuing operations available to common
shareholders........................................................... $ 1,630 $ 861 $ (2,402) $ 89
----------- ------------- ----------- ---------
----------- ------------- ----------- ---------
Earnings (loss) per share of common stock:
Basic.................................................................. $ 0.19 $ 0.01
----------- ---------
----------- ---------
Diluted................................................................ $ 0.19 $ 0.01
----------- ---------
----------- ---------
Average common shares outstanding:
Basic.................................................................. 8,562 5,531(G) 14,093
----------- ----------- ---------
----------- ----------- ---------
Diluted................................................................ 8,785 8,378(G) 17,163
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
<PAGE>
POLYVISION CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
AS OF OCTOBER 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ALLIANCE
POLYVISION INTERNATIONAL PRO FORMA
CORPORATION GROUP ADJUSTMENTS PRO FORMA
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 165 $ 1,283 $-- $ 1,448
Accounts receivable, net................................................ 8,403 12,868 21,271
Inventories............................................................. 4,911 7,213 792(H) 12,916
Costs and estimated earnings in excess of billings on uncompleted
contracts............................................................. 1,390 -- 1,390
Other current assets.................................................... 531 986 1,517
----------- ------------- ----------- ---------
Total current assets.................................................. 15,400 22,350 792 38,542
Property, plant and equipment, net........................................ 1,535 15,098 1,364(I) 17,997
Goodwill, net............................................................. 3,620 26,853 31,386(J) 61,859
Other non-current assets.................................................. 11 1,283 3,687(K) 4,981
----------- ------------- ----------- ---------
Total assets.......................................................... $20,566 $65,584 $37,229 $123,379
----------- ------------- ----------- ---------
----------- ------------- ----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short term borrowings................................................... $ 3,736 $-- $(3,736)(L) $ --
Current maturities of long-term debt.................................... 302 2,143 23(L) 2,468
Accounts payable........................................................ 2,286 6,097 8,383
Accrued expenses........................................................ 1,819 8,913 (300)(L) 10,432
Other current liabilities............................................... 325 50 375
----------- ------------- ----------- ---------
Total current liabilities............................................. 8,468 17,203 (4,013) 21,658
Long-term debt, less current maturities................................... 102 32,657 39,563(L) 72,322
Indebtedness to The Alpine Group, Inc..................................... 13,026 -- (13,026)(M) --
Other long-term liabilities............................................... 368 5,909 666(N) 6,943
----------- ------------- ----------- ---------
Total liabilities..................................................... 21,964 55,769 23,190 100,923
Stockholders' equity (defict)............................................. (1,398) 9,815 14,039(M) 22,456
----------- ------------- ----------- ---------
Total liabilities and stockholders' equity............................ $20,566 $65,584 $37,229 $123,379
----------- ------------- ----------- ---------
----------- ------------- ----------- ---------
</TABLE>
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. ADJUSTMENTS TO PRO FORMA FINANCIALS
(A) Reflects the increase in depreciation expense resulting from the allocation
of a portion of the purchase price to property, plant and equipment.
(B) Reflects the increase in amortization expense resulting from the excess of
the purchase price over the fair value of the net assets acquired amortized
over 40 years.
(C) Reflects the increase in interest expense resulting from additional debt
incurred as a result of the acquisition.
(D) Reflects the elimination of management fee charged to Alliance International
Group by former owner.
(E) Reflects pro forma adjustments to income tax expense resulting from the
transaction.
(F) Reflects the adjustment to preferred stock dividends resulting from the
issuance of 9% preferred stock as a result of the acquisition.
(G) Reflects the adjustment to common and diluted stock outstanding from the
issuance of common stock and warrants as a result of the acquisition and the
Alpine exchange transaction.
(H) Reflects adjustments to the LIFO valuation of inventory.
(I) Reflects the allocation of a portion of the purchase price to property,
plant and equipment based on estimated fair market values.
(J) The following reflects the preliminary allocation of the purchase price to
the net assets acquired based upon estimated fair values of such assets:
<TABLE>
<CAPTION>
AMOUNT
(IN
THOUSANDS)
-------------
<S> <C>
Estimated acquisiton cost, including expenses.................................. $ 77,748
Less: Historical book values of net assets at October 31, 1998................. (9,815)
Write-up of property, plant and equipment...................................... (698)
Write-up of inventory.......................................................... (792)
Debt retired and assumed, including accrued interest........................... (35,057)
-------------
$ 31,386
-------------
-------------
</TABLE>
(K) Reflects capitalization of deferred financing costs.
(L) Reflects adjustments to current and long-term debt and accrued interest
resulting from additional debt incurred as a result of the acquisition.
(M) Reflects the recapitalization of PolyVision Corporation as a result of the
Alpine exchange transaction and the elimination of the equity of Alliance
International Group.
(N) Reflects additional deferred taxes recorded as a result of the allocation of
a portion of the purchase price to property, plant and equipment.
2. UNUSUAL ITEMS
The pro forma combined statements of income do not include certain
non-recurring restructuring charges the Company expects to record in December
1998 as a result of a planned plant closure.
In addition, the earnings per share calculation reflected in the pro forma
combined statements of income excludes a one-time gain which the Company expects
to record as a result of the Alpine exchange transaction.
