<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
</TABLE>
<TABLE>
<S> <C>
For the transition period from Commission file number
to 1-10555
</TABLE>
POLYVISION CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NEW YORK 13-3482597
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4888 SOUTH OLD PEACHTREE ROAD
NORCROSS, GEORGIA 30071
(Address of principal executive (Zip Code)
offices)
</TABLE>
(770) 447-5043
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
The number of shares outstanding of the registrant's Common Stock, par value
$.001 per share, as of May 12, 2000 was 14,165,527 shares.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the requirements of Form 10-Q and, therefore,
do not include all information and footnotes required by generally accepted
accounting principles. However, in the opinion of management, all adjustments
(which, except as disclosed elsewhere herein, consist only of normal recurring
accruals) necessary for a fair presentation of the results of operations for the
relevant periods have been made. Results for the interim periods are not
necessarily indicative of the results to be expected for the year. These
condensed consolidated financial statements should be read in conjunction with
the summary of significant accounting policies and the notes to the consolidated
financial statements included in PolyVision Corporation's Report on Form 10-K
for the year ended December 31, 1999.
2
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,605 $ 8,128
Accounts receivable (net of allowance for doubtful
accounts of $2,203 and $2,264 at March 2000 and December
1999, respectively)..................................... 27,822 24,927
Inventories............................................... 18,569 14,033
Prepaid expenses and other current assets................. 8,544 7,639
-------- --------
Total current assets.................................... 61,540 54,727
Property, plant and equipment, net........................ 18,664 17,307
Goodwill (less accumulated amortization of $4,309 and
$3,747 at March 2000 and December 1999, respectively)... 85,351 80,953
Other assets.............................................. 4,089 3,947
-------- --------
Total assets............................................ $169,644 $156,934
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 7,039 $ 4,616
Accounts payable.......................................... 15,172 9,986
Accrued expenses.......................................... 16,045 17,228
-------- --------
Total current liabilities............................... 38,256 31,830
Long-term debt, less current maturities................... 95,269 89,250
Other long-term liabilities............................... 7,033 6,671
-------- --------
Total liabilities....................................... 140,558 127,751
-------- --------
Stockholders' equity:
Series B preferred stock at liquidation value............. 12,750 12,750
Series C preferred stock at liquidation value............. 7,000 7,000
Series D preferred stock at liquidation value............. 6,000 6,000
Common stock, $.001 par value; authorized 40,000,000
shares; 14,163,527 shares and 14,156,193 shares issued
at March 31, 2000 and December 31, 1999, respectively... 14 14
Additional paid-in capital................................ 70,891 70,884
Retained deficit.......................................... (66,631) (66,553)
Cumulative foreign currency translation adjustment........ (938) (912)
-------- --------
Total stockholders' equity.............................. 29,086 29,183
-------- --------
Total liabilities and stockholders' equity............ $169,644 $156,934
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Net sales................................................... $31,352 $22,288
Cost of goods sold.......................................... 20,726 15,065
------- -------
Gross profit.............................................. 10,626 7,223
Selling, general and administrative......................... 6,678 5,167
Amortization of goodwill.................................... 573 423
------- -------
Operating income.......................................... 3,375 1,633
Interest expense............................................ (2,909) (2,146)
Interest income............................................. 99 24
Other income, net........................................... 130 106
------- -------
Income (loss) before income taxes......................... 695 (383)
Provision for income taxes.................................. (209) (200)
------- -------
Net income (loss)......................................... 486 (583)
Preferred stock dividends................................... (564) (402)
------- -------
Net loss applicable to common stock....................... $ (78) $ (985)
======= =======
Net income (loss) per share of common stock:
Basic and diluted:
Net income.............................................. $ 0.04 $ (0.04)
Preferred stock dividends............................... (0.04) (0.03)
------- -------
Net income (loss) per basic and diluted share of
common stock........................................ $ (0.00) $ (0.07)
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SERIES B SERIES C SERIES D
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------- ------------------- ------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- -------- -------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999..... 255,000 $12,750 140,000 $7,000 120,000 $6,000 14,156,193 $14
Exercise of stock options........ 7,334 --
Net income.......................
Dividends on preferred stock.....
Foreign currency translation
adjustment.....................
------- ------- ------- ------ ------- ------ ---------- ---
Balance at March 31, 2000........ 255,000 $12,750 140,000 $7,000 120,000 $6,000 14,163,527 $14
======= ======= ======= ====== ======= ====== ========== ===
<CAPTION>
CUMULATIVE
ADDITIONAL FOREIGN CURRENCY
PAID IN RETAINED TRANSLATION
CAPITAL DEFICIT ADJUSTMENT TOTAL
---------- -------- ---------------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1999..... $70,884 $(66,553) $(912) $29,183
Exercise of stock options........ 7 7
Net income....................... 486 486
Dividends on preferred stock..... (564) (564)
Foreign currency translation
adjustment..................... (26) (26)
------- -------- ----- -------
Balance at March 31, 2000........ $70,891 $(66,631) $(938) $29,086
======= ======== ===== =======
</TABLE>
The accompanying notes are an integral part of this condensed consolidated
financial statement.
5
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 486 $ (583)
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Depreciation and amortization........................... 1,215 1,141
Amortization of deferred financing costs and accretion
of debt discount...................................... 570 494
Other, net.............................................. (79) (115)
Change in assets and liabilities, net of effects from
businesses acquired:
Accounts receivable................................... (1,978) 285
Inventories........................................... (3,153) (1,168)
Other assets.......................................... (220) (159)
Accounts and accrued expenses......................... 3,129 1,109
Other liabilities..................................... 118 (27)
-------- -------
Cash flows provided by operating activities................. 88 977
-------- -------
Cash flows from investing activities:
Capital expenditures...................................... (665) (568)
Purchase of businesses, net of cash acquired.............. (9,358) --
Other..................................................... -- (206)
-------- -------
Cash flows used for investing activities.................... (10,023) (774)
-------- -------
Cash flows from financing activities:
Repayments of long-term borrowings........................ (1,264) (750)
Long-term borrowings...................................... 10,000 --
Proceeds from exercise of stock options................... 7 25
Deferred financing costs.................................. (177) --
-------- -------
Cash flows provided by (used for) financing activities...... 8,566 (725)
-------- -------
Effect of exchange rate changes on cash and cash
equivalents............................................... (154) (309)
-------- -------
Net decrease in cash and cash equivalents................... (1,523) (831)
Cash and cash equivalents at beginning of period............ 8,128 4,841
-------- -------
Cash and cash equivalents at end of period.................. $ 6,605 $ 4,010
======== =======
Supplemental disclosures:
Cash paid for interest.................................... $ 2,333 $ 769
======== =======
Cash paid for taxes....................................... $ 247 $ --
======== =======
Acquisitions of businesses:
Assets, net of cash acquired.............................. $ 10,501
Liabilities assumed....................................... (1,143)
--------
Net cash paid............................................. $ 9,358
========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
6
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of PolyVision Corporation and its majority-owned
subsidiaries ("PolyVision"). Certain reclassifications have been made to the
prior period presentation to conform to the current period presentation.
PolyVision's operations are divided into three groups: the OEM (Original
Equipment Manufacture) Group, the Public Sector Group and the Commercial Group.
The OEM Group manufactures continuous coil ceramicsteel (a high grade, fused
ceramic surface on light gauge steel producing a non-porous, uniform finish)
used in writing surfaces for schools, conference rooms and other business
environments, as well as for construction projects, such as tunnels and
people-moving systems. The OEM Group also produces proprietary projection screen
surfaces, screen and non-screen printed ceramicsteel surfaces used for interior
and exterior architectural applications and high-endurance signage. The Public
Sector Group, which includes Nelson Adams, American Chalkboard and Peninsular
Slate (see Note 3), manufactures and sells custom-designed and engineered
writing, projection and other visual display surfaces, custom cabinets,
workstations and conference center casework and folding tables primarily to
schools and offices. The Commercial Group manufactures and sells menuboard
display systems to the fast food and convenience store industries, and
merchandising displays used principally by banks.
2. INVENTORIES
The components of inventories at March 31, 2000 and December 31, 1999 were
as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials......................................... $10,730 $ 8,510
Work in process....................................... 1,676 526
Finished goods........................................ 6,163 4,997
------- -------
$18,569 $14,033
======= =======
</TABLE>
3. ACQUISITIONS
AMERICAN CHALKBOARD COMPANY, L.L.C.
In January 2000, PolyVision acquired substantially all of the assets and
certain liabilities of American Chalkboard Company, L.L.C ("American
Chalkboard") for approximately $5.3 million, including expenses. The
consideration consisted of $5.3 million in cash. The acquisition was accounted
for using the purchase method and, accordingly, the results of operations of
American Chalkboard have been included in the consolidated financial statements
on a prospective basis from the date of acquisition. The purchase price was
allocated based upon preliminary assessment of the fair values of assets and
liabilities at the date of the acquisition. The allocation and related accruals
are subject to adjustments. The excess of the purchase price over the net assets
acquired is being amortized on a straight-line basis over 40 years.
7
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
3. ACQUISITIONS (CONTINUED)
PENINSULAR SLATE COMPANY
In January 2000, PolyVision acquired substantially all of the assets and
certain liabilities of Peninsular Slate Company ("Peninsular Slate") for
approximately $4.2 million, including expenses. The consideration consisted of
$4.2 million in cash and is subject to a working capital adjustment. The
acquisition was accounted for using the purchase method and, accordingly, the
results of operations of Peninsular Slate have been included in the consolidated
financial statements on a prospective basis from the date of acquisition. The
purchase price was allocated based upon preliminary assessment of the fair
values of assets and liabilities at the date of the acquisition. The allocation
and related accruals are subject to adjustments. The excess of the purchase
price over the net assets acquired is being amortized on a straight-line basis
over 40 years.
The cash portion of the American Chalkboard and the Peninsular Slate
acquisitions was funded by a $10.0 million increase in PolyVision's senior
secured credit facility (see Note 9 to PolyVision's Report on Form 10-K for the
year ended December 31, 1999).
NELSON ADAMS COMPANY
In August 1999, PolyVision acquired all of the outstanding common stock of
A. Lawer Corporation (doing business as Nelson Adams Company) ("Nelson Adams")
for approximately $31.1 million, including expenses. The consideration consisted
of $25.1 million in cash and $6.0 million in shares of PolyVision's Series D
convertible preferred stock. The acquisition was accounted for using the
purchase method and, accordingly, the results of operations of Nelson Adams have
been included in the consolidated financial statements on a prospective basis
from the date of acquisition. The purchase price was allocated based upon
preliminary assessment of the fair values of assets and liabilities at the date
of the acquisition. The allocation and related accruals are subject to
adjustments. The excess of the purchase price over the net assets acquired was
approximately $25.1 million and is being amortized on a straight-line basis over
40 years.
The cash portion of the Nelson Adams acquisition was funded by a
$22.0 million increase in PolyVision's senior secured credit facility (see
Note 9 to PolyVision's Report on Form 10-K for the year ended December 31, 1999)
and $2.0 million in cash proceeds from the sale of shares of PolyVision's
Series C convertible preferred stock to The Alpine Group, Inc and internal cash
resources.
PRO FORMA FINANCIAL DATA
Unaudited condensed pro forma results of operations, which give effect to
the American Chalkboard, Peninsular Slate and Nelson Adams acquisitions as if
the purchases occurred on January 1, 1999, 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
8
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
3. ACQUISITIONS (CONTINUED)
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 acquisitions taken place
at the beginning of the periods presented or of future results of operations.
<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Net sales............................................... $31,352 $28,464
Income from operations before income taxes.............. 3,375 1,541
Net income (loss)....................................... 486 (803)
Preferred stock dividends............................... (564) (567)
Net loss applicable to common stock..................... $ (78) $(1,370)
Net income (loss) per diluted share of common stock:
Net income (loss)..................................... $ 0.04 $ (0.08)
Preferred stock dividends............................. (0.04) (0.03)
------- -------
Net income (loss) per diluted share of common stock..... $ 0.00 $ (0.11)
======= =======
</TABLE>
4. RESTRUCTURING CHARGE
During fiscal 1999, PolyVision recorded a pre-tax nonrecurring restructuring
charge of approximately $2.9 million in connection with the Nelson Adams
acquisition. The charge related to costs to be incurred in consolidating
PolyVision's Public Sector Group with those of the acquired Nelson Adams'
operations. The restructuring charge included (i) $0.3 million for future
operating expenses associated with the closure of a manufacturing facility,
mainly a noncancelable operating lease, (ii) $0.8 million for replacing
duplicative, existing computer hardware and its related noncancelable operating
lease, (iii) $1.3 million for severance costs related to 58 employees terminated
due to duplicative functions, (iv) $0.2 million for costs incurred to
consolidate the operations of the closed facility, and (v) $0.3 million for
other costs incurred related to duplicative functions. As of March 31, 2000,
PolyVision incurred $1.8 million of the $2.9 million charge and expects to spend
the balance by year end.
9
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
5. EARNINGS PER SHARE
The computation of basic and diluted earnings per share for the three months
ended March 31, 2000 and 1999 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------------
2000 1999
------------------------------- -------------------------------
NET PER SHARE NET PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
-------- -------- --------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Loss attributable to common stock................. $ (78) $(985)
Less: preferred stock dividends................... (564) (402)
----- -----
Basic and diluted earnings (loss) per common
share........................................... $ 486 14,161 $0.04 $(583) 14,117 $(0.04)
===== ====== ===== ===== ====== ======
</TABLE>
6. COMPREHENSIVE INCOME
The components of comprehensive income for the three months ended March 31,
2000 and 1999 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
2000 1999
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss)............................... $486 $ (583)
Foreign currency translation adjustment......... (26) 1,242
---- ------
Comprehensive income.......................... $460 $ 659
==== ======
</TABLE>
7. DIVISIONAL REPORTING
PolyVision currently conducts business through three operating divisions:
the OEM Group, the Public Sector Group and the Commercial Group. The accounting
policies of the divisions 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 year ended December 31, 1999. PolyVision evaluates
divisional performance based on income from operations. Sales for each division
are based on the location of the third-party customer. All significant
intercompany transactions between divisions have been eliminated. PolyVision's
selling, general and administrative expenses are charged to each division 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.
10
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
7. DIVISIONAL REPORTING (CONTINUED)
The following provides information about each operating division for the
three months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net sales:
OEM Group............................................. $ 8,743 $10,536
Public Sector Group................................... 19,308 9,918
Commercial Group...................................... 3,301 1,834
------- -------
$31,352 $22,288
======= =======
Depreciation and amortization expense:
OEM Group............................................. $ 756 $ 969
Public Sector Group................................... 393 114
Commercial Group...................................... 66 58
------- -------
$ 1,215 $ 1,141
======= =======
Operating income:
OEM Group............................................. $ 1,911 $ 1,402
Public Sector Group................................... 1,510 352
Commercial Group...................................... 415 206
Corporate............................................. (461) (327)
------- -------
$ 3,375 $ 1,633
======= =======
</TABLE>
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
PolyVision operates through three operating groups, which manufacture a
broad range of products principally for the educational products market. The
three groups are: the OEM (Original Equipment Manufacture) Group, the Public
Sector Group and the Commercial Group.
- The OEM Group manufactures continuous coil ceramicsteel (a high grade,
fused ceramic surface on light gauge steel producing a non-porous, uniform
finish) used in writing surfaces for schools, conference rooms and other
business environments, as well as for construction projects, such as
tunnels and people-moving systems. The OEM Group also produces proprietary
projection screen surfaces, as well as screen and non-screen printed
ceramicsteel surfaces used for interior and exterior architectural
applications and high-endurance signage.
- The Public Sector Group, which includes American Chalkboard and Peninsular
Slate, both acquired in January 2000 (see Note 3 to the accompanying
condensed consolidated financial statements), manufactures and sells
custom-designed and engineered writing, projection and other visual
display surfaces, custom cabinets, workstations and conference center
casework, and folding tables primarily for schools and offices.
- The Commercial Group manufactures and sells menuboard display systems to
the fast food and convenience store industries, and merchandising displays
used principally by banks.
The following comparative table summarizes, for the period presented, sales
and operating income data for PolyVision on a group basis. Such group data is
presented on an historical reporting basis for the three months ended March 31,
2000 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Net sales:
OEM Group............................................. $ 8,743 $10,536
Public Sector Group................................... 19,308 9,918
Commercial Group...................................... 3,301 1,834
------- -------
$31,352 $22,288
======= =======
Gross profit............................................ $10,626 $ 7,223
======= =======
Gross margin............................................ 33.9% 32.4%
Selling, general and administrative expenses............ $ 6,678 $ 5,167
======= =======
Amortization of goodwill................................ $ 573 $ 423
======= =======
Operating income (loss):
OEM Group............................................. $ 1,911 $ 1,402
Public Sector Group................................... 415 206
Commercial Group...................................... 1,510 352
Corporate............................................. (461) (327)
------- -------
$ 3,375 $ 1,633
======= =======
</TABLE>
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. When we use words like
"believe", "expect", "anticipate", "predict", "potential",
12
<PAGE>
"seek", "continue", "will", "may", "could", "intend", "plan", and "estimate" or
similar expressions, we are making forward-looking statements. 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.
RESULTS OF OPERATIONS
Net sales for the quarter ended March 31, 2000 totaled $31.3 million,
representing an increase of $9.0 million, or 40.7% over net sales of
$22.3 million for the quarter ended March 31, 1999. The increase in net sales
resulted primarily from the contribution of $7.4 million in net sales from the
acquired operations of Nelson Adams, American Chalkboard and Peninsular Slate
offset by a reduction in net sales at the OEM Group. The OEM Group had sales of
$8.7 million for the quarter ended March 31, 2000 representing a decrease of
$1.8 million over net sales of $10.5 million for quarter ended March 31, 1999.
The decrease in the OEM Group's net sales is principally the result of the
elimination of $2.6 million in intercompany sales to Nelson Adams, American
Chalkboard and Peninsular Slate, which were reported as external sales in the
quarter ended March 31, 1999. The OEM Group's results were further impacted by
an approximately 10% decline in the value of the Belgian Franc. The Public
Sector Group had sales of $19.3 million for the quarter ended March 31, 2000
representing an increase of $9.4 million over sales of $9.9 million for the
quarter ended March 31, 1999. The increase was due to the inclusion of sales
contributed by the acquired operations of Nelson Adams, American Chalkboard and
Peninsular Slate in the quarter ended March 31, 2000. The Commercial Group had
sales of $3.3 million for the quarter ended March 31, 2000 representing an
increase of $1.5 million over sales of $1.8 million for the quarter ended
March 31, 1999. The increase in the Commercial Group sales resulted from a
number of large orders received from customers in the fast food market, the
majority of which are expected to be completed over the next six months.
Gross profit for the quarter ended March 31, 2000 totaled $10.6 million,
representing an increase of $3.4 million, or 47.1%, as compared to the same
quarter in the prior year. Gross margin for the quarter ended March 31, 2000
increased to 33.9% from 32.4% for the quarter ended March 31, 1999. The increase
in gross profit for the quarter resulted primarily from a contribution of
$2.1 million from Nelson Adams, American Chalkboard and Peninsular Slate. The
increase in gross margin reflects the attainment of cost saving synergies
resulting from the acquisitions of Nelson Adams and Alliance. Gross profit and
gross margin are expected to show continued improvement on a comparative basis
due to (i) the impact of the Nelson Adams, American Chalkboard and Peninsular
Slate acquisitions, (ii) higher production volumes and (iii) manufacturing cost
reduction resulting from the closures of Greensteel's Alliance, Ohio facility
and Riverside, California facility, combined with a continuing focus on cost
reduction initiatives.
Selling, general and administrative expenses ("SG&A") for the quarter ended
March 31, 2000 totaled $6.7 million, representing an increase of $1.5 million,
or 29.2%, as compared to the same period in the prior year. The increase in SG&A
for the quarter resulted primarily from the inclusion of $1.7 million in SG&A
from the acquired operations of Nelson Adams, American Chalkboard and Peninsular
Slate, offset by a $0.2 million decline in SG&A at PolyVision's existing
facilities. The PolyVision continues to see a reduction in SG&A expense
resulting from the consolidation of the Nelson Adams, American Chalkboard and
Peninsular Slate facilities. SG&A expense as a percentage of net sales has
declined on a pro forma basis from 23.9% for the quarter ended March 31, 1999 to
21.3% for the quarter ended March 31, 2000.
13
<PAGE>
Amortization expense increased to $0.6 million during the quarter ended
March 31, 2000 as compared to $0.4 million in the same period in the prior year.
The increase is due to the goodwill recorded as a result of the Nelson Adams,
American Chalkboard and Peninsular Slate acquisitions.
As a result of the increase in net sales and gross margin offset by the
increase in SG&A and goodwill amortization, operating income for the quarter
ended March 31, 2000 increased to $3.4 million as compared to $1.6 million for
the same period in the prior year.
Interest expense in the quarter ended March 31, 2000 increased to
$2.9 million from $2.1 million in the same period in the prior year. The
increase is due principally to debt incurred in connection with the Nelson
Adams, American Chalkboard and Peninsular Slate acquisitions.
Provision for income taxes remained constant at $0.2 million for the
quarters ended March 31, 2000 and 1999 due primarily to PolyVision's ability to
benefit from prior period operating losses incurred in the United States.
Net loss for the quarter ended March 31, 2000 was $0.1 million or $0.00 per
diluted share, as compared to a net loss of $1.0 million or $0.07 per diluted
share for the same period in the prior year. The comparative increase in net
income for the quarter was due to the significant increase in operating income
offset by higher interest expense resulting from acquisition debt incurred in
connection with the Nelson Adams, American Chalkboard and Peninsular Slate
acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 2000, PolyVision generated
$0.1 million in cash flow from operating activities consisting of $2.2 million
in cash flow generated from operations (net income plus non-cash charges),
reduced by $2.1 million in cash flow used for net working capital changes.
Significant working capital changes included a $2.0 million increase in accounts
receivable and $3.2 million increase in inventory offset by a $3.1 million
increase in accounts payable and accrued expenses. Cash used for investing
activities amounted to $10.0 million consisting principally of $9.4 million in
cash paid for the acquisitions of American Chalkboard and Peninsular Slate and
$0.6 million in capital expenditures. Cash provided by financing activities
amounted to $8.6 million consisting principally of $10.0 million in borrowings
on PolyVision's senior secured credit facility, the proceeds of which were used
to fund the acquisitions of American Chalkboard and Peninsular Slate offset by
net debt repayments of $1.3 million.
PolyVision's senior credit facilities consist of (a) a revolving line of
credit in the maximum principal amount of $15.0 million (of which $9.5 million
is available in the United States and $5.5 million is available to PolyVision's
European subsidiaries), (b) a Term Loan A in the aggregate principal amount of
$46.0 million and (c) a Term Loan B in the principal amount of $31.0 million.
Advances under the revolving line of credit will be available through
November 20, 2004, and borrowings thereunder may not at any time exceed (1) for
the United States borrowers, an amount equal to the lesser of $9.5 million or
the sum of 85% of eligible accounts receivable plus 60% of eligible inventory,
and (2) for the European borrowers, the lesser of $5.5 million or the sum of 85%
of eligible accounts receivable and 50% of eligible inventory. The term loans
are repayable in quarterly principal installments through October 31, 2005. The
senior credit facilities are secured by liens and security interests on
substantially all of PolyVision's real and personal property, including the
assets of PolyVision's subsidiaries and a pledge of the outstanding stock of
such subsidiaries. PolyVision is required to comply with customary performance
and financial covenants and is prohibited from paying any dividends on its
common stock without the lenders' prior written consent, and from paying
dividends on its preferred stock until it attains prescribed financial ratio
levels. At May 12, 2000, PolyVision had no borrowings outstanding on its
revolving line of credit.
PolyVision's senior subordinated loan of $25.0 million bears interest at a
fixed rate of 12.5% per annum, payable quarterly in arrears and matures on
December 30, 2006. The senior subordinated loan is guaranteed by PolyVision's
domestic subsidiaries. The loan agreement contains certain customary performance
and financial covenants similar to (but less stringent than) the financial
covenants applicable to
14
<PAGE>
the senior credit facilities. The senior subordinated loan is junior in right of
payment to the senior credit facilities, but senior in right of payment to the
$8.9 million convertible subordinated promissory note issued by PolyVision in
connection with the Alliance acquisition. In conjunction with the borrowing of
the senior subordinated loan, PolyVision issued to the lender detachable
warrants entitling the holder thereof to purchase, for nominal consideration,
2,986,467 shares of common stock of PolyVision representing approximately 10.1%
of its fully-diluted common stock.
PolyVision's convertible subordinated promissory note issued in connection
with the Alliance acquisition accrues interest at a rate of 10% per year, which
is added to the face amount of the note.
At March 31, 2000, PolyVision had $6.6 million in cash and cash equivalents.
PolyVision's principal debt service commitments for the next 12 months amount to
approximately $7.0 million and capital expenditures are expected to approximate
$3.0 million. Management 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.
YEAR 2000 COMPLIANCE
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. During 1999, PolyVision
completed its Year 2000 readiness program. These efforts included 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.
Subsequent to December 31, 1999, PolyVision has not experienced any material
Y2K transition issues. Furthermore, PolyVision did not experience any material
increase in customer orders as it related to Y2K issues during 1999. However,
there can be no assurance that a material customer or vendor will not experience
a Y2K transition issue, or that such transition issue will not have a material
negative impact on PolyVision's consolidated financial position, results of
operations, or cash flow.
PolyVision's cost of remediation and equipment and software replacement
totaled approximately $0.5 million. PolyVision does not anticipate incurring any
additional cost as it relates to the Y2K issue during fiscal 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in PolyVision's market risk sensitive instruments
and positions are the potential loss arising from adverse changes in interest
rate and foreign currency exchange rates.
INTEREST RATES
PolyVision primarily issues long-term debt obligations to support general
corporate purposes including capital expenditures and working capital needs as
well as to fund acquisitions. The majority of PolyVision's long-term debt
obligations bear a fixed rate of interest. A one-percentage point increase in
interest affecting PolyVision's floating rate long-term debt would reduce
pre-tax income by $0.4 million over the next fiscal year.
FOREIGN CURRENCY EXCHANGE RATES
Although a majority of PolyVision's operations are in the United States,
PolyVision does have foreign subsidiaries (primarily Belgium). The net
investments in foreign subsidiaries translated into dollars using month-end
exchange rates at March 31, 2000, are $21.1 million. The potential loss in fair
value impacting other comprehensive income resulting from a hypothetical 10%
change in quoted foreign currency exchange rates amounts to $2.1 million.
PolyVision does not use derivative financial instruments to hedge its exposure
to changes in foreign currency exchange rates.
15
<PAGE>
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
</TABLE>
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
POLYVISION CORPORATION
By: /s/ GARY L. EDWARDS
-----------------------------------------
Gary L. Edwards
Chief Financial Officer, Treasurer and
Secretary (as both a duly authorized
officer of the registrant and the
principal financial officer or chief
Date: May 12, 2000 accounting officer of the registrant)
</TABLE>
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF POLYVISION CORPORATION AND SUBSIDIARIES
</LEGEND>
<CIK> 0000835405
<NAME> POLYVISION CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 6,605
<SECURITIES> 0
<RECEIVABLES> 30,025
<ALLOWANCES> 2,203
<INVENTORY> 18,569
<CURRENT-ASSETS> 61,540
<PP&E> 22,017
<DEPRECIATION> 3,353
<TOTAL-ASSETS> 169,644
<CURRENT-LIABILITIES> 38,256
<BONDS> 102,308
0
25,750
<COMMON> 14
<OTHER-SE> 3,322
<TOTAL-LIABILITY-AND-EQUITY> 169,444
<SALES> 31,352
<TOTAL-REVENUES> 31,352
<CGS> 20,726
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<OTHER-EXPENSES> 7,251
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 695
<INCOME-TAX> 209
<INCOME-CONTINUING> 486
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 486
<EPS-BASIC> 0.04
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</TABLE>
