<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
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
For the transition period from ______________ to ______________
Commission file number 1-10555
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 offices) (Zip Code)
</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 August 14, 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>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,949 $ 8,128
Accounts receivable, (net of allowance for doubtful
accounts of $1,459 and $2,264 at June 2000 and December
1999, respectively)..................................... 33,380 24,927
Inventories............................................... 21,047 14,033
Prepaid expenses and other current assets................. 9,804 7,639
-------- --------
Total current assets.................................... 67,180 54,727
Property, plant and equipment, net........................ 18,522 17,307
Goodwill, (less accumulated amortization of $4,914 and
$3,747 at June 2000 and December 1999, respectively).... 88,272 80,953
Other assets.............................................. 4,380 3,947
-------- --------
Total assets........................................ $178,354 $156,934
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 7,714 $ 4,616
Accounts payable.......................................... 18,878 9,986
Accrued expenses.......................................... 17,690 17,228
-------- --------
Total current liabilities............................... 44,282 31,830
Long-term debt, less current maturities................... 95,799 89,250
Other long-term liabilities............................... 7,478 6,671
-------- --------
Total liabilities..................................... 147,559 127,751
-------- --------
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; 14,165,527 shares and 14,156,193 shares issued
at June 30, 2000 and December 31, 1999, respectively.... 14 14
Additional paid-in capital................................ 70,893 70,884
Retained deficit.......................................... (64,990) (66,553)
Cumulative foreign currency translation adjustment........ (872) (912)
-------- --------
Total stockholders' equity.............................. 30,795 29,183
-------- --------
Total liabilities and stockholders' equity............ $178,354 $156,934
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales............................................... $40,801 $26,816 $72,153 $49,104
Cost of goods sold...................................... 26,373 16,910 47,099 31,975
------- ------- ------- -------
Gross profit.......................................... 14,428 9,906 25,054 17,129
Selling, general and administrative..................... 7,671 5,062 14,349 10,229
Amortization of goodwill................................ 583 409 1,156 832
------- ------- ------- -------
Operating income...................................... 6,174 4,435 9,549 6,068
Interest expense........................................ (2,986) (2,115) (5,895) (4,260)
Interest income......................................... 38 22 137 45
Other income, net....................................... 67 167 197 273
------- ------- ------- -------
Income before income taxes............................ 3,293 2,509 3,988 2,126
Provision for income taxes.............................. (1,088) (647) (1,297) (847)
------- ------- ------- -------
Net income............................................ 2,205 1,862 2,691 1,279
Preferred stock dividends............................... (564) (402) (1,128) (804)
------- ------- ------- -------
Net income applicable to common stock................. $ 1,641 $ 1,460 $ 1,563 $ 475
======= ======= ======= =======
Net income per share of common stock:
Basic:
Net income.......................................... $ 0.16 $ 0.13 $ 0.19 $ 0.09
Preferred stock dividends........................... (0.04) (0.03) (0.08) (0.06)
------- ------- ------- -------
Net income per basic share of common stock........ $ 0.12 $ 0.10 $ 0.11 $ 0.03
======= ======= ======= =======
Diluted:
Net income.......................................... $ 0.08 $ 0.07 $ 0.15 $ 0.07
Preferred stock dividends........................... -- -- (0.06) (0.04)
------- ------- ------- -------
Net income per diluted share of common stock...... $ 0.08 $ 0.07 $ 0.09 $ 0.03
======= ======= ======= =======
</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 SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SERIES B SERIES C SERIES D
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- ------------------- ------------------- --------------------- PAID IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
-------- -------- -------- -------- -------- -------- ---------- -------- ----------
<S> <C> <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 $70,884
Exercise of stock
options............... 9,334 9
Net income..............
Dividends on preferred
stock.................
Foreign currency
translation
adjustment............
------- ------- ------- ------ ------- ------ ---------- --- -------
Balance at June 30,
2000.................. 255,000 $12,750 140,000 $7,000 120,000 $6,000 14,165,527 $14 $70,893
======= ======= ======= ====== ======= ====== ========== === =======
<CAPTION>
CUMULATIVE
FOREIGN CURRENCY
RETAINED TRANSLATION
DEFICIT ADJUSTMENT TOTAL
-------- ---------------- --------
<S> <C> <C> <C>
Balance at December 31,
1999.................. ($66,553) $(912) $29,183
Exercise of stock
options............... 9
Net income.............. 2,691 2,691
Dividends on preferred
stock................. (1,128) (1,128)
Foreign currency
translation
adjustment............ 40 40
-------- ----- -------
Balance at June 30,
2000.................. ($64,990) $(872) $30,795
======== ===== =======
</TABLE>
The accompanying notes on an integral part of these condensed consolidated
financial statement.
5
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 2,691 $ 1,279
Adjustments to reconcile net income to net cash provided
by (used for) operations:
Depreciation and amortization........................... 2,449 2,071
Amortization of deferred financing costs and accretion
of debt discount...................................... 1,155 990
Other, net.............................................. (197) (213)
Change in assets and liabilities, net of effects from
acquisitions:
Accounts receivable................................... (5,528) (3,500)
Inventories........................................... (5,179) (1,013)
Other assets.......................................... (1,104) (237)
Accounts payable and accrued expenses................. 6,051 1,153
Other liabilities..................................... 431 (55)
-------- -------
Cash flow provided by operating activities.................. 769 475
-------- -------
Cash flows from investing activities:
Capital expenditures...................................... (1,236) (1,087)
Purchase of businesses, net of cash acquired.............. (13,647) --
Other..................................................... -- (206)
-------- -------
Cash flow (used for) investing activities................... (14,883) (1,293)
-------- -------
Cash flows from financing activities:
Repayments of long-term borrowings........................ (2,381) (1,421)
Long-term borrowings...................................... 10,000 --
Borrowings under revolving credit facilities, net......... 2,000 1,000
Proceeds from exercise of stock options................... 9 25
Deferred financing costs.................................. (201) --
-------- -------
Cash flow provided by (used for) financing activities....... 9,427 (396)
-------- -------
Effect of exchange rate changes on cash and cash
equivalents............................................... (492) (424)
-------- -------
Net change in cash and cash equivalents..................... (5,179) (1,638)
Cash and cash equivalents at beginning of period............ 8,128 4,841
-------- -------
Cash and cash equivalents at end of period.................. $ 2,949 $ 3,203
======== =======
Supplemental disclosures:
Cash paid for interest.................................... $ 4,264 $ 1,650
======== =======
Cash paid for taxes....................................... $ 998 $ --
======== =======
Acquisition of businesses:
Assets, net of cash acquired.............................. $ 16,852
Liabilities assumed....................................... (3,205)
--------
Net cash paid............................................. $ 13,647
========
</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
JUNE 30, 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 principal activities focus in the visual communication
industry. PolyVision's operations are currently divided into four groups: the
OEM (Original Equipment Manufacture) Group, the Public Sector Group, the
Commercial Group and the Technology 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 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. The Technology Group, which includes IBID (see Note 3), manufactures and
sells active and interactive whiteboards in the education and office markets.
2. INVENTORIES
The components of inventories at June 30, 2000 and December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.......................................... $13,952 $ 8,510
Work in process........................................ 1,450 526
Finished goods......................................... 5,645 4,997
------- -------
$21,047 $14,033
======= =======
</TABLE>
3. ACQUISITIONS
IBID
In May 2000, PolyVision acquired substantially all of the assets and certain
liabilities of MicroTouch Systems, Inc's, IBID division ("IBID") for
approximately $3.2 million in cash, including expenses, and a contingent
consideration payable over a five-and-half year period based upon net sales of
IBID products. The acquisition was accounted for using the purchase method and,
accordingly, the results of operations of IBID have been included in
PolyVision's 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 20 years.
7
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
(UNAUDITED)
The cash portion of the IBID acquisition was funded by a $2.0 million
borrowing on PolyVision's revolving credit facility and internal cash resources
for the balances.
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 was $3.1 million and is being amortized on a straight-line basis over
40 years.
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, subject to a working capital
adjustment. The consideration consisted of $4.2 million in cash. 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 was approximately $3.7 million and 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 acquisition was funded by a $22.0 million increase
in PolyVision's senior secured credit facility (see Note 9 to the PolyVision's
Report on Form 10-K for the year ended
8
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
(UNAUDITED)
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)
Unaudited condensed pro forma results of operations, which give effect to
the IBID, 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 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
SIX MONTHS ENDED
JUNE 30,
---------------------
2000 1999
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net sales................................................. $74,527 $69,331
Income before income taxes................................ 3,799 2,288
Net income................................................ 2,584 1,556
Preferred stock dividends................................. (1,128) (1,134)
Net income applicable to common stock..................... $ 1,456 $ 422
Net income per diluted share of common stock.............. $ 0.08 $ 0.03
======= =======
</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,
previously involving a noncancelable operating lease, (ii) $0.8 million for
replacing duplicative, existing computer hardware and related noncancelable
operating leases, (iii) $1.3 million for severance cost 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 cost incurred related to duplicative functions. As of June 30, 2000,
PolyVision had incurred $2.1 million of the $2.9 million charge and expects to
spend the balance of such amount by year end.
9
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
(UNAUDITED)
5. EARNINGS PER SHARE
The computation of basic and diluted earnings per share for the three and
six months ended June 30, 2000 and 1999 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-----------------------------------------------------------------
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>
Income attributable to common stock.............. $2,205 $1,862
Less: preferred stock dividends.................. (564) (402)
------ ------
Basic earnings per common share.................. 1,641 14,165 $0.12 1,460 14,117 $0.10
===== =====
Dilutive impact of stock options, warrants and
grants......................................... 3,490 3,378
Assumed conversion of convertible seller note.... 141 2,667 160 2,667
Assumed conversion of preferred stock............ 564 9,250 402 6,783
------ ------ ------ ------
Diluted earnings per common share................ $2,346 29,572 $0.08 $2,022 26,945 $0.07
====== ====== ===== ====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------------
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>
Income attributable to common stock............. $ 2,691 $1,279
Less: preferred stock dividends................. (1,128) (804)
-------- ------
Basic earnings per common share................. 1,563 14,163 $0.11 475 14,117 $0.03
===== =====
Dilutive impact of stock options, warrants and
grants........................................ 3,532 3,409
-------- ------ ----- ------ ------ -----
Diluted earnings per common share............... $ 1,563 17,695 $0.09 $ 475 17,526 $0.03
======== ====== ===== ====== ====== =====
</TABLE>
6. COMPREHENSIVE INCOME
The components of comprehensive income for the three and six months ended
June 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS ENDED
ENDED JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income.................................................. $2,205 $1,862 $2,691 $1,279
Foreign currency translation adjustment..................... 66 489 40 1,731
------ ------ ------ ------
Comprehensive income...................................... $2,271 $2,351 $2,731 $3,010
====== ====== ====== ======
</TABLE>
10
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
(UNAUDITED)
7. DIVISIONAL REPORTING
The company currently conducts business through four operating divisions:
the OEM Group, the Public Sector Group, the Commercial Group and the Technology
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 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.
The following provides information about each business division for the
three and six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales:
OEM Group............................................. $16,078 $17,031 $28,488 $29,638
Public Sector Group................................... 26,892 11,371 46,761 21,367
Commercial Group...................................... 2,293 1,965 5,595 3,797
Technology Group...................................... 627 -- 627 --
Inter-Company Elimination............................. (5,089) (3,551) (9,318) (5,698)
------- ------- ------- -------
$40,801 $26,816 $72,153 $49,104
======= ======= ======= =======
Depreciation and amortization expense:
OEM Group............................................. $ 740 $ 761 $ 1,496 $ 1,730
Public Sector Group................................... 399 109 792 223
Commercial Group...................................... 66 60 132 118
Technology Group...................................... 18 -- 18 --
Corporate............................................. 11 -- 11 --
------- ------- ------- -------
$ 1,234 $ 930 $ 2,449 $ 2,071
======= ======= ======= =======
Operating income(loss):
OEM Group............................................. $ 4,415 $ 3,595 $ 6,326 $ 4,997
Public Sector Group................................... 2,588 1,131 4,098 1,483
Commercial Group...................................... 39 198 454 404
Technology Group...................................... 67 -- 67 --
Corporate............................................. (935) (489) (1,396) (816)
------- ------- ------- -------
$ 6,174 $ 4,435 $ 9,549 $ 6,068
======= ======= ======= =======
</TABLE>
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
PolyVision operates through four operating groups, which manufacture a broad
range of products principally for the educational products market. The four
groups are: the OEM (Original Equipment Manufacture) Group, the Public Sector
Group, the Commercial Group and the Technology 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 Technology Group, which includes IBID (see Note 3 to the condensed
consolidated financial statements), acquired in May 2000, manufactures and
sells active and interactive whiteboards in the education and office
products.
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", "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, risk
in product and technology development, market acceptance of new products and
continuing product demand, the impact of competitive products and pricing,
changing economic conditions, including changes in short term interest rates
and foreign currency fluctuation 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.
12
<PAGE>
The following comparative table summarizes, for the periods presented, sales
and operating income data for PolyVision on a group basis. This group data is
presented on an historical reporting basis for the three and six months ended
June 30, 2000 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(UNAUDITED AND IN THOUSANDS, EXCEPT
PERCENTAGES)
<S> <C> <C> <C> <C>
Net sales:
OEM Group............................................. $16,078 $17,031 $28,488 $29,638
Public Sector Group................................... 26,892 11,371 46,761 21,367
Commercial Group...................................... 2,293 1,965 5,595 3,797
Technology Group...................................... 627 -- 627 --
Inter-company elimination............................. (5,089) (3,551) (9,318) (5,698)
------- ------- ------- -------
$40,801 $26,816 $72,153 $49,104
======= ======= ======= =======
Gross profit............................................ $14,428 $ 9,906 $25,054 $17,129
======= ======= ======= =======
Gross margin............................................ 35.4% 36.9% 34.7% 34.9%
======= ======= ======= =======
Selling, general and administrative expenses............ $ 7,671 $ 5,062 $14,349 $10,229
======= ======= ======= =======
Amortization of goodwill................................ $ 583 $ 409 $ 1,156 $ 832
======= ======= ======= =======
Operating income (loss):
OEM Group............................................. $ 4,415 $ 3,595 $ 6,326 $ 4,997
Public Sector Group................................... 2,588 1,131 4,098 1,483
Commercial Group...................................... 39 198 454 404
Technology Group...................................... 67 -- 67 --
Corporate............................................. (935) (489) (1,396) (816)
------- ------- ------- -------
$ 6,174 $ 4,435 $ 9,549 $ 6,068
======= ======= ======= =======
</TABLE>
RESULTS OF OPERATIONS
Net sales for the quarter ended June 30, 2000 totaled $40.8 million,
representing an increase of $14.0 million, or 52.2%, over net sales of
$26.8 million for the quarter ended June 30, 1999. Net sales for the six months
ended June 30, 2000 totaled $72.2 million, representing an increase of
$23.1 million, or 46.9%, over net sales of $49.1 million for the six-months
ended June 30, 1999. The increase in net sales resulted primarily from the
contribution of $13.5 million and $21.1 million in net sales from the acquired
operations of Nelson Adams, American Chalkboard, Peninsular Slate and IBID,
offset by a reduction in net sales at the OEM Group and an increase in the
inter-company sales elimination during the three and six month periods ended
June 30, 2000. OEM Group sales of $16.1 million and $28.5 million for the three
and six-month periods ended June 30, 2000, respectively, represent a decrease of
$1.1 million and $1.2 million from net sales of $17.0 million and $29.6 million
for the three and six-month periods ended June 30, 1999, respectively. The
decrease in the OEM Group's net sales resulted primarily from an approximately
12% decline in the value of the Belgium Franc. Public Sector Group sales of
$26.9 million and $46.8 million for the three and six-month periods ended
June 30, 2000, respectively, represented an increase of $15.5 million and
$24.4 million over net sales of $11.4 million and $21.4 million for the three
and six-month periods ended June 30, 1999, respectively. The increase is due to
the inclusion of sales contributed by the acquired operations of Nelson Adams,
American Chalkboard and Peninsular Slate in the three and six-month periods
ended June 30, 2000. Commercial Group net sales of $2.3 million and
$5.6 million for the three and six-month periods ended June 30, 2000,
respectively, represent an increase of $0.3 million and $1.8 million over net
sales of $2.0 million and $3.8 million for the three and six month
13
<PAGE>
periods ended June 30, 1999. The increase in Commercial Group net sales resulted
from a number of large orders received from customers in the fast food market.
Technology Group sales of $0.6 million for the quarter and six months ended
June 30, 2000 represent the sales contributed by the acquired operations of IBID
(see Note 3 to the condensed consolidated financial statements).
Gross profit for the quarter ended June 30, 2000 totaled $14.4 million,
representing an increase of $4.5 million, or 45.6%, as compared to the same
quarter in the prior year. For the six months ended June 30, 2000, gross profit
was $25.1 million, representing an increase of $7.9 million, or 46.3%, as
compared to the same period in the prior year. Gross margin for the quarter
ended June 30, 2000 decreased to 35.4% from 36.9% for the quarter ended
June 30, 1999. Gross margin for the six months ended June 30, 2000 decreased to
34.7% from 34.9% for the six months ended June 30, 1999. The increase in gross
profit resulted primarily from the contribution of $4.7 million and
$7.0 million for the three and six months ended June 30, 2000, respectively, in
gross profit from Nelson Adams, American Chalkboard, Peninsular Slate and IBID.
Gross profit is expected to show continued improvement on a comparative basis
due to (i) the impact of the Nelson Adams, American Chalkboard, Peninsular Slate
and IBID acquisitions, (ii) higher production volumes and (iii) manufacturing
cost reductions resulting from the closure of Greensteel's Alliance, Ohio and
Riverside, California facilities and Peninsular Slate's manufacturing
facilities, combined with a continuing focus on cost reduction initiatives. We
expect gross margin to be marginally lower than those achieved in the prior year
comparative periods due to the effect of lower margin product sales in the
Public Sector Group, which have grown as a proportion of total sales.
Selling, general and administrative expenses ("SG&A") for the quarter ended
June 30, 2000 totaled $7.7 million, representing an increase of $2.6 million, or
51.5%, compared to the same period in the prior year. For the six months ended
June 30, 2000, SG&A was $14.3 million, representing an increase of
$4.1 million, or 40.3%, compared to the same period in the prior fiscal year.
The increase in SG&A for the three and six months resulted primarily from the
inclusion of $2.1 million and $3.8 million, respectively, in SG&A from the
acquired operations of Nelson Adams, American Chalkboard, Peninsular Slate and
IBID. 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 21.4% for the six months ended June 30, 1999 to 20.2% for
the six months ended June 30, 2000.
Amortization expense increased to $0.6 million and $1.2 million during the
three and six months ended June 30, 2000, respectively, as compared to
$0.4 million and $0.8 million, respectively, in the same periods in the prior
year. The increase was due to the goodwill recorded as a result of each of the
Nelson Adams, American Chalkboard, Peninsular Slate and IBID 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 three and
six months ended June 30, 2000 increased to $6.2 million and $9.5 million,
respectively, compared to $4.4 million and $6.1 million, respectively, for the
comparable periods in the prior year.
Interest expense in the quarter ended June 30, 2000 increased to
$3.0 million from $2.1 million in the same period in the prior year. For the six
months ended June 30, 2000, interest expense was $5.9 million compared to
$4.3 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, Peninsular Slate and IBID acquisitions.
Provision for income taxes for the three and six months ended June 30, 2000
was $1.1 million and $1.3 million, respectively, compared to $0.6 million and
$0.8 million for the same periods in the prior year. The increase in income tax
expense reflected the impact of non-deductible goodwill amortization, as well as
the inclusion of Alliance's European business which does not benefit from prior
periods' operating losses incurred in the United States.
14
<PAGE>
Net income for the quarter ended June 30, 2000 was $1.6 million, or $0.08
per diluted share, compared to $1.5 million, or $0.07 per diluted share, for the
comparable period in the prior year. For the six months ended June 30, 2000, net
income was $1.6 million, or $0.09 per diluted share, compared to net income of
$0.5 million, or $0.03 per diluted share, for the comparable period in the prior
year. The comparative increase in net income for the three and six months ended
June 30, 2000 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, Peninsular Slate and IBID
acquisitions and higher incremental tax rates.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 2000, PolyVision generated $0.8 million in
cash flow from operating activities consisting of $6.1 million in cash flow
generated from operations (net income plus non-cash charges), reduced by
$5.3 million in cash flow used for net working capital changes. Significant
working capital changes included a $5.5 million increase in accounts receivable
and $5.2 million increase in inventory, offset by a $6.1 million increase in
accounts payable and accrued expenses. Cash used for investing activities
amounted to $14.9 million consisting principally of $13.6 million in cash paid
for the acquisitions of American Chalkboard, Peninsular Slate and IBID and
$1.2 million in capital expenditures. Cash provided by financing activities
amounted to $9.4 million consisting principally of $12.0 million in borrowings
on PolyVision's senior secured credit facility, the proceeds of which were used
to fund the acquisitions of American Chalkboard, Peninsular Slate and IBID,
offset by net debt repayments of $2.4 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 August 11, 2000, PolyVision had $3.5 million of borrowings
outstanding on the 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 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.
15
<PAGE>
At June 30, 2000, PolyVision had $2.9 million in cash and cash equivalents.
PolyVision's principal debt service commitments over for the next 12 months
amount to approximately $7.7 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 for at
least 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.
PolyVision's cost of remediation and equipment and software replacement
totaled approximately $0.5 million. PolyVision does not anticipate incurring any
additional costs as they relate 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
rates 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 June 30, 2000, were $21.6 million. The potential loss in fair
value impacting other comprehensive income resulting from a hypothetical 10%
change in quoted foreign currency exchange rates amounted to $2.2 million.
PolyVision does not use derivative financial instruments to hedge its exposure
to changes in foreign currency exchange rates.
16
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) On May 31, 2000, PolyVision held its 1999 Annual Meeting of Shareholders
b) Not applicable
c) At the Annual Meeting, the following matters were voted upon:
(i) Election of four Class II directors to the Board of the
Directors, each to hold office until year 2001 Annual Meeting and
until his successor is elected and qualified
The following table sets forth the name of each nominee and the
voting with respect to each nominee for director:
<TABLE>
<CAPTION>
WITHHOLD
NAME FOR AUTHORITY BROKER NON-VOTES
---- ---------- --------- ----------------
<S> <C> <C> <C>
Steven S. Elbaum............................. 13,481,801 221,712 --
Lyman C. Hamilton, Jr........................ 13,481,667 221,846 --
Joseph A. Menniti............................ 13,481,798 221,715 --
Hansel B. Millican........................... 13,481,798 221,715 --
</TABLE>
(ii) Approval of an amendment to PolyVision's 1999 Stock Option Plan
increasing the number of shares reserved for issuance by an aggregate
of 1,400,000 shares to a new total of 2,400,000.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- -------- --------
<S> <C> <C>
8,787,330 547,990 49,015
</TABLE>
(iii) Ratification of PolyVision's 2000 Stock Compensation Plan for
Non-Employee Directors.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- -------- --------
<S> <C> <C>
8,965,591 324,120 94,624
</TABLE>
(iv) Ratification of the selection of Arthur Andersen LLP as
PolyVision's independent auditor.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- -------- --------
<S> <C> <C>
13,658,573 26,162 18,778
</TABLE>
17
<PAGE>
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-k
None
18
<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
Date: August 14, 2000 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
ACCOUNTING OFFICER OF THE REGISTRANT)
</TABLE>
19
