<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 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>
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Registrant's telephone number, including area code: (770) 447-5043
Securities registered pursuant to Section 12(b) of the Act:
------------------------
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, par value American Stock Exchange
$.001 per share
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the common equity held by non-affiliates of
the Registrant was $23,310,000 as of March 21, 2000.
The number of shares outstanding of the Registrant's common equity as of
March 21, 2000 was 14,163,527 shares.
------------------------
THE FOLLOWING DOCUMENT IS INCORPORATED BY REFERENCE INTO PART III OF THIS
FORM 10-K:
Proxy Statement to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934 with respect to the 1999 annual meeting of shareholders.
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<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
PolyVision Corporation (together with its subsidiaries, unless the content
otherwise requires, the "Company" or "PolyVision") is a leading manufacturer,
distributor and installer of fabricated visual communication and allied products
(such as whiteboards and chalkboards) to the educational products market in
North America and the leading manufacturer of light-gauge porcelain enamelized
steel ("Ceramicsteel") in the world. PolyVision operates through its three
operating groups--OEM (original equipment manufacture) Group, Public Sector
Group and 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 in construction projects, for
applications such as, automotive tunnels, airports and rail 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 manufactures and sells custom-designed and
engineered writing, projection and other visual display surfaces, custom
cabinets, workstation and conference center casework, covered walkways,
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.
ORGANIZATIONAL HISTORY
PolyVision traces its roots back to 1954 when it began manufacturing
"Greensteel" brand chalkboards and until recently was known by its former
corporate name Information Display Technology, Inc. ("IDT"). In 1992, the
Company's then parent, Adience, Inc. ("Adience"), listed IDT on the American
Stock Exchange in a transaction resulting in approximately 19% of the Company's
outstanding shares being held by the public. Greensteel (now included in the
Public Sector Group) manufactured Ceramicsteel in sheet form and fabricated
custom designed visual display surfaces and custom casework. In December 1994,
Adience was acquired by The Alpine Group, Inc. ("Alpine") and, in May 1995,
Alpine caused two of its subsidiaries, Posterloid Corporation ("Posterloid") and
Alpine PolyVision, Inc. ("APV") to be merged with and into separate wholly-owned
subsidiaries of IDT (the "Merger"). Concurrently with the Merger, IDT's name was
changed to PolyVision Corporation.
Subsequent to the Merger, Alpine, whose direct ownership had increased to
approximately 90% as a result of the Merger, distributed approximately 73% of
the Company's outstanding shares to its stockholders as a one-time dividend,
retaining an approximately 17% interest in PolyVision. In 1998, pursuant to an
exchange transaction, Alpine and another preferred shareholder exchanged
$25.7 million in preferred stock and indebtedness of $7.4 million (see Note 9 to
the accompanying consolidated financial statements) for approximately
5.3 million shares of common stock and approximately $12.4 million in a new
series of preferred stock of the Company. As a result, Alpine's direct ownership
in PolyVision increased to 48%.
In April 1997, the Company discontinued its research and development efforts
relating to a proprietary flat panel display technology being conducted through
its APV subsidiary. The technology is now being marketed through third-party
licensing agreements. As a result of this decision, the Company incurred a
restructuring charge of $0.7 million in fiscal 1997.
2
<PAGE>
RECENT GROWTH
During fiscal 1998, the Company began a process of consolidating the North
American manufacturing, fabrication and distribution of light-gauge porcelain
enamelized steel products. These products are used primarily in whiteboards and
chalkboards and sold to the educational products market. As a result of this
strategy, the Company has grown significantly over the past two years with
revenues increasing from $32.2 million in fiscal 1997 to a pro forma
$141.6 million in fiscal 1999. The Company's acquisitions have included the
following:
a. In November 1998, the Company acquired Alliance International
Group, Inc. ("Alliance") for approximately $75.0 million (the "Alliance
Acquisition"). Alliance manufactures porcelain ceramic steel in a
continuous coil form at its plants in Oklahoma and Genk, Belgium.
Alliance is the largest manufacturer of light-gauge ceramic steel in the
world. Alliance is now included in the OEM Group.
b. In August 1999, the Company acquired The Nelson Adams Company ("Nelson
Adams") from A. Lawer Corporation for approximately $30.0 million (the
"Nelson Adams Acquisition"). Nelson Adams is a leading designer and
supplier of visual display and related products, primarily for the
educational and office products market. Nelson Adams maintains design and
production facilities in Corona, California; Clymer, Pennsylvania; and
Pompano Beach, Florida. Nelson Adams has been combined with the Company's
Greensteel operation and now conducts business as Nelson Adams/GSI in the
Public Sector Group.
c. In January 2000, the Company completed the acquisitions of Peninsular
Slate Company ("Peninsular Slate") and American Chalkboard Company,
L.L.C. ("American Chalkboard") for approximately $10.0 million. Both
Peninsular Slate and American Chalkboard are regional fabricators of
visual display products, primarily to the educational products market.
Both Peninsular Slate and American Chalkboard have been combined with
Nelson Adams/GSI and included in the Public Sector Group. These
acquisitions have resulted in the Public Sector Group having a presence
in every major geographical market in the United States.
BUSINESS OPERATIONS
The following table sets forth unaudited dollar amounts and percentages of
sales of each of the Company's major business lines on an historic basis for the
calendar years ended December 31, 1997 and 1998 and on a pro forma basis for the
year ended December 31, 1999, assuming that the acquisitions of Nelson Adams,
Peninsular Slate and American Chalkboard were completed on January 1, 1999:
<TABLE>
<CAPTION>
ACTUAL ACTUAL PRO FORMA
1997 1998 1999
------------------- ------------------- -------------------
SALES % SALES % SALES %
-------- -------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
OEM Group........................................ $ -- -- $ 6.6 14.6 $ 41.9 29.6
Public Sector Group.............................. 26.6 82.6 29.9 66.2 92.1 65.0
Commercial Group................................. 5.6 17.4 8.7 19.2 7.6 5.4
----- ----- ----- ----- ------ -----
$32.2 100.0 $45.2 100.0 $141.6 100.0
===== ===== ===== ===== ====== =====
</TABLE>
For more detailed financial information relating to the Company's business
segments, see Item 7--"Management's Discussion and Analysis of Financial
Consolidation and Results of Operations" and Note 20 to the accompanying
consolidated financial statements.
3
<PAGE>
THE OEM GROUP
The OEM Group provides porcelain ceramic in continuous coil or sheet form to
original equipment manufacturers from its Alliance America and Alliance Europe
manufacturing operations.
PRODUCTS
The OEM Group manufactures continuous coil, light-gauge Ceramicsteel for a
wide range of market applications, including visual communication products,
transportation/infrastructure and industrial markets. The OEM Group's
Ceramicsteel combines the strength of steel with the unique properties of
ceramic, utilizing proprietary processes. Certain characteristics of
Ceramicsteel that management believes distinguishes it from other types of
durable surfaces are longevity, ease of maintenance, non-toxicity and resistance
to harsh environments.
The OEM Group's Ceramicsteel coils and sheets, which are available in a
variety of surface finishes, treatments and colors, are used primarily as
writing surfaces for markerboards and chalkboards, and as surfaces for
projection screens. The OEM Group also manufactures non-standard, high
performance, application-specific Ceramicsteel coils and sheets with distinctive
graphics, such as calendars, maps, artwork and signage.
The OEM Group's Ceramicsteel surfaces are particularly well-suited for
interior and exterior surfaces of tunnel systems, subways, airports, bus
terminals and train stations. They are frequently chosen substitutes for ceramic
tile, glazed block and painted aluminum, because of their longevity,
non-toxicity, fire-resistance, aesthetic potential, surface uniformity and
relative ease of installation and maintenance. In addition, the group's
Ceramicsteel surfaces have a variety of industrial applications, such as
components in radiant heaters, and as surfaces for industrial graphic displays
due to its ability to withstand high temperatures and high abuse environments.
SALES AND MARKETS
The OEM Group's visual display products are sold in the United States,
throughout Europe and to more than 40 countries worldwide. In the United States,
the OEM Group uses its direct sales personnel to sell its products to
fabricators and OEMs that produce and install visual communication products,
such as markerboards, chalkboards and other allied products. These products are
sold through a variety of distribution channels to a range of end users,
particularly educational facilities and businesses. In late 1999, the OEM Group
implemented a new long-term supply agreement program with its network of
fabricators and OEMs around the United States. Pursuant to these agreements,
which typically extend for three years, the OEM Group has agreed to supply to
these customers all of their requirements for Ceramicsteel at competitive
prices.
Outside the United States, the OEM Group sells its products to OEMs. Through
its facility in Belgium, it also sells finished visual communication products
predominantly to educational and business institutions. Sales of the group's
infrastructure and industrial products are made by its direct sales efforts
through employees and other sales agents working with architects and designers
on specific projects in the United States, Europe and Asia.
As of December 31, 1999, the OEM Group had a total of approximately 10 sales
agents covering various geographical areas outside of the United States,
principally in Europe and Asia, and employed five direct sales personnel in the
United States and 12 sales personnel in Europe.
4
<PAGE>
MANUFACTURING
The OEM Group conducts manufacturing operations at facilities in Okmulgee,
Oklahoma and Genk, Belgium. The following table summarizes the products
manufactured and equipment utilized at the OEM Group's manufacturing facilities:
<TABLE>
<CAPTION>
OKMULGEE, OKLAHOMA GENK, BELGIUM
----------------------------- -----------------------------
<S> <C> <C>
PRODUCTS - Coils & sheets - Coils & sheets
MANUFACTURED - Graphic sheets - Graphic sheets
- Laminated panels - Laminated panels
- Tunnel panels
- Heating elements
- Furniture surfaces
EQUIPMENT - 4ft. coil line - 4ft. coil line
- 5ft. coil line - Silkscreen graphics
- Aluminum molding line - Furniture molding
- Silkscreen graphics - Polyurethane molding
- Laminating equipment - Laminating equipment
- Printed circuit assembly
</TABLE>
RAW MATERIALS
The production of Ceramicsteel requires three basic materials: steel coil,
frit (glass fragments) and pigments or oxides. The OEM Group has never
experienced any difficulty in obtaining these materials in adequate quantity or
quality and relies on a range of suppliers in the United States, Europe and
Japan. The OEM Group maintains multiple sources of supply on all critical items
and manages its purchasing commitments on a worldwide basis to leverage its
purchasing strength.
COMPETITION
The OEM Group believes that its Ceramicsteel visual display surfaces are the
most widely used in the United States and European markets; however, the Company
competes with several domestic and international companies, some of which have
substantially greater financial and other resources than those of the OEM Group.
In North America, the OEM Group faces competition from companies such as
Claridge Products & Equipment, Inc., Kawasaki and NGK. Claridge is the OEM
Group's most significant competitor in North America, but differs from the group
in its market focus and production capabilities. Although Kawasaki and NGK are
large companies with substantial resources, they manufacture Ceramicsteel in
only a limited range of products. In Europe, NGK and Kawasaki are the OEM
Group's most significant Ceramicsteel competitors but, as in North America,
offer only a limited range of products. Management believes that the OEM Group's
future success will depend upon its ability to develop and produce reliable
products which incorporate developments in technology and satisfy consumer
preferences with respect to style and design and its ability to market a broad
range of such products in each applicable category at competitive prices.
SEASONALITY
The OEM Group's business is seasonal with much of its revenues and operating
profits occurring during the spring and summer months. This is due to the
increased business activity during these months when schools are closed and
general construction and renovation activity increases.
5
<PAGE>
BACKLOG
As of December 31, 1999, the OEM Group's backlog was approximately
$2.0 million, as compared with $6.6 million as of December 31, 1998. Backlog at
December 31, 1998 included infrastructure bookings for one large project, which
was completed during fiscal 1999. Due to the nature of its manufacturing process
and customer base, the OEM Group purchases and ships products to its customers
without experiencing a significant backlog. The OEM Group provides a 5 day
delivery on standard products and supports "just in time" delivery for certain
key customers.
THE PUBLIC SECTOR GROUP
The Public Sector Group consists of: (i) Nelson Adams/GSI (created through
the combination of Nelson Adams, Greensteel and the newly-acquired operations of
Peninsular Slate and American Chalkboard) which operates principally in North
America, (ii) Aubecq which operates principally in France and (iii) Pentagon
which operates in Denmark. Each of these companies service substantially similar
markets in their respective regions.
PRODUCTS
The Public Sector Group manufactures custom-made systems incorporating
Ceramicsteel chalkboards and markerboards, tackboards, display cases and
bulletin boards. The Public Sector Group also manufactures wood and plastic
laminate casework and specially designed in-wall folding tables. These products
are distributed principally to the educational products market and in most cases
are used in new construction or renovation of schools. Ceramicsteel, which is
the principal component in the production of chalkboards and markerboards, is
obtained from the Company's OEM Group.
Ceramicsteel writing surfaces, which are available in a range of colors and
surface types, are virtually indestructible and maintenance free, and are
warranted by PolyVision to retain their original writing and erasing qualities
under normal usage and wear. As a result of these product qualities, management
believes that Ceramicsteel writing surfaces currently account for approximately
75% of all chalkboard and markerboard sales in the United States and will
continue to grow for the foreseeable future.
The Public Sector Group's chalkboards, tackboards, markerboards and
cabinetry are typically sold together as a package to finish facility wall
surfaces in schools and offices. These products are manufactured at one or more
of the Public Sector Group's production and fabrication facilities located in
Corona, California; Dixonville, Pennsylvania; Clymer, Pennsylvania; Wetumpka,
Alabama; Pompano Beach, Florida; Crespin, France, and Odense, Denmark.
SALES AND MARKETS
Public Sector Group products are sold primarily through a bid process
conducted by architects and general contractors working with the group's sales
staff. Warranties made by the Public Sector Group with respect to its products
and services are consistent with industry standards, except for a lifetime
warranty on the writing surface of its Ceramicsteel markerboards and
chalkboards. In the United States, the Public Sector Group markets its products
through (i) a direct sales staff of 15 persons, most of whom work on a salary
plus commission basis, (ii) a network of 13 sales offices located throughout the
country and (iii) a network of independent dealers who do their own estimating,
quoting, project management and installation, and who bear the cost of
performance bonds and contract retainage. As of December 31, 1999, the Public
Sector Group had approximately 65 dealers covering various geographical areas of
the United States. In Europe, the Public Sector Group markets its products
through a direct representative sales staff of three and a network of
independent dealers.
6
<PAGE>
COMPETITION
The Public Sector Group competes with a variety of companies that
manufacture visual display products (such as chalkboards, markerboards and
tackboards) and institutional cabinetry, primarily for sale in the educational
market (such as schools, pre-schools and day-care centers). There are more than
100 companies that compete in the sale of visual display products, of which
approximately 20 companies compete in large geographical regions. One
competitor, Claridge Products & Equipment, Inc., competes nationally through a
network of independent distributors and sales offices. The Public Sector Group
also competes with numerous local woodworking firms with respect to its
cabinetry, and at least nine such companies that sell nationally, either through
a system of dealers, direct sales offices, or both. The Public Sector Group
maintains a competitive position through design quality, reliability and
attention to costs.
SEASONALITY
The Public Sector Group's business is seasonal and much of its revenues and
most of its operating profits are derived during the late spring and summer
months of the year. This occurs primarily as a result of increased business
activity during these months when schools are closed and construction and
renovation activity increases. The group has historically incurred a loss in the
winter months.
BACKLOG
As of December 31, 1999, the Public Sector Group's backlog was approximately
$38.5 million, as compared with $19.1 million as of December 31, 1998.
Management expects that most of the backlog will be filled in fiscal 2000.
Revenues from sales of specific products are recorded when title transfers,
which is typically upon shipment. Revenues from construction of custom
installations under contracts are recorded on the percentage-of-completion
method of accounting, measured on the basis of costs incurred to estimated total
costs, which approximates contract performance to date (see Note 2 to the
accompanying consolidated financial statements).
THE COMMERCIAL GROUP
PolyVision's Commercial Group is engaged in the development, manufacture and
sale of indoor and outdoor signage, graphics and menuboard display systems to
the transportation, theater, fast food and convenience store industries. The
group also develops, manufactures and markets changeable magnetic display
signage used primarily by banks to display interest rates, currency exchange
rates and other information. The Commercial Group products compete on the basis
of design, price, quality and ability to meet delivery requirements.
The Commercial Group's marketing activities are conducted through both a
direct sales force and sales representatives. The Commercial Group competes with
three other significant national menuboard manufacturers and a large number of
local manufacturers. As of December 31, 1999, the Commercial Group had
approximately 800 customers. Raw materials used in the group's operations are
widely available but are purchased from a limited number of sources in order to
obtain favorable prices and terms.
RESEARCH AND DEVELOPMENT
The Company has and will continue to support research and development at its
facility located with the OEM Group's manufacturing facility in Genk, Belgium.
The facility conducts basic research for improving existing products and
developing new products for existing and new markets. Research and development
personnel work closely with the production staff and customers to ensure quality
standards are maintained and improved.
7
<PAGE>
Recent developments include the introduction of a new generation of
Ceramicsteel writing surfaces P(3) (ceramicsteel). The new surface is an ultra
smooth ceramic coating that delivers a lustrous and silky smooth finish, which
improves coverage, contrast and erasability performance of chalkboards and
whiteboards.
EMPLOYEES
As of December 31, 1999, the Company employed approximately 960 employees.
Approximately 280 persons employed by the Company are represented by unions.
Collective bargaining agreements expire at various times between October 2000
and 2002. There are five such agreements covering approximately 80 employees
that are due to expire in fiscal 2000. The Company considers relations with its
employees to be satisfactory.
ENVIRONMENTAL MATTERS
The manufacturing operations of the Company's subsidiaries are subject to
extensive and evolving federal, foreign, state and local environmental laws and
regulations relating to, among other things, the storage, handling, disposal,
emission, transportation and discharge of hazardous substances, materials and
waste products as well as the imposition of stringent permitting requirements.
The Company does not believe that compliance with environmental laws and
regulations will have a material effect on the level of capital expenditures of
the Company or its business, financial condition, liquidity or results of
operations. No material expenditures relating to these matters were made in
1997, 1998 or 1999. However, violation of, or non-compliance with, such laws,
regulations or permit requirements, even if inadvertent, could result in an
adverse impact on the operations, business, financial condition, liquidity or
results of operations of the Company.
The Company continues to monitor a project to achieve full environmental
compliance at a facility no longer owned or operated. The Company is fully
indemnified by prior owners of the property.
8
<PAGE>
ITEM 2. PROPERTIES
The Company conducts its principal operations at the facilities listed
below:
<TABLE>
<CAPTION>
LOCATION OWNED OR LEASED FLOOR AREA (SQUARE FEET) LEASE EXPIRATION
- -------- --------------- ------------------------ ----------------
<S> <C> <C> <C>
PUBLIC SECTOR GROUP
Dixonville, Pennsylvania................... Owned 199,200 --
Wetumpka, Alabama(a)....................... Owned 20,000 --
Corona, California......................... Leased 50,000 2016
Riverside, California...................... Leased 31,000 2002
Pompano Beach, Florida..................... Leased 12,000 2003
Fraser, Michigan........................... Leased 4,700 2000
Lapier, Michigan(a)........................ Leased 30,000 2001
Landis, North Carolina..................... Leased 1,200 2000
Clymer, Pennsylvania....................... Leased 45,000 2002
Crespin, France............................ Owned 155,200 --
Odense, Denmark............................ Owned 24,800 --
OEM GROUP --
Norcross, Georgia.......................... Owned 9,500 --
Okmulgee, Oklahoma......................... Owned 180,000 --
Genk, Belgium.............................. Owned 124,000 --
COMMERCIAL GROUP
Long Island City, New York................. Leased 54,000 2001
-------
Total...................................... 940,600
</TABLE>
- ------------------------
(a) Acquired or assumed in connection with the Peninsular Slate and American
Chalkboard acquisitions in January 2000.
The Company believes that its plants are generally suitable and adequate for
the business being conducted and for servicing the requirements of its
customers. Capital spending plans are primarily designed to keep up with current
technology, to increase capacity in existing product lines and for cost
reduction initiatives. The extent of current utilization is generally consistent
with historical patterns and, in the view of management, is satisfactory. The
Company does not view any of its plants as being underutilized. The OEM Group
currently utilizes two or three production shifts per day and are scheduled for
additional shifts, as demand requires. The Public Sector Group's production
facilities currently utilize one production shift per day and are scheduled for
additional shifts as demand requires. During 1999, the Company's facilities
operated at approximately 75% capacity.
ITEM 3. LEGAL PROCEEDINGS
PolyVision and its subsidiaries are parties to routine litigation incidental
to their business. While the outcome of litigation can never be predicted with
certainty, the Company does not believe that any of the existing litigation will
have a material adverse effect upon its business, financial condition, liquidity
or results of operations.
In 1994, Reliance Insurance Company of New York (the "Plaintiff") commenced
an action in the Supreme Court of the State of New York, County of Suffolk,
against several defendants, including PolyVision, seeking money damages based on
the purported sale and delivery by defendants of some 860 insulated metal
curtain wall panels manufactured by PolyVision's Greensteel division in 1987 and
of an additional 520 replacement panels in 1991 and 1992. Plaintiff has alleged
that such panels were defective in their design and manufacture. Among the
theories of liability advanced by Plaintiff are breach of contract,
9
<PAGE>
and breach of implied warranties. Pursuant to orders of the Court, the causes of
action based on the 1987 transaction were dismissed on statute of limitation
grounds. However, Plaintiff was granted leave to serve an amended complaint to
allege, among other things, a claim under the New Jersey Consumer Fraud Act (the
"NJCFA") (which might permit treble damages), while preserving the right of the
defendants, including PolyVision, to challenge the applicability of the NJCFA.
The amended complaint was served in April 1997 and Plaintiff currently seeks
$1.4 million in damages from all defendants, as well as treble damages under the
NJCFA. PolyVision served its answer to the amended complaint substantially
denying Plaintiff's allegations of defective design and manufacture and pleading
affirmative defenses, as well as commencing third-party claims against an
adhesives supplier whose product was utilized by PolyVision in fabricating the
panels. Currently, discovery in the case is continuing. It is premature to
render an estimate of the outcome of this litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
COMMON STOCK INFORMATION
The common stock of PolyVision is traded on the American Stock Exchange
under the symbol PLI. The following table shows the high and low closing prices
for trades on the American Stock Exchange:
<TABLE>
<CAPTION>
HIGH LOW
------------- --------------
<S> <C> <C>
CALENDAR 1998
First Quarter.............................................. $ 1 1/2 $ 3/4
Second Quarter............................................. 1 5/8 15/16
Third Quarter.............................................. 2 1/8 1
Fourth Quarter............................................. 2 5/16 1 1/4
CALENDAR 1999
First Quarter.............................................. $ 3 7/16 $ 1 9/16
Second Quarter............................................. 2 15/16 1 11/16
Third Quarter.............................................. 2 9/16 1 3/4
Fourth Quarter............................................. 2 7/16 1 5/8
CALENDAR 2000
First Quarter (through March 21, 2000)..................... $ 3 11/16 $ 2 5/16
</TABLE>
The approximate number of security holders of PolyVision's common stock was
1,900 as of March 21, 2000. This number does not include the number of security
holders for whom shares are held in a "nominee" or "street" name. The closing
price of PolyVision's common stock on March 21, 2000, as reported by the
American Stock Exchange, was $3 3/8 per share.
DIVIDEND POLICY
PolyVision has never declared or paid dividends on its common stock and does
not expect to pay dividends on its common stock at any time in the foreseeable
future. The terms of PolyVision's senior credit facilities prohibit the payment
of common stock dividends. The terms of PolyVision's Series B, Series C and
Series D convertible preferred stock prohibit PolyVision from paying dividends
on all classes
10
<PAGE>
of stock junior to such stock (including the common stock) while shares of
PolyVision's Series B, Series C and Series D convertible preferred stock remain
outstanding.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements of PolyVision and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included herein.
<TABLE>
<CAPTION>
EIGHT
TWELVE MONTHS MONTHS TWELVE MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, APRIL 30,
------------------- ------------ ------------------------------
1999 1998(2) 1998(2) 1998 1997 1996
-------- -------- ------------ -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales from operations... $114,113 $ 45,180 $ 33,877 $ 34,167 $ 32,233 $ 35,627
Income (loss) from
operations................ 12,857 2,129 2,050 1,392 (4,289) (5,245)
Net income (loss)........... 3,087(1) 387(3) 591(3) 1,010 (5,109)(5) (5,769)
Preferred stock dividends... (1,857) (351) (179) (1,545) (2,059) (2,040)
Accretion of preferred
stock..................... -- (312) (312) -- -- --
Gain on conversion.......... -- 19,252(4) 19,252(4) -- -- --
-------- -------- -------- -------- -------- --------
Income (loss) applicable to
common stock.............. $ 1,230 $ 18,976 $ 19,352 $ (535) $ (7,168) $ (7,809)
Income (loss) per share:
Basic..................... $ 0.09 $ 2.07 $ 2.04 $ (0.06) $ (0.84) $ (0.94)
Diluted................... 0.07 2.07 2.04 (0.06) (0.84) (0.94)
BALANCE SHEET DATA:
Total assets................ $156,934 $122,208 $122,208 $ 18,464 $ 16,901 $ 18,983
Long-term obligations....... 89,250 74,511 74,511 13,842 11,499 7,380
Preferred stock............. 25,750 17,848 17,848 25,731 25,731 25,731
Total shareholders' equity
(deficit)................. 29,183 20,921 20,921 (3,475) (2,990) 4,084
</TABLE>
- ------------------------
(1) Includes a $2.9 million nonrecurring charge related to the acquisition of
Nelson Adams (see Note 10 to the accompanying consolidated financial
statements).
(2) During December 1998, the Company changed its fiscal year-end from April 30
to December 31. The eight-month transition period ended December 31, 1998
preceded the start of the new fiscal year (see Note 8 to the accompanying
consolidated financial statements). The twelve-month results for the year
ended December 31, 1998 are unaudited and are presented here for comparative
purposes.
(3) Includes a $1.3 million nonrecurring charge related to the acquisition of
Alliance (see Note 10 to the accompanying consolidated financial
statements).
(4) In November 1998, the Company entered an exchange transaction with Alpine
(see Notes 9 and 18 to the accompanying consolidated financial statements)
whereby Alpine and another preferred shareholder exchanged $25.7 million in
liquidation value of the Company's Series A Preferred Stock (plus accrued
dividends) and indebtedness of $7.4 million due from Alpine for
approximately 5.3 million shares of common stock of the Company and
$12.4 million in liquidation value of the Company's Series B Convertible
Preferred Stock. As a result of this transaction, the Company recognized a
$19.3 million gain on conversion.
11
<PAGE>
(5) Includes a $0.7 million restructuring charge for the discontinuance of APV's
operations (see Note 10 to the accompanying consolidated financial
statements).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company 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 manufactures and sells custom-designed and
engineered writing, projection and other visual display surfaces, custom
cabinets, workstation and conference center casework, covered walkways,
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.
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, risks related to PolyVision's large amount of
debt; history of net losses and accumulated deficits; integration of acquired
businesses; future capital requirements; competition, technical advances and
seasonality; environmental matters; dependence on the construction market for
educational buildings; 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>
<TABLE>
<CAPTION>
EIGHT
MONTHS
TWELVE MONTHS ENDED TWELVE MONTHS
ENDED DECEMBER 31, DECEMBER ENDED APRIL 30,
----------------------- 31, -----------------------
SEGMENT FINANCIAL DATA 1999 1998(1) 1998(1) 1998 1997
- ---------------------- -------- -------- ---------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Net sales
OEM Group........................... $ 45,508 $ 6,617 $ 6,617 $ -- $ --
Public Sector Group................. 61,052 29,919 23,058 27,813 26,152
Commercial Group.................... 7,553 8,644 4,202 6,354 6,081
-------- ------- ------- ------- -------
114,113 45,180 33,877 34,167 32,233
Gross profit.......................... $ 39,977 $13,755 $10,517 $ 9,881 $ 7,478
-------- ------- ------- ------- -------
Gross margin.......................... 35.0% 30.4% 31.0% 28.9% 23.2%
-------- ------- ------- ------- -------
Selling, general and administrative
expenses............................ $ 22,357 $10,081 $ 6,969 $ 8,344 $10,972
-------- ------- ------- ------- -------
Amortization of goodwill.............. $ 1,913 $ 295 $ 248 $ 145 $ 145
-------- ------- ------- ------- -------
Operating income (loss)
OEM Group........................... $ 9,318 $ 1,201 $ 1,201 $ -- $ --
Public Sector Group................. 5,727 1,933 2,032 1,275 (1,227)
Commercial Group.................... 734 453 285 552 (75)
Corporate and other................. (72) (208) (218) (435) (2,337)
-------- ------- ------- ------- -------
15,707 3,379 3,300 1,392 (3,639)
Nonrecurring expenses................. (2,850) (1,250) (1,250) -- (650)
-------- ------- ------- ------- -------
Operating income (loss)............... 12,857 2,129 2,050 1,392 (4,289)
Interest expense...................... (9,373) (1,716) (1,408) (839) (910)
Other income (expense)................ 1,265 (161) (201) 472 90
-------- ------- ------- ------- -------
Income (loss) before extraordinary
gain.............................. 4,749 252 441 1,025 (5,109)
Provision for income taxes............ (1,662) (301) (286) (15) --
-------- ------- ------- ------- -------
Income (loss) before
extraordinary gain on early
extinguishment of debt............ 3,087 (49) 155 1,010 (5,109)
Extraordinary gain on early
extinguishment of debt.............. -- 436 436 -- --
-------- ------- ------- ------- -------
Net income (loss)..................... $ 3,087 $ 387 $ 591 $ 1,010 $(5,109)
======== ======= ======= ======= =======
</TABLE>
(1) During December 1998, the Company changed its fiscal year-end from April 30
to December 31. The eight-month transition period ended December 31, 1998
preceded the start of the new fiscal year. The twelve-month results for the
year ended December 31, 1998 are unaudited and are presented here for
comparison purposes.
13
<PAGE>
RESULTS OF OPERATIONS
12 MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THE 12 MONTHS ENDED DECEMBER 31,
1998, UNAUDITED
Net sales for the twelve months ended December 31, 1999 totaled
$114.1 million, representing an increase of $68.9 million, or 152.6%, over net
sales of $45.2 million for the twelve months ended December 31, 1998. The
increase in net sales resulted primarily from the inclusion of the operations of
Alliance and Nelson Adams. Alliance, which was acquired in November 1998, and
Nelson Adams, which was acquired in August 1999, contributed $71.1 million in
net sales for the 12 months ended December 31, 1999. Sales in the OEM Group
increased from $6.6 million for the 12 months ended December 31, 1998 to
$45.5 million for the twelve months ended December 31, 1999, an increase of
$38.9 million resulting primarily from the inclusion of the Alliance
manufacturing operations. Sales in the Public Sector Group increased from
$29.9 million for the twelve months ended December 31, 1998 to $61.1 million for
the twelve months ended December 31, 1999, an increase of $31.2 million due
principally to the inclusion of the Nelson Adams operations since acquisition
and a full year of the operations of Alliance's European fabrication units.
Sales in the Commercial Group declined from $8.6 million for the twelve months
ended December 31, 1998 to $7.6 million for the twelve months ended
December 31, 1999, a decrease of $1.0 million due principally to a slow down in
orders from existing chain store customers. It is expected that order levels
will return to prior year levels during fiscal 2000, which combined with new
customers secured during the last quarter of fiscal 1999, should see revenues
increase over fiscal 1998 levels.
Gross profit for the 12 months ended December 31, 1999 totaled
$40.0 million, representing an increase of $26.2 million, or 190.6%, as compared
to the prior year. Gross margin increased to 35% for the 12 months ended
December 31, 1999 from 30% for the twelve months ended December 31, 1998. The
increase in gross profit resulted primarily from the contribution of
$26.3 million in gross profit from the acquired operations of Alliance and
Nelson Adams. The increase in gross margin resulted primarily from the inclusion
of higher margin product lines from both Alliance and Nelson Adams. On a
comparative basis, gross profit and gross margin are expected to show continued
improvement as the full impact of the synergies obtained from the Alliance and
Nelson Adams acquisitions is reflected in continuing operations. Since the
Alliance and Nelson Adams acquisitions, the Company has shut down two
manufacturing facilities and reduced the combined workforce by 20%. Further
gross profit and margin improvements are dependant on the Company's ability to
reduce costs as a result of higher production volumes and a continuing focus on
cost reduction initiatives.
Selling, general and administrative expenses ("SG&A") for the 12 months
ended December 31, 1999 totaled $22.4 million, representing an increase of
$12.3 million, or 122%, as compared to the prior year. The increase in SG&A
resulted primarily from the inclusion of $10.2 million and $2.8 million in SG&A
from the acquired operations of Alliance and Nelson Adams, respectively, offset
by a $0.5 million decline in SG&A in the Commercial Group. The decline in the
Commercial Group's SG&A was a direct response to the reduced level of activity
experienced during fiscal 1999. During fiscal 2000, it is anticipated that
synergies recognized from the integration of the Nelson Adams, Alliance,
American Chalkboard and Peninsular Slate acquisitions will continue to reduce
SG&A as a percentage of total revenue.
Amortization expense increased to $1.9 million during the 12 months ended
December 31, 1999, as compared to $0.3 million in the prior year. The increase
was due to the goodwill recorded as a result of the Alliance and Nelson Adams
acquisitions.
Consolidated operating income (excluding nonrecurring charges) for the
12 months ended December 31, 1999 was $15.7 million, representing an increase of
$12.3 million, or 364.5%, as compared to the twelve months ended December 31,
1998. The increase in operating income resulted primarily from the inclusion of
the operations of Alliance and Nelson Adams, offset by a reduction of
$0.2 million in operating income contributed by the Commercial Group.
14
<PAGE>
During the 12 months ended December 31, 1999, the Company recorded a pre-tax
nonrecurring charge of $2.9 million relating to the consolidation of the
Company's Public Sector Group with those of the acquired Nelson Adams'
operations. The restructuring charge includes $0.5 million for costs incurred to
close a facility operated by the Company prior to the Nelson Adams acquisition,
$1.1 million for costs incurred related to duplicative functions including
replacing duplicative computer hardware purchased under a noncancelable
operating lease and $1.3 million for severance costs. During the 12 months ended
December 31, 1998, the Company recorded a nonrecurring charge of $1.3 million,
which consisted of a $0.8 million advisory fee paid to an affiliate in
connection with the Alliance acquisition and $0.5 million relating to the
consolidation of the acquired operations of Alliance with those of the Company.
Interest expense for the 12 months ended December 31, 1999 increased to
$9.4 million from $1.7 million in the prior year. The increase was due
principally to debt incurred in connection with the Alliance and Nelson Adams
acquisitions.
Other income for the 12 months ended December 31, 1999 consisted of
$0.4 million from gain on sales of property, plant and equipment and
$0.8 million from gains related to foreign currency transactions. This compares
to other expense of $0.2 million in the prior year.
Provision for income taxes for the 12 months ended December 31, 1999 was
$1.7 million, as compared to $0.3 million for the prior year. The increase in
income tax expense reflects the impact of non-deductible goodwill amortization,
as well as the inclusion of Alliance's European business which does not benefit
from prior period operating losses incurred in the United States.
Net income before nonrecurring charges for the 12 months ended December 31,
1999 was $4.9 million, or $0.28 per diluted share, as compared to $1.2 million,
or $0.13 per diluted share, for the 12 months ended December 31, 1998. Net
income for the year ended December 31, 1999 was $3.1 million, or $0.17 per
diluted share, as compared to net loss before extraordinary gains of $49,000, or
$0.01 per diluted share, in the prior year. The comparative increase in net
income for the twelve months ended December 31, 1999 was due to the significant
increase in operating income, offset by higher interest expense resulting from
acquisition debt incurred in connection with the Alliance and Nelson Adams
acquisitions and higher incremental tax rates.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
For the year ended December 31, 1999, PolyVision generated $9.3 million in
cash flow from operating activities consisting of $9.2 million in cash flow
generated from operations (net income plus non-cash charges), increased by
$0.1 million in cash flow provided by net working capital changes. Significant
working capital changes included a $1.5 million decrease in inventories and a
$2.0 million decrease in accounts payable and accrued expenses. Cash used for
investing activities amounted to $25.9 million consisting principally of
$24.4 million in cash paid for the acquisition of Nelson Adams and $2.2 million
in capital expenditures offset by cash received from the sale of property, plant
and equipment. Cash used for financing activities amounted to $20.9 million
consisting principally of $22.0 million in borrowings on the Company's senior
secured credit facility and $2.0 million in proceeds from issuance of the
Company's Series C Convertible Preferred Stock, the proceeds of which were used
to fund the acquisition of Nelson Adams, offset by net debt repayments of
$2.4 million.
CAPITAL RESOURCES
The Company's senior credit facilities consist of (i) 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), (ii) a Term Loan A in the aggregate principal amount of
$32.7 million (of which $15.1 million was loaned in the United States, and
$17.6 million was loaned in
15
<PAGE>
Europe), and (iii) a Term Loan B in the principal amount of $31.0 million (all
of which was loaned in the United States). Advances under the revolving line of
credit will be available through November 20, 2004. Borrowings under the
revolving credit line may not at any time exceed (i) 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 (ii) 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
the Company's real and personal property, including the assets of the Company'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
March 21, 2000, the Company had no borrowings outstanding under its revolving
line of credit.
The Company's senior subordinated notes of $25.0 million bear interest at a
fixed rate of 12.5% per annum payable quarterly in arrears, and matures on
December 30, 2006. The senior subordinated notes are guaranteed by the Company's
domestic subsidiaries. The note agreement contains customary performance and
financial covenants similar to (but less stringent than) the financial covenants
applicable to the senior credit facilities. The senior subordinated note 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 the Company in connection with the Alliance acquisition (see Note 9 to
accompanying consolidated financial statements). In conjunction with the
borrowing of the senior subordinated note, the Company issued to the lender
detachable warrants entitling the holders to purchase, for nominal
consideration, 2,986,467 shares of common stock of the Company, representing
approximately 12.5% of its fully-diluted common stock.
The Company'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.
As of December 31, 1999, the Company's cash position totaled $8.1 million.
The Company's principal debt service commitments for the next 12 months amount
to approximately $5.8 million and capital expenditures are expected to
approximate $3.0 million. Management anticipates that the Company will generate
sufficient cash flows from its operating activities to meet its annual principal
debt service and capital expenditure commitments. However, if any shortfall
arises due to working capital fluctuations or other factors, excess funds
available under the Company's credit facilities are expected to be sufficient to
cover such shortfall.
12 MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THE EIGHT MONTHS ENDED DECEMBER
31, 1998 [TRANSITION PERIOD]
For a more detailed discussion of operating results, refer to the
"12 months ended December 31, 1999 compared to 12 months ended December 31,
1998."
Net sales for the 12 months ended December 31, 1999 totaled $114.1 million,
representing an increase of $80.2 million, or 236.8%, over net sales of
$33.9 million for the eight months ended December 31, 1998. The increase in net
sales resulted primarily from the inclusion of the operations of Alliance and
Nelson Adams as well as the longer period in fiscal 1999.
Gross profit for the 12 months ended December 31, 1999 totaled
$40.0 million, representing an increase of $29.5 million, or 280.1%, as compared
to the eight months ended December 31, 1998. Gross margin increased to 35% for
the twelve months ended December 31, 1999 from 31% for the eight months
December 31, 1998. The increase in gross profit resulted primarily from the
contribution of $26.3 million in gross profit from the acquired operations of
Alliance and Nelson Adams as well as the longer period in
16
<PAGE>
fiscal 1999. The increase in gross margin resulted primarily from the inclusion
of higher margin product lines from both Alliance and Nelson Adams.
SG&A for the 12 months ended December 31, 1999 totaled $22.4 million,
representing an increase of $15.4 million, or 220.8%, as compared to the eight
months ended December 31, 1998. The increase in SG&A resulted primarily from the
inclusion of $10.2 million and $2.8 million in SG&A from the acquired operations
of Alliance and Nelson Adams, respectively, and the longer period in 1999.
Amortization expense increased to $1.9 million during the 12 months ended
December 31, 1999 as compared to $0.2 million in the eight months ended
December 31, 1998. The increase was due to the goodwill recorded as a result of
the Alliance and Nelson Adams acquisitions.
Consolidated operating income (excluding nonrecurring charges) for the 12
months ended December 31, 1999 was $15.7 million, representing an increase of
$12.4 million, or 376.0%, as compared to twelve months ended December 31, 1998.
The increase in operating income resulted primarily from the inclusion of the
operations of Alliance and Nelson Adams and the longer period in fiscal 1999.
During the 12 months ended December 31, 1999, the Company recorded a pre-tax
nonrecurring charge of $2.9 million relating to the consolidation of the
Company's Public Sector Group with those of the acquired Nelson Adams'
operations. During the eight months ended December 31, 1998, the Company
recorded a nonrecurring charge of $1.3 million, which consisted of a
$0.8 million advisory fee paid to Alpine in connection with the Alliance
acquisition and $0.5 million relating to the consolidation of the acquired
operations of Alliance with those of the Company.
Interest expense for the 12 months ended December 31, 1999 increased to
$9.4 million from $1.4 million in the eight months ended December 31, 1998. The
increase is due principally to debt incurred in connection with the Alliance and
Nelson Adams acquisitions.
Other income for the 12 months ended December 31, 1999 consisted of
$0.4 million from gain on sales of property, plant and equipment and
$0.8 million from gains related to foreign currency transactions. This compares
to other expense of $0.2 million in the eight months ended December 31, 1998.
Provision for income taxes for the 12 months ended December 31, 1999 was
$1.7 million as compared to $0.3 million for the eight months ended
December 31, 1998. The increase in income tax expense reflects the impact of
non-deductible goodwill amortization, as well as the inclusion of Alliance's
European business which does not benefit from prior period operating losses
incurred in the United States.
Net income before nonrecurring charges for the 12 months ended December 31,
1999 was $4.9 million, or $0.28 per diluted share, as compared to $1.4 million,
or $0.15 per diluted share for the eight months ended December 31, 1998. Net
income for the year ended December 31, 1999 was $3.1 million or $0.17 per
diluted share, as compared to net income before extraordinary gains of
$0.2 million or $0.02 per diluted share in the eight months ended December 31,
1998.
EIGHT MONTHS ENDED DECEMBER 31, 1998 COMPARED WITH 12 MONTHS ENDED APRIL 30,
1998
For the eight months ended December 31, 1998 PolyVision's net sales totaled
$33.9 million compared to net sales of $34.2 million for the full year ended
April 30, 1998, a decline of $0.3 million. The decline in net sales is the
result of the shorter period comparison through December 31, which was offset by
the inclusion of the $6.6 million of net sales of Alliance since the purchase in
1998.
Gross profit for the eight-month period ended December 31, 1998 totaled
$10.5 million compared to $9.9 million for the 12 months ended April 30, 1998.
Despite the shorter period comparison through December 31, 1998, gross profit
increased $0.6 million in the eight month period due to the inclusion of
Alliance's gross profit of $2.6 million since the purchase. As a percent of
sales revenue, gross profit margin was 31.0% for the eight-month period ended
December 31, 1998, versus a gross profit margin of 28.9% for
17
<PAGE>
the twelve-month period ended April 30, 1998. The increase in gross profit
margin was principally due to the inclusion of Alliance's gross profit since the
purchase combined with production efficiencies at the Public Sector Group. Since
Alliance normally earns a higher gross profit margin than the Public Sector
Group, the overall gross profit margin increased.
SG&A for the eight months ended December 31, 1998 totaled $6.9 million, a
decrease from the 12 month total of $8.3 million for the period ended April 30,
1998. The decline was due to the shorter comparison period during the eight
months ended December 31, 1998, partially offset by the inclusion of Alliance's
operating expenses since the purchase.
Consolidated operating income (excluding nonrecurring charges) for the
eight-month period ended December 31, 1998 was $3.3 million, representing an
increase of $1.9 million, or 137.1%, as compared to $1.4 million for the year
ended April 30, 1998. The increase in operating income resulted primarily from
the inclusion of the operations of Alliance, offset by a reduction of
$0.3 million in operating income contributed by the Commercial Group due to the
shorter period.
Interest expense in the eight-month period ended December 31, 1998 increased
$0.6 million to $1.4 million as compared to $0.8 million for the 12 month period
ended April 30, 1998. Most of the increase was attributable to the acquisition
of Alliance.
Income tax expense for the eight-month period ended December 31, 1998
totaled $0.3 million, compared to $15,000 in the 12 month period ended
April 30, 1998. The increase was caused by the inclusion of income taxes related
to the European business income of Alliance since the purchase.
Net income before extraordinary gain for the eight-month period ended
December 31, 1998 was $0.2 million or $0.02 per diluted share, as compared to
net income before extraordinary gain of $1.0 million or $0.12 per diluted share,
in the prior year. The comparative decrease in net income for the period ended
December 31, 1998 was due to the $1.3 million nonrecurring expense recorded as a
result of the Alliance acquisition, higher interest expense resulting from
acquisition debt incurred in connection with the Alliance acquisition, higher
incremental tax rates and the shorter comparison period during the eight months
ended December 31, 1998, offset by an increase in operating income due to the
inclusion of the Alliance operations since its acquisition in November 1998.
12 MONTHS ENDED APRIL 30, 1998 COMPARED WITH 12 MONTHS ENDED APRIL 30, 1997
PolyVision's net sales for the fiscal year ended April 30, 1998 increased by
6.2% to $34.2 million compared to net sales of $32.2 million for the fiscal year
ended April 30, 1997. Sales at the Public Sector Group improved by 6.5% to
$27.8 million, an increase of $1.7 million over the previous fiscal year.
PolyVision's conversion to a dealer network using specialty school supply
dealers, rather than a direct sales effort, resulted in increased volume due to
better geographical coverage. This increase was partially offset by the loss of
installation work that was previously performed by PolyVision and is currently
performed by the dealer. The Commercial Group's net sales for fiscal 1998 were
$6.4 million as compared to $6.1 million for the previous year, an increase of
4.9%. This increase was due to added sales of menuboards to several restaurant
and theater chains.
Gross profit for the fiscal year ended April 30, 1998 improved by
$2.4 million to $9.9 million, or 32.1%, as compared to $7.5 million in the
previous year. The gross margin increased to 28.9% from 23.2% of net sales. This
increase in gross profit was principally due to a change in product mix at both
the Public Sector Group and Commercial Group, including a sales shift to more
exterior signage at the Commercial Group, which typically generates higher
profit margins as well as an improved product mix related to additional sale
dealers and increased plant throughput in the Public Sector Group. In addition,
the Commercial Group moved operations into one facility during 1998, which
reduced manufacturing costs in the 1998 period compared to 1997.
18
<PAGE>
SG&A for the fiscal year ended April 30, 1998 decreased by $1.5 million as
compared to the previous year. This decrease was due to lower bad debt expenses
and lower selling expenses resulting from the conversion to a dealer network,
rather than direct sales.
In April 1997, PolyVision determined to discontinue its research and
development efforts and market its PolyVision flat panel technology solely
through third-party licensing agreements. Accordingly, in fiscal 1998, there
were no research and development costs. The restructuring costs in fiscal 1997
represented the costs to discontinue APV.
Other income in 1998 included a $0.3 million gain on the sale of
PolyVision's property in North Carolina.
Net income before extraordinary gain for the year ended April 30, 1998 was
$1.0 million or $0.12 per diluted share, as compared to net loss before
extraordinary gain of $5.1 million or $0.60 per diluted share, in the prior
year. The comparative increase in net income for the period ended April 30, 1998
was due to the discontinuance of the Company's research and development efforts
in fiscal 1997 as well as an increase in gross margin due to a change in product
mix.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in a derivative's
fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. PolyVision will be required to adopt the new statement in
2001. PolyVision has not yet quantified the impact of adopting SFAS No. 133 and
has not determined the method of adoption. However, SFAS No. 133 could increase
the volatility in earnings and other comprehensive income.
YEAR 2000 COMPLIANCE
The year 2000 ("Y2K") problem is the result of many 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, the
Company 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.
Following December 31, 1999, the Company had not experienced any material
Y2K transition issues. Furthermore, the Company 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 the Company's consolidated financial position, results of
operations, or cash flow.
The Company's cost of remediation and equipment and software replacement
totaled approximately $0.5 million. The Company does not anticipate incurring
any additional costs as a result of the Y2K issue.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Company's market risk sensitive instruments
and positions are the potential loss arising from adverse changes in interest
rate and foreign currency exchange rates, as described below.
19
<PAGE>
INTEREST RATES
The Company primarily issues long-term debt obligations to support general
corporate purposes including capital expenditures and working capital needs, and
to fund acquisitions. The majority of the Company's long-term debt obligations
bear a fixed rate of interest. A one-percentage point increase in interest
affecting the Company'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 the Company's operations are in the United States,
the Company does have foreign subsidiaries (primarily in Belgium). The net
investments in foreign subsidiaries translated into dollars using year-end
exchange rates at December 31, 1999 are $27.9 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 $2.8 million.
The Company does not use derivative financial instruments to hedge its exposure
to changes in foreign currency exchange rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this Report
beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
20
<PAGE>
PART III
ITEMS 10, 11, 12 AND 13.
Part III (Items 10 through 13) is omitted since PolyVision expects to file
with the Securities and Exchange Commission within 120 days after the close of
the fiscal year ended December 31, 1999, a definitive proxy statement pursuant
to Regulation 14A under the Securities Exchange Act of 1934 which involves the
election of directors. If for any reason such a statement is not filed within
such a period, this Report will be appropriately amended.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) and (2): The response to this portion of Item 14 is submitted as a
separate section of this Report beginning on page F-1.
(a)(3) Exhibits:
<TABLE>
<C> <S>
EXHIBIT NUMBER AND DESCRIPTION
2.1 Agreement and Plan of Merger, dated as of December 21, 1994,
as amended, among PolyVision (formerly Information Display
Technology, Inc.), The Alpine Group, Inc., Alpine
PolyVision, Inc. and Posterloid Corporation. (1)
2.2 Stock Purchase Agreement, dated as of September 1, 1998, by
and among PolyVision, Alliance International Group, Inc.,
Wind Point Partners III, L.P. and the other stockholders of
Alliance, as amended by letter agreement dated November 20,
1998. (8)
2.3 Stock Purchase Agreement, dated May 17, 1999, by and among
PolyVision, Mark A. Lawer, as trustee under the Lawer Family
Trust, Michael J. Lawer, Matthew B. Lawer and Suzanne M.
Lawer, as amended by letter agreements, dated July 26 and
August 19, 1999. (10)
2.4 Asset Purchase Agreement, dated January 21, 2000, by and
among Greensteel, Inc., American Chalkboard Company, LLC,
Summit America, LLC and W. Daniel Hughes, Jr. (11)
2.5 Asset Purchase Agreement, dated January 21, 2000, by and
among Greensteel, Inc., Peninsular Slate Company, Peninsular
Slate Company of Texas and Jack E. Tomalis. (11)
3.1 Restated Certificate of Incorporation of PolyVision. (1)
3.2 By-laws of PolyVision. (1)
4.4 Specimen form of Common Stock Certificate of PolyVision. (3)
10.15 1994 Stock Option Plan of PolyVision. (1)
10.18 Form of Indemnification Agreement for Directors of
PolyVision. (3)
10.19 1996 Union Stock Grant Plan of PolyVision. (6)
10.20 1995 Directors Stock Grant Plan of PolyVision. (7)
10.21 1995 Directors Stock Option Plan of PolyVision. (7)
10.23 Amended and Restated Employment Agreement, dated as of May
1, 1995, between PolyVision and Joseph A. Menniti.(7)
10.25 Articles of Agreement, dated February 28, 1996, between
Greensteel, Inc. and The Carpenters' District Council of
Western Pennsylvania.(7)
</TABLE>
21
<PAGE>
<TABLE>
<C> <S>
10.32 Credit Agreement, dated as of November 20, 1998, between
PolyVision, Greensteel, Inc. and Posterloid Corporation, as
borrowers, and a syndicate of banks, financial institutions
and other institutional lenders named therein and Fleet
National Bank, as administrative agent and in certain other
capacities. (8)
10.33 Credit Facility Agreement, dated as of November 20, 1998,
between Alliance Europe N.V., Alliance Graphics N.V.,
Emailleries de Blanc Misseron A. Aubecq S.A. and Alliance
Pentagon A/S, as borrowers, and KBC Bank N.V. (8)
10.34 Credit Facility Agreement, dated as of November 20, 1998,
between PolyVision Belgium N.V. and PolyVision France EURL,
as borrowers, and KBC Bank N.V. (8)
10.35 Senior Subordinated Loan Agreement, dated as of November 20,
1998, between PolyVision and Fleet Corporate Finance, Inc.
(8)
10.36 Exchange Agreement, dated as of November 16, 1998, between
PolyVision and The Alpine Group, Inc. and Kirkbi Projekt
A/S. (8)
10.37 Series C Preferred Stock Purchase Agreement, dated as of
November 20, 1998, between PolyVision and The Alpine Group,
Inc. (8)
10.38 Employment Agreement, dated November 20, 1998, between
PolyVision and Michael H. Dunn. (9)
10.39 Employment Agreement, dated November 20, 1998, between
PolyVision and Richard J. Still. (9)
10.40 Senior Subordinated Note and Warrant Purchase Agreement,
dated as of December 30, 1998, among PolyVision, as
borrower, and John Hancock Mutual Life Insurance Company and
the other institutional investors identified therein, and
Posterloid Corporation and Greensteel, Inc., as guarantors.
(9)
10.41 Warrant Agreement, dated as of December 30, 1998, among
PolyVision and John Hancock Mutual Life Insurance Company,
John Hancock Variable Life Insurance Company and Hancock
Mezzanine Partners, L.P. (9)
10.42 Warrant Agreement, dated as of December 30, 1998, among
PolyVision and John Hancock Mutual Life Insurance Company,
John Hancock Variable Life Insurance Company and Hancock
Mezzanine Partners, L.P. (9)
10.43 Amendment to Master Credit Agreement, dated June 12, 1998,
between BankBoston, N.A. and Greensteel, Inc. (9)
10.44 Amendment No. 1 to Credit Agreement, dated as of December
30, 1998, by and among PolyVision, Greensteel, Inc. and
Posterloid Corporation, as borrowers, the financial
institutions signatory thereto and Fleet National Bank, as
administrative agent and in certain other capacities
specified therein. (10)
10.45 Amendment No. 2 to Credit Agreement, dated as of August 19,
1999, by and among PolyVision, Greensteel, Inc. and
Posterloid Corporation, as borrowers, the financial
institutions signatory thereto and Fleet National Bank, as
administrative agent and in certain other capacities
specified therein. (10)
10.46 Amendment No. 1 to Senior Subordinated Note and Warrant
Purchase Agreement, dated as of August 19, 1999, among
PolyVision, Greensteel, Inc. and Posterloid Corporation, and
John Hancock Mutual Life Insurance Company, John Hancock
Variable Life Insurance Company and Hancock Mezzanine
Partners L.P. (10)
</TABLE>
22
<PAGE>
<TABLE>
<C> <S>
10.47 Series C Preferred Stock Purchase Agreement, dated as of
August 19, 1999, between PolyVision and The Alpine Group,
Inc. (10)
10.48 Amendment No. 3 to Credit Agreement, dated as of January 21,
2000, by and among PolyVision, Greensteel, Inc. and
Posterloid Corporation, as borrowers, the financial
institutions signatory thereto and Fleet National Bank, as
administrative agent and in certain other capacities
specified therein. (11)
10.49 Amendment No. 2 to Senior Subordinated Note and Warrant
Purchase Agreement, dated as of January 21, 2000, among
PolyVision, Greensteel, Inc. and Posterloid Corporation, and
John Hancock Mutual Life Insurance Company, John Hancock
Variable Life Insurance Company and Hancock Mezzanine
Partners L.P. (11)
22.1 Subsidiaries of PolyVision.
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
(1) Incorporated by reference to the exhibits filed with the Proxy Statement for
the Annual Meeting of Shareholders, dated May 1, 1995.
(2) Incorporated by reference to the exhibits with the Current Report on
Form 8-K, dated April 24, 1990.
(3) Incorporated by reference to the exhibits with the Registration Statement on
Form S-2 (No. 33-93010), effective June 9, 1995.
(4) Incorporated by reference to the exhibits with the Annual Report on
Form 10-K for the fiscal year ended December 31, 1990.
(5) Incorporated by reference to the exhibits filed with Post-Effective
Amendment No. 1 to Registration Statement No. 33-22701 NY.
(6) Incorporated by reference to the exhibits with the Registration Statement on
Form S-8 (No. 333-3897), effective May 16, 1996.
(7) Incorporated by reference to the exhibits with the Annual Report on
Form 10-K for the fiscal year ended April 30, 1996.
(8) Incorporated by reference to the exhibits filed with the Current Report on
Form 8-K, dated November 20, 1998, as amended.
(9) Incorporated by reference to the exhibits filed with the Transition Report
on Form 10-K for the eight months ended December 31, 1998.
(10) Incorporated by reference to the exhibits filed with the Current Report on
Form 8-K, dated August 19, 1999, as amended.
(11) Incorporated by reference to the exhibits filed with the Current Report on
Form 8-K, dated January 21, 2000.
(b) Reports on Form 8-K.
PolyVision filed no reports on Form 8-K for the quarter ended
December 31, 1999.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ MICHAEL H. DUNN
-----------------------------------------
Michael H. Dunn
Date: March 29, 2000 PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ STEVEN S. ELBAUM
------------------------------------------- Chairman of the Board and March 29, 2000
Steven S. Elbaum Director
President, Chief Executive
/s/ MICHAEL H. DUNN Officer and Director
------------------------------------------- (principal executive March 29, 2000
Michael H. Dunn officer)
Chief Financial Officer,
/s/ GARY L. EDWARDS Treasurer and Secretary
------------------------------------------- (principal financial and March 29, 2000
Gary L. Edwards accounting officer)
/s/ IVAN BERKOWITZ
------------------------------------------- Director March 29, 2000
Ivan Berkowitz
/s/ LYMAN C. HAMILTON, JR.
------------------------------------------- Director March 29, 2000
Lyman C. Hamilton, Jr.
/s/ JAMES R. KANELY
------------------------------------------- Director March 29, 2000
James R. Kanely
/s/ STEPHEN C. KNUP
------------------------------------------- Director March 29, 2000
Stephen C. Knup
/s/ HANSEL B. MILLICAN, JR.
------------------------------------------- Director March 29, 2000
Hansel B. Millican, Jr.
/s/ JOSEPH A. MENNITI
------------------------------------------- Director March 29, 2000
Joseph A. Menniti
/s/ BRAGI F. SCHUT
------------------------------------------- Director March 29, 2000
Bragi F. Schut
</TABLE>
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of independent public accountants.................... F-2
Consolidated balance sheets as of December 31, 1999 and
1998...................................................... F-3
Consolidated statements of operations for the year ended
December 31, 1999, the eight months ended December 31,
1998 and the years ended April 30, 1998 and 1997.......... F-4
Consolidated statements of stockholders' equity (deficit)
for the year ended December 31, 1999, the eight months
ended December 31, 1998 and the years ended April 30, 1998
and 1997.................................................. F-5
Consolidated statements of cash flows for the year ended
December 31, 1999, the eight months ended December 31,
1998 and the years ended April 30, 1998 and 1997.......... F-7
Notes to consolidated financial statements.................. F-9
SCHEDULES:
Report of independent public accountants.................. F-32
Schedule II--Valuation and Qualifying Accounts............ F-33
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PolyVision Corporation:
We have audited the accompanying consolidated balance sheets of PolyVision
Corporation (a New York corporation) and subsidiaries as of December 31, 1999
and 1998 and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for the year ended December 31, 1999, the eight
months ended December 31, 1998, and each of the two years ended April 30, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the financial position of PolyVision Corporation and
subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for the year ended December 31, 1999, the eight
months ended December 31, 1998 and each of the two years ended April 30, 1998 in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 11, 2000
F-2
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 8,128 $ 4,841
Accounts receivable......................................... 24,927 17,883
Inventories................................................. 14,033 13,084
Prepaid expenses and other current assets................... 7,639 3,312
-------- --------
Total current assets.................................... 54,727 39,120
Property, plant and equipment, net.......................... 17,307 17,768
Goodwill, net............................................... 80,953 61,402
Other noncurrent assets..................................... 3,947 3,918
-------- --------
Total assets............................................ $156,934 $122,208
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt........................ $ 4,616 $ 598
Accounts payable............................................ 9,986 7,223
Accrued expenses............................................ 17,228 12,786
-------- --------
Total current liabilities............................... 31,830 20,607
Long-term debt, less current maturities..................... 89,250 74,511
Deferred taxes.............................................. 4,393 5,418
Other noncurrent liabilities................................ 2,278 751
-------- --------
Total liabilities....................................... 127,751 101,287
Commitments and contingencies
Stockholders' equity:
9% Series B Convertible Preferred Stock at liquidation
value..................................................... 12,750 12,848
9% Series C Convertible Preferred Stock at liquidation
value..................................................... 7,000 5,000
8% Series D Convertible Preferred Stock at liquidation
value..................................................... 6,000 --
Common Stock, $.001 par value, 40,000,000 shares authorized;
14,156,193 and 14,092,750 shares issued and outstanding at
December 31, 1999 and 1998, respectively.................. 14 14
Additional paid-in capital.................................. 70,884 70,750
Retained deficit............................................ (66,553) (67,783)
Cumulative foreign currency translation adjustment.......... (912) 92
-------- --------
Total stockholders' equity.............................. 29,183 20,921
-------- --------
Total liabilities and stockholders' equity.............. $156,934 $122,208
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWELVE MONTHS EIGHT MONTHS TWELVE MONTHS
ENDED ENDED ENDED APRIL 30,
DECEMBER 31, DECEMBER 31, -------------------
1999 1998 1998 1997
------------- ------------ -------- --------
<S> <C> <C> <C> <C>
Net sales............................................. $114,113 $33,877 $34,167 $32,233
Cost of goods sold.................................... 74,136 23,360 24,286 24,755
-------- ------- ------- -------
Gross profit...................................... 39,977 10,517 9,881 7,478
Selling, general and administrative................... 22,357 6,969 8,344 10,972
Amortization of goodwill.............................. 1,913 248 145 145
Nonrecurring expenses................................. 2,850 1,250 -- 650
-------- ------- ------- -------
Operating income (loss)........................... 12,857 2,050 1,392 (4,289)
Interest expense...................................... (9,373) (1,408) (839) (910)
Other income (expense), net........................... 1,265 (201) 472 90
-------- ------- ------- -------
Income (loss) before income taxes and
extraordinary gain.............................. 4,749 441 1,025 (5,109)
Provision for income taxes............................ (1,662) (286) (15) --
-------- ------- ------- -------
Income (loss) before extraordinary gain on early
extinguishment of debt.......................... 3,087 155 1,010 (5,109)
Extraordinary gain on early extinguishment of debt.... -- 436 -- --
-------- ------- ------- -------
Net income (loss)................................. 3,087 591 1,010 (5,109)
Preferred stock dividends............................. (1,857) (179) (1,545) (2,059)
Accretion of preferred stock.......................... -- (312) -- --
Gain on preferred stock conversion.................... -- 19,252 -- --
-------- ------- ------- -------
Net income (loss) applicable to common
stockholders.................................... $ 1,230 $19,352 $ (535) $(7,168)
======== ======= ======= =======
Net income (loss) per share of common stock:
Basic:
Income (loss) before extraordinary gain........... $ 0.22 $ 0.02 $ 0.12 $ (0.60)
Extraordinary gain on early extinguishment of
debt............................................ -- 0.05 -- --
Preferred stock dividends......................... (0.13) (0.02) (0.18) (0.24)
Accretion of preferred stock...................... -- (0.03) -- --
Gain on preferred stock conversion................ -- 2.02 -- --
-------- ------- ------- -------
Net income (loss) per basic share of common
stock........................................... $ 0.09 $ 2.04 $ (0.06) $ (0.84)
======== ======= ======= =======
Diluted:
Income (loss) before extraordinary gain........... $ 0.17 $ 0.02 $ 0.12 $ (0.60)
Extraordinary gain on early extinguishment of
debt............................................ -- 0.05 -- --
Preferred stock dividends......................... (0.11) (0.02) (0.18) (0.24)
Accretion of preferred stock...................... -- (0.03) -- --
Gain on preferred stock conversion................ -- 2.02 -- --
-------- ------- ------- -------
Net income (loss) per diluted share of common
stock........................................... $ 0.06 $ 2.04 $ (0.06) $ (0.84)
======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
--------------------- ------------------- ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1996.......... 1,029,253 $25,731 -- $ -- -- $ -- -- $ --
Dividends on preferred stock.......
Compensation expense related to
stock grants.....................
Net loss...........................
---------- ------- ------- ------- ------- ------ ------- ------
Balance at April 30, 1997.......... 1,029,253 25,731 -- -- -- -- -- --
Dividends on preferred stock.......
Compensation expense related to
stock grants.....................
Net income.........................
---------- ------- ------- ------- ------- ------ ------- ------
Balance at April 30, 1998.......... 1,029,253 25,731 -- -- -- -- -- --
Dividends on preferred stock.......
Compensation expense related to
stock grants.....................
Conversion of preferred stock,
accrued dividends and notes
payable.......................... (1,029,253) (25,731) 247,951 12,398
Issuance of shares for investment
advisory services................ 9,000 450
Issuance of common stock
warrants.........................
Issuance of preferred stock........ 100,000 4,688
Accretion of preferred stock....... 312
Foreign currency translation
adjustment.......................
Net income.........................
---------- ------- ------- ------- ------- ------ ------- ------
Balance at December 31, 1998....... -- $ -- 256,951 $12,848 100,000 $5,000 -- $ --
---------- ------- ------- ------- ------- ------ ------- ------
<CAPTION>
CUMULATIVE
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY COMPREHENSIVE
--------------------- PAID-IN RETAINED TRANSLATION INCOME
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT TOTAL (LOSS)
---------- -------- ---------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1996.......... 8,530,073 $ 9 $38,524 $(60,180) $ -- $ 4,084
Dividends on preferred stock....... (2,059) (2,059)
Compensation expense related to
stock grants..................... 10,689 94 94
Net loss........................... (5,109) (5,109) $(5,109)
---------- ---- ------- -------- ------- ------- -------
Balance at April 30, 1997.......... 8,540,762 9 38,618 (67,348) -- (2,990) (5,109)
Dividends on preferred stock....... (1,545) (1,545)
Compensation expense related to
stock grants..................... 21,000 50 50
Net income......................... 1,010 1,010 1,010
---------- ---- ------- -------- ------- ------- -------
Balance at April 30, 1998.......... 8,561,762 9 38,668 (67,883) -- (3,475) 1,010
Dividends on preferred stock....... (179) (179)
Compensation expense related to
stock grants..................... 46,333 9 9
Conversion of preferred stock,
accrued dividends and notes
payable.......................... 5,274,865 5 26,235 12,907
Issuance of shares for investment
advisory services................ 209,790 300 750
Issuance of common stock
warrants......................... 5,226 5,226
Issuance of preferred stock........ 312 5,000
Accretion of preferred stock....... (312)
Foreign currency translation
adjustment....................... 92 92 92
Net income......................... 591 591 591
---------- ---- ------- -------- ------- ------- -------
Balance at December 31, 1998....... 14,092,750 $ 14 $70,750 $(67,783) $ 92 $20,921 $ 683
---------- ---- ------- -------- ------- ------- -------
</TABLE>
F-5
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
--------------------- ------------------- ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998........... -- $ -- 256,951 $12,848 100,000 $5,000 -- $ --
Dividends on preferred stock...........
Conversion of preferred stock and
accrued dividends.................... (1,951) (98)
Issuance of preferred stock............ 40,000 2,000
Issuance of preferred stock in
connection with acquisition.......... 120,000 6,000
Exercise of stock options..............
Foreign currency translation
adjustment...........................
Net income.............................
---------- ------- ------- ------- ------- ------ ------- ------
Balance at December 31, 1999........... -- $ -- 255,000 $12,750 140,000 $7,000 120,000 $6,000
========== ======= ======= ======= ======= ====== ======= ======
<CAPTION>
CUMULATIVE
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY COMPREHENSIVE
--------------------- PAID-IN RETAINED TRANSLATION INCOME
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT TOTAL (LOSS)
---------- -------- ---------- -------- ----------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998........... 14,092,750 $ 14 $70,750 $(67,783) $ 92 $20,921
Dividends on preferred stock........... (1,857) (1,857)
Conversion of preferred stock and
accrued dividends.................... 35,443 106 8
Issuance of preferred stock............ 2,000
Issuance of preferred stock in
connection with acquisition.......... 6,000
Exercise of stock options.............. 28,000 28 28
Foreign currency translation
adjustment........................... (1,004) (1,004) $(1,004)
Net income............................. 3,087 3,087 3,087
---------- ---- ------- -------- ------- ------- -------
Balance at December 31, 1999........... 14,156,193 $ 14 $70,884 $(66,553) $ (912) $29,183 $ 2,083
========== ==== ======= ======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE MONTHS TWELVE MONTHS ENDED
ENDED EIGHT MONTHS ENDED APRIL 30,
DECEMBER 31, DECEMBER 31, -----------------------
1999 1998 1998 1997
------------- ------------------ -------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................... $ 3,087 $ 591 $1,010 $(5,109)
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operations:
Depreciation and amortization............. 4,264 781 382 498
Amortization of deferred financing costs
and accretion of debt discount.......... 1,283 129 -- --
Deferred interest expense................. 815 260 87 571
Nonrecurring expenses..................... 443 750 -- --
Gain on sale of assets.................... (322) -- (307) --
Deferred income tax (benefit) provision... (311) 194 -- --
Other, net................................ -- (427) 50 94
Change in assets and liabilities, net of
effects from businesses acquired:
Accounts receivable....................... 338 729 (247) 1,007
Inventories............................... 1,526 (601) (1,183) 399
Other assets.............................. (491) 110 (331) 316
Accounts payable and accrued expenses..... (1,988) (1,170) (119) (689)
Other liabilities......................... 611 123 120 (244)
------- ------- ------ -------
Cash flows provided by (used for) operating
activities................................ 9,255 1,469 (538) (3,157)
------- ------- ------ -------
Cash flows from investing activities:
Purchase of businesses, net of cash
acquired................................ (24,364) (65,728) -- --
Purchase of fixed assets.................. (2,209) (586) (539) (435)
Proceeds from sale of assets.............. 663 -- 307 35
Other..................................... 52 -- -- --
------- ------- ------ -------
Cash flows used for investing activities.... (25,858) (66,314) (232) (400)
------- ------- ------ -------
Cash flows from financing activities:
Borrowings (repayments) from revolving
credit facilities, net.................. (1,451) 1,565 -- --
Long-term borrowings...................... 22,000 70,000 1,587 1,046
Repayments of long-term borrowings........ (913) (3,365) (1,500) (220)
Proceeds from issuance of preferred
stock................................... 2,000 5,000 -- --
Deferred financing costs.................. (771) (3,750) -- --
Advances from The Alpine Group, Inc....... -- -- 559 2,476
Other..................................... 28 (14) -- --
------- ------- ------ -------
Cash flows provided by financing
activities................................ 20,893 69,436 646 3,302
------- ------- ------ -------
Effect of exchange rate changes on cash and
cash equivalents.......................... (1,003) (41) -- --
------- ------- ------ -------
Net increase (decrease) in cash and cash
equivalents............................... 3,287 4,550 (124) (255)
Cash and cash equivalents at beginning of
period.................................... 4,841 291 415 670
------- ------- ------ -------
Cash and cash equivalents at end of
period.................................... $ 8,128 $ 4,841 $ 291 $ 415
======= ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE MONTHS
TWELVE MONTHS EIGHT MONTHS ENDED
ENDED ENDED APRIL 30,
DECEMBER 31, DECEMBER 31, ----------------------
1999 1998 1998 1997
------------- ------------ -------- --------
<S> <C> <C> <C> <C>
Supplemental disclosures:
Cash paid for interest................................. $ 6,900 $ 609 $291 $245
-------- -------- ---- ----
Cash paid for income taxes............................. $ 1,867 $ 77 $ 15 --
-------- -------- ---- ----
Acquisition of business:
Assets, net of cash acquired........................... $ 37,502 $103,231
Liabilities assumed.................................... (7,138) (29,503)
Issuance of Series D Preferred stock................... (6,000) --
Issuance of note payable for acquisition............... -- (8,000)
-------- --------
Net cash paid.......................................... $ 24,364 $ 65,728
-------- --------
Exchange of preferred stock for common stock:
Preferred stock acquired............................... $ 98
========
Accrued dividends...................................... $ 8
========
Common stock issued.................................... $ 106
========
Investment advisory fee to The Alpine Group, Inc.
("Alpine")
Issuance of common stock............................... $ 300
Issuance of preferred stock............................ 450
--------
$ 750
========
Exchange transaction with Alpine:
Preferred stock acquired............................... $(25,731)
========
Issuance of preferred stock............................ 12,398
========
Conversion of accrued dividends........................ 5,643
========
Conversion of notes payable to Alpine.................. 7,388
========
Issuance of common stock............................... 7,126
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND NATURE OF BUSINESS
The accompanying consolidated financial statements include the accounts of
PolyVision Corporation and its subsidiaries (collectively "PolyVision" or the
"Company", unless the content otherwise requires). Significant intercompany
accounts and transactions have been eliminated in consolidation.
The Company's operations are divided into three groups: the OEM (original
equipment manufacture) Group, the Public Sector Group and the Commercial Group.
The OEM Group, which includes the former operations of Alliance International
Group, Inc. ("Alliance"), acquired in November 1998 (see Note 9), 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 tunnel and people-moving systems. The OEM Group
also produces proprietary projection screen surfaces, screen printed and
non-screen printed Ceramicsteel surfaces used for interior and exterior
architectural applications and high-endurance signage. The Public Sector Group,
which includes the former operations of Nelson Adams Company, acquired in
August 1999, (see Note 9), 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.
On January 21, 2000, the Company entered into two separate asset purchase
agreements for the purchase of substantially all of the assets and certain
liabilities of American Chalkboard Company L.L.C. ("American Chalkboard") and
Peninsular Slate Company ("Peninsular Slate") for approximately $10.0 million.
The acquisitions will be accounted for using the purchase method and, as such,
the purchase price will be allocated based on the fair value of the assets and
liabilities at the date of the acquisitions. The acquisitions were funded by the
proceeds of a $10.0 million increase of the Company's term loan A facility (see
Note 11). Both American Chalkboard and Peninsular Slate will be included in the
Public Sector Group.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CHANGE IN FISCAL YEAR
Effective December 23, 1998, the Company changed its fiscal year-end from
April 30 to December 31. The eight month transition period from May 1, 1998 to
December 31, 1998 precedes the start of the new fiscal year. See Note 8 for
comparative consolidated income statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior period financial
statements to present them in a manner consistent with the current year.
USE OF ESTIMATES
The Company's consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United States, which
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
F-9
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONCENTRATION OF CREDIT RISK AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of trade receivables. In the Public Sector
Group, approximately 45%-55% of sales are concentrated in the construction
industry. This high level of concentration is offset by the large number of
customers comprising the customer base. In fact, a majority of these revenues
are derived from educational institutions in the United States. Since most
public school projects require performance bonds from general contractors, the
Public Sector Group can make bond claims or file liens in the event of
nonpayment for bona fide contract work performed. Ultimately, the taxing
authority of municipalities and public school districts provides much of the
funding for the school construction business. The Commercial Group's revenues
are derived from a large customer base of fast-food restaurant chains and
outfitters of municipal arenas and theater chains throughout the United States.
Retrofits of large chains may result in significant customer concentrations of
credit risk to the Commercial Group from time to time; however, in management's
opinion, no such concentration existed at December 31, 1999.
At December 31, 1999 and 1998, the Company's allowance for doubtful accounts
was approximately $2.3 million and $2.6 million, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of long-term debt, including the Company's revolving
credit facility, approximate fair value based on the borrowing rates currently
available to the Company for loans with similar terms and average maturities.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with maturity
at acquisition of 90 days or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market, using the first-in,
first-out ("FIFO") cost method. Market is net realizable value for finished
goods and replacement cost for raw materials and work in process.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated
depreciation and amortization. Leasehold improvements are amortized over the
lesser of the estimated useful lives of the assets or the lease term.
Depreciation and amortization are provided over the estimated useful lives of
the assets using the straight-line method. The estimated useful lives are as
follows:
<TABLE>
<S> <C>
Furniture and fixtures...................................... 5--10 years
Machinery and equipment..................................... 2--10 years
Buildings and improvements.................................. 2--40 years
</TABLE>
Maintenance and repairs are charged to expense as incurred. Long-term
improvements are capitalized as additions to property, plant and equipment. Upon
retirement or other disposal, the asset cost and related accumulated
depreciation are removed from the accounts and the net amount, less any
proceeds, is charged or credited to income.
F-10
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GOODWILL
Goodwill represents the excess of purchase price over the fair value of net
assets acquired and is amortized on a straight-line basis over periods not
exceeding 40 years. The Company reviews goodwill to assess recoverability
whenever events or changes in circumstances indicate that its carrying value may
not be recoverable. In performing such reviews, the Company estimates the future
cash flows expected to result from each entity. If the sum of the expected
future cash flows (undiscounted and without interest charges) were to be less
than the carrying amount, an impairment loss would be recognized based on the
difference between carrying values and estimated fair market value. As a result
of such reviews, no impairment loss has been recognized. Accumulated
amortization of goodwill was approximately $3.7 million and $1.8 million at
December 31, 1999 and 1998, respectively.
REVENUE RECOGNITION
Revenues from sales of products direct to end-users are recorded when title
transfers, which is typically when shipment occurs. Revenues from construction
contracts are recorded on the percentage-of-completion method of accounting,
measured on the basis of costs incurred to estimate total costs, which
approximates contract performance to date. Approximately 45%, 46%, 42% and 57%
of the Public Sector Group's revenues and approximately 45%, 51%, 52% and 65% of
the related costs of revenues were from contracts for the periods ended
December 31, 1999 and 1998 and April 30, 1998 and 1997, respectively. Provisions
for losses on uncompleted contracts are made in the period in which it is
determined that a contract will ultimately result in a loss.
FOREIGN CURRENCY TRANSLATIONS
The financial statements of the Company's foreign subsidiaries are
translated into United States dollars in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation." Assets and
liabilities are translated to United States dollars at period-end exchange
rates. Income and expense items are translated at average rates of exchange
prevailing during the period. Translation adjustments are accumulated as a
separate component of stockholders' equity. Gains and losses which result from
foreign currency transactions are included in the accompanying consolidated
statements of operations and are not material for the periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in a derivative's
fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. The Company will be required to adopt the new statement in
2001. The Company has not yet quantified the impact of adopting SFAS No. 133 and
has not determined the method of adoption. However, the Company believes the
effect of adoption will not be material.
COMPREHENSIVE INCOME
The Company reports comprehensive income in its Consolidated Statements of
Stockholders' Equity (Deficit). The foreign currency translation adjustment is
the sole component of other comprehensive income.
F-11
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVENTORIES
At December 31, 1999 and 1998, the components of inventories were as
follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................................. $ 8,510 $ 7,035
Work in process........................................... 526 476
Finished goods............................................ 4,997 5,573
------- -------
$14,033 $13,084
======= =======
</TABLE>
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
At December 31, 1999 and 1998, the components of prepaid expenses and other
current assets were as follows:
<TABLE>
<CAPTION>
1999 1998
---- --------
(IN THOUSANDS)
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $1,982 $ 838
Deferred tax assets......................................... 3,863 942
Other....................................................... 1,794 1,532
------ ------
$7,639 $3,312
====== ======
</TABLE>
5. CONTRACTS IN PROGRESS
At December 31, 1999, the status of contract costs on uncompleted
construction contracts was as follows:
<TABLE>
<CAPTION>
COSTS AND
ESTIMATED BILLINGS IN EXCESS
EARNINGS IN OF COSTS AND
EXCESS OF ESTIMATED
BILLINGS EARNINGS TOTAL
----------- ------------------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Costs and estimated earnings............. $8,036 $3,140 $11,176
Billings................................. 6,054 3,924 9,978
------ ------ -------
$1,982 $ (784) $ 1,198
====== ====== =======
</TABLE>
F-12
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1998, the status of contract costs on uncompleted
construction contracts was as follows:
<TABLE>
<CAPTION>
COSTS AND
ESTIMATED BILLINGS IN EXCESS
EARNINGS IN OF COSTS AND
EXCESS OF ESTIMATED
BILLINGS EARNINGS TOTAL
----------- ------------------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Costs and estimated earnings.............. $5,022 $2,473 $7,495
Billings.................................. 4,184 2,976 7,160
------ ------ ------
$ 838 $ (503) $ 335
====== ====== ======
</TABLE>
Accounts receivable at December 31, 1999 and 1998 included amounts billed
but not yet paid by customers under retainage provisions of approximately
$3.3 million and $1.1 million, respectively. Such amounts are generally due
within one year.
6. PROPERTY, PLANT AND EQUIPMENT
At December 31, 1999 and 1998, property, plant and equipment were as
follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land and improvements................................... $ 666 $ 537
Buildings and improvements.............................. 7,094 8,149
Machinery and equipment................................. 12,345 10,268
-------- --------
20,105 18,954
Less accumulated depreciation and amortization.......... (2,798) (1,186)
-------- --------
Property, plant and equipment, net.................. $ 17,307 $ 17,768
======== ========
</TABLE>
Depreciation and amortization expense of property, plant and equipment for
the periods ended December 31, 1999 and 1998 and April 30, 1998 and 1997 was
approximately $2.3 million, $0.5 million, $0.4 million and $0.5 million,
respectively.
7. ACCRUED EXPENSES
At December 31, 1999 and 1998, accrued expenses were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accrued wages, salaries and employee benefits............. $ 5,186 $ 5,324
Accrued taxes............................................. 1,975 1,331
Accrued warranty.......................................... 1,235 758
Accrued insurance......................................... 1,595 663
Nonrecurring expenses..................................... 1,585 500
Other accrued expenses.................................... 5,652 4,210
------- -------
$17,228 $12,786
======= =======
</TABLE>
F-13
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CHANGE IN FISCAL YEAR
Effective December 23, 1998, the Company changed its fiscal year-end from
April 30 to December 31. The eight-month transition period from May 1, 1998 to
December 31, 1998 precedes the start of the new fiscal year. The unaudited
financial information for the year ended December 31, 1998 is presented for
comparative purposes and includes all adjustments (consisting of normal,
recurring adjustments), which are, in the opinion of management, necessary for a
fair presentation.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1999 1998
-------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Net sales................................................... $114,113 $45,180
Cost of goods sold.......................................... 74,136 31,425
-------- -------
Gross profit.............................................. 39,977 13,755
Selling, general and administrative......................... 22,357 10,081
Amortization of goodwill.................................... 1,913 295
Nonrecurring expenses....................................... 2,850 1,250
-------- -------
Operating income.......................................... 12,857 2,129
Interest expense............................................ (9,373) (1,716)
Other income (expense), net................................. 1,265 (161)
-------- -------
Income before income taxes and extraordinary gain......... 4,749 252
Provision for income taxes.................................. (1,662) (301)
-------- -------
Income (loss) before extraordinary gain on early
extinguishment of debt.................................. 3,087 (49)
Extraordinary gain on early extinguishment of debt.......... -- 436
-------- -------
Net income................................................ 3,087 387
Preferred stock dividends................................... (1,857) (351)
Accretion of preferred stock................................ -- (312)
Gain on preferred stock conversion.......................... -- 19,252
-------- -------
Net income applicable to common stockholders.............. $ 1,230 $18,976
======== =======
Net income (loss) per share of common stock:
Basic:
Income (loss) before extraordinary gain................... $ 0.22 $ (0.01)
Extraordinary gain on early extinguishment of debt........ -- 0.05
Preferred stock dividends................................. (0.13) (0.04)
Accretion of preferred stock.............................. -- (0.03)
Gain on preferred stock conversion........................ -- 2.10
-------- -------
Net income per basic share of common stock................ $ 0.09 $ 2.07
======== =======
Diluted:
Income (loss) before extraordinary gain................... $ 0.17 $ (0.01)
Extraordinary gain on early extinguishment of debt........ -- 0.05
Preferred stock dividends................................. (0.11) (0.04)
Accretion of preferred stock.............................. -- (0.03)
Gain on preferred stock conversion........................ -- 2.10
-------- -------
Net income per diluted share of common stock.............. $ 0.06 $ 2.07
======== =======
Weighted average common shares outstanding:
Basic..................................................... 14,123 9,187
-------- -------
Diluted................................................... 17,460 9,187
-------- -------
</TABLE>
F-14
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ACQUISITIONS
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 ("Series D 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 a 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 11), $2.0 million in
cash proceeds from the sale of shares of PolyVision's Series C convertible
preferred stock ("Series C Preferred Stock") to Alpine and internal cash
resources.
ALLIANCE INTERNATIONAL GROUP
In November 1998, the Company acquired from Wind Point Partners III, L.P.
and certain minority stockholders all of the outstanding common stock of
Alliance for $75.8 million, including expenses. The consideration consisted of
$67.0 million in cash and $8.0 million in a 10% convertible subordinated
promissory note due 2007. The acquisition was accounted for using the purchase
method and, accordingly, the results of operations of Alliance have been
included in the consolidated financial statements on a prospective basis from
the date of acquisition. The purchase price was allocated based upon the fair
values of the assets and liabilities at the date of acquisition and is subject
to adjustment. The excess of the purchase price over the net assets acquired was
approximately $57.9 million and is being amortized on a straight-line basis over
40 years. In connection with the acquisition, the Company entered into a
$60.0 million senior credit facility and $25.0 million in senior subordinated
notes (see Note 11).
In a related transaction (the "Exchange Transaction"), Alpine and another
preferred stockholder exchanged approximately $25.7 million in liquidation value
of the Company's Series A preferred stock ("Series A Preferred Stock") (plus
accrued dividends) and indebtedness of approximately $7.4 million due from the
Company for approximately 5.3 million shares of the Company's common stock and
approximately $12.4 million in liquidation value of the Company's Series B
convertible preferred stock ("Series B Preferred Stock"). As a result, Alpine
currently owns directly approximately 48% of the Company's current outstanding
shares of common stock.
PRO FORMA FINANCIAL DATA (UNAUDITED)
Unaudited condensed pro forma results of operations for fiscal 1999 and
1998, which give effect to the Nelson Adams and Alliance acquisitions as if the
transactions occurred on May 1, 1998, are presented below. The pro forma amounts
reflect acquisition-related purchase accounting adjustments, including
adjustments to depreciation and amortization expense and interest expense on
acquisition debt and certain other adjustments, together with related income tax
effects. The pro forma financial information does not
F-15
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
EIGHT
MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Net sales................................................... $129,401 $88,235
Income from operations before income taxes.................. 8,395 370
Net income.................................................. 5,816 240
Preferred stock dividends................................... (2,292) (1,512)
-------- -------
Net income (loss) applicable to common stockholders......... $ 3,524 $(1,272)
======== =======
Net income (loss) per diluted share of common stock:
Net income................................................ $ 0.31 $ 0.01
Preferred stock dividend.................................. (0.11) (0.09)
-------- -------
Net income (loss) per share of common stock............. $ 0.20 $ (0.08)
======== =======
</TABLE>
The pro forma statements above do not include nonrecurring charges or
extraordinary charges for the periods presented. In addition, the earnings per
share calculation excludes the one-time gain as a result of the Exchange
Transaction and the accretion of the preferred stock for the period ended
December 31, 1998.
10. NONRECURRING EXPENSES
In connection with the Nelson Adams acquisition, the Company recorded a
pre-tax nonrecurring restructuring charge of approximately $2.9 million. The
charge relates primarily to the consolidation of the Company's Public Sector
Group with those of the acquired Nelson Adams' operations. Included in the
restructuring charge were (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 cost related to the termination of employment of 58 employees due to
duplicative functions, (iv) $0.2 million for cost incurred to consolidate the
operations of the closed facility, and (v) $0.3 million for other cost incurred
related to duplicative functions. As of December 31, 1999, the Company had
(i) severed 55 employees at a total cost of $0.7 million, (ii) incurred
$0.1 million in cost associated with the closed manufacturing facility,
(iii) written off $0.4 million of the associated cost of the duplicative
computer hardware and (iv) incurred $0.3 million in costs associated with
replacing duplicative functions.
In conjunction with the Alliance acquisition, the Company recorded a pre-tax
nonrecurring restructuring charge of $0.5 million related to the costs to be
incurred at the Company's existing manufacturing facilities in connection with
the consolidation of duplicative manufacturing capacity and administrative
functions and a $0.8 million investment advisory fee to Alpine. The
$0.5 million represented approximately $0.2 million of employee termination
costs, $0.1 million of unusable inventory and supplies and $0.2 million of
facility costs. All of these costs were paid at December 31, 1999.
In April 1997, the Company discontinued its research and development efforts
("APV") relating to a proprietary flat panel display technology and began to
market technology solely through third-party licensing agreements. This decision
resulted in a restructuring charge of approximately $0.7 million in 1997
representing severance pay and benefits and the write-down of assets to net
realizable value. All of these costs were paid as of December 31, 1998.
F-16
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. DEBT
At December 31, 1999 and 1998, debt consisted of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit facility (a)............................. $ -- $ 1,557
Term loan A (a)........................................... 32,693 24,873
Term loan B (a)........................................... 30,823 20,000
Senior subordinated note (b).............................. 25,000 25,000
Convertible subordinated promissory note (c).............. 8,905 8,000
Other..................................................... 943 831
------- -------
Total debt............................................ 98,364 80,261
Less current maturities of long-term debt................. (4,616) (598)
Less warrant valuation (b)................................ (4,498) (5,152)
------- -------
Long-term debt............................................ $89,250 $74,511
======= =======
</TABLE>
The aggregate maturities of long-term debt for the five years subsequent to
December 31, 1999 were as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ ---------
<S> <C>
2000........................................................ $ 4,616
2001........................................................ 6,864
2002........................................................ 7,666
2003........................................................ 9,402
2004........................................................ 12,502
Thereafter.................................................. 57,314
-------
$98,364
=======
</TABLE>
a) In connection with the November 1998 acquisition of Alliance (see Note 9),
the Company entered into a $60.0 million senior secured credit facility
consisting of (i) a $15.0 million revolving line of credit of which
$9.5 million is available in the United States and $5.5 million (subject to
currency fluctuation) is available in Europe, (ii) a $25.0 million term loan
A facility of which $4.4 million was loaned in the United States and
$20.6 million was loaned in Europe, and (iii) a $20.0 million term loan B
facility, all loaned in the United States (collectively, the "Senior Credit
Facilities").
In connection with the August 1999 acquisition of Nelson Adams, the
Company amended the Senior Credit Facility to increase the term loan A
by $22.0 million. The amendment did not materially change the financial
and non-financial covenants. The repayments related to the amendment
were consistent with the repayment schedule of the prior facilities.
Advances under the revolving credit facility in the United States may
not at any time exceed an amount equal to the lesser of $9.5 million or
the sum of 85% of eligible accounts receivable and 60% of eligible
inventory and in Europe may not exceed an amount equal to the lesser of
$5.5 million or the sum of 85% of eligible accounts receivable and 50%
of eligible inventory. Interest is payable at least quarterly based upon
either the prime rate of interest or the prevailing LIBOR rate plus an
applicable spread, as specified. The facility terminates on
November 20, 2004. At December 31, 1999, no amounts were outstanding
under the revolving line of credit.
F-17
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The term loan A facility is repayable quarterly in varying amounts with
such principal installments weighted so that the majority of payments do
not come due until the later years. Interest is also payable at least
quarterly based upon either the prime rate of interest or the prevailing
LIBOR rate plus an applicable spread, as specified. The term loan A
facility terminates on October 31, 2004.
The term loan B facility is repayable quarterly in varying amounts with
such principal installments weighted so that the majority of payments do
not come due until the later years. Interest is also payable at least
quarterly based upon either the prime rate of interest or the prevailing
LIBOR rate plus an applicable spread, as specified. The term loan B
facility terminates on October 31, 2005.
In order to limit the effect of changes in interest rates on the
Company's Senior Credit Facilities, the Company has entered into
interest-rate swap agreements, which expire at various dates through
February 2002. Amounts currently due to or from interest rate swap
counter parties are recorded in interest expense in the period in which
they occur. The Company does not enter into financial instruments for
trading or speculative purposes. The agreements protect $29.7 million of
outstanding floating rate debt at December 31, 1999. The fair value of
the interest rate cap agreements is the amount at which they could be
settled, based on estimates from brokers. The fair market value of the
interest rate swaps was approximately $0.4 million at December 31, 1999.
The obligations under the Senior Credit Facilities are secured by
substantially all of the assets of the Company and its subsidiaries. The
common stock of all subsidiaries has been pledged to secure the
guarantees provided by the subsidiaries.
b) The $25.0 million senior subordinated notes are due December 2006. Interest
is payable quarterly at 12.5%. The Company issued the notes with a
detachable warrant to purchase up to 2,986,467 shares of the Company's
common stock at $.001 per share. The holders may exercise the warrants at
any time during their ten-year term. The Company has valued these warrants
at $1.75 per share and is amortizing them to interest expense over the life
of the notes.
c) The convertible subordinated promissory note was issued in connection with
the Alliance acquisition to the previous shareholders of Alliance. Interest
accrues at a rate of 10% per year and is added to the note. The note,
including accrued interest, is due on November 20, 2007. The note may be
converted into shares of the Company's common stock at a conversion price of
$3.00 per share. However, if the note has not been repaid by November 20,
2004, the conversion price will be reduced by $.25 to $2.75 per share and
will be reduced by another $.25 per share on each anniversary thereafter to
a final conversion price of $2.00 per share on November 20, 2007.
The above debt agreements contain certain restrictive covenants, including,
among other things, requirements to maintain certain financial ratios,
limitations on the amount of dividends the Company is allowed to pay on its
common stock and restrictions on additional indebtedness.
F-18
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EARNINGS PER SHARE
The computation of basic and diluted earnings per share for the periods
ended December 31, 1999 and 1998 and April 30, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 30,
--------------------------------------------------------------- -------------------
1999 1998 1998
------------------------------ ------------------------------ -------------------
PER PER
NET SHARE NET SHARE NET
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income attributable to
common stock before
extraordinary gain...... $1,230 $ (24) $ (535)
Less: preferred stock
dividends............... (1,857) (179) (1,545)
------ ------ ------
Basic earnings per common
share before
extraordinary gain...... 3,087 14,123 $ 0.22 155 9,506 $0.02 1,010 8,562
====== =====
Dilutive impact of stock
options, warrants and
grants.................. -- 3,337 -- -- -- --
------ ------ ------ ----- ------ ------
Diluted earnings per
common share before
extraordinary gain...... $3,087 17,460 $ 0.17 $ 155 9,506 $0.02 $1,010 8,562
====== ====== ====== ====== ===== ===== ====== ======
<CAPTION>
APRIL 30,
-----------------------------------------
1998 1997
-------- ------------------------------
PER PER
SHARE NET SHARE
AMOUNT INCOME SHARES AMOUNT
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Income attributable to
common stock before
extraordinary gain...... $(7,168)
Less: preferred stock
dividends............... (2,059)
-------
Basic earnings per common
share before
extraordinary gain...... $0.12 (5,109) 8,535 $(0.60)
===== =======
Dilutive impact of stock
options, warrants and
grants.................. -- --
------- -------
Diluted earnings per
common share before
extraordinary gain...... $0.12 $(5,109) 8,535 $(0.60)
===== ======= ======= =======
</TABLE>
During 1999 and 1998, the convertible preferred stock (see Note 15) and
convertible promissory note (see Note 11) were antidilutive. For the eight
months ended December 31, 1998 and the years ended April 30, 1998 and 1997, the
Company had net operating losses before extraordinary gain applicable to common
stockholders, therefore there were no reconciling dilutive securities as all
options, warrants and grants outstanding to purchase common stock would have
been antidilutive had they been exercised.
In accordance with accounting principles generally accepted in the United
States, the Exchange Transaction (see Note 9) was accounted for as a redemption
of preferred stock at a discount to the carrying value, and therefore, the
excess of the carrying amount of the preferred stock over the fair value of the
consideration transferred to the holders of the preferred stock was added to net
income attributable to common stockholders as a gain on conversion for the
period ended December 31, 1998.
13. EMPLOYEE BENEFITS
DEFINED CONTRIBUTION PLANS
The Company maintains three 401(k) savings plans covering substantially all
of its domestic employees who meet minimum age and service requirements.
- The Alliance 401(k) savings plan matches employee contributions equal to
50% of the participant's contribution up to $1,000 annually for each union
participant and $1,050 annually for each nonunion participant.
Contributions vest to the participants at a rate of 20% per year. In
addition, Alliance has the authority to contribute profit sharing payments
for the accounts of eligible employees. Alliance did not elect to make any
such contributions in 1999 or 1998.
F-19
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- The Greensteel 401(k) savings plan matches all nonunion employee
contributions of up to 6% of compensation at a rate of 50%.
- The Nelson Adams 401(k) savings plan is non-contributing. Nelson Adams has
the authority to contribute profit sharing payments for the account of
eligible employees.
Amounts charged against income for the above plans totaled approximately
$0.2 million, $0.1 million, $0.1 million and $0.2 million for the fiscal year
ended December 31, 1999, the eight months ended December 31, 1998 and the fiscal
years ended April 30, 1998 and 1997, respectively.
The Company's European operation maintains a defined contribution pension
plan covering all European employees. Contributions to the plan are paid by both
the Company and the employees. The Company's contributions are allocated on the
basis of gross salaries. Pension expense amounted to approximately $0.3 million
and $31,000 for the fiscal year ended December 31, 1999 and the eight months
ended December 31, 1998, respectively.
DEFINED BENEFIT PENSION PLAN
The Company previously maintained a defined benefit pension plan covering
substantially all hourly employees. The plan provided pension benefits based on
the employee's years of service. The Company's funding policy was to make annual
contributions to the extent deductible for federal income tax purposes. Benefits
under the plan were curtailed and ceased to accrue on March 31, 1996. The
Company applied for and received approval for termination of the plan from the
Pension Benefit Guaranty Corporation and the Internal Revenue Service. On
March 10, 1997, benefits were paid to each plan participant in the form of a
lump-sum distribution based on each participant's accrued benefit and the plan
was terminated. During the fiscal year ended April 30, 1998, the Company
incurred a settlement loss under the defined benefit pension plan of
approximately $0.3 million related to a change in the method used to calculate
the lump-sum distribution of the terminated defined benefit pension plan.
Certain union employees of the Company are covered by multiemployer defined
benefit retirement plans. These employees perform services for the Company on
various contract installation projects and are employed only during the
installation period. Expenses relating to these plans amounted to approximately
$0.1 million for each of the periods ended December 31, 1999 and 1998 and
April 30, 1998 and 1997, respectively.
14. STOCK OPTION AND STOCK GRANT PLANS
The Company has the following long-term equity incentive plans:
- The PolyVision 1999 Stock Option Plan (the "1999 Plan") was adopted on
January 26, 1999. Under the 1999 Plan, the Company reserved 1,000,000
shares of the Company's common stock for option grants to key personnel.
Participation in the 1999 Plan is generally limited to key employees of
PolyVision and its subsidiaries. The 1999 Plan provides for the granting
of incentive and non-qualified stock options. Options granted under the
1999 Plan cannot be exercised after ten years from the date of grant.
During the year and period ended December 31, 1999 and 1998, the Company
granted 411,000 and 575,000 options under the 1999 Plan, respectively. As
of December 31, 1999, there are 174,000 shares available for issuance
under the 1999 Plan.
- The PolyVision 1994 Stock Option Plan (the "1994 Plan") was adopted in
May 1995. Under the 1994 Plan, the Company has granted options to purchase
400,000 shares of the Company's common stock to key personnel. Options
granted under the 1994 Plan cannot be exercised after ten years
F-20
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
from the date of grant. During 1999, the Board of Directors terminated the
1994 Plan. No additional options were issued during 1999 under the 1994
Plan.
- The 1995 Directors Stock Option Plan (the "1995 Directors Plan") was
adopted in April 1996. Under the 1995 Directors Plan, the Company has
granted option to purchase 300,000 shares of the Company's common stock to
directors of the Company. Options granted under the 1995 Directors Plan
cannot be exercised after ten years from the date of grant. During 1999,
the Board of Directors terminated the 1995 Directors Plan. No additional
options were issued during 1999 under the 1995 Directors Plan.
- The 1995 Directors Stock Grant Plan (the "1995 Directors Grant Plan") was
adopted April 1996. Under the 1995 Directors Grant Plan, 200,000 shares of
the Company's common stock have been reserved for issuance. At
December 31, 1999, an aggregate of 100,000 shares had been granted. During
the periods ended December 31, 1998 and April 30, 1998 and 1997, 46,333,
21,000 and 10,689 shares, respectively, were granted. For the periods
ended December 31, 1998 and April 30, 1998 and 1997, charges relating to
the current year vesting of these grants were $9,000, $50,000 and $94,000
respectively. These grants typically vest over three to five years. All
shares issued under this plan vested during 1999.
SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in 1997,
and, if fully adopted, changed the method for recognition of cost on stock-based
plans similar to those of the Company. In accordance with the provisions of SFAS
No. 123, the Company elected to continue to apply Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations in accounting for its stock-based compensation plans (including
options issued under the above plans). Had the Company elected to recognize
compensation expense based on the fair value at the grant date for awards under
its stock-based compensation plans as prescribed by SFAS No. 123, the pro forma
net income (loss) for the year ended December 31, 1999, eight month period ended
December 31, 1998 and the years ended April 30, 1998 and 1997, would have been:
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 30,
------------------- -------------------
1999 1998 1998 1997
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net income (loss)........................................... $2,897 $ 524 $ 947 $(5,211)
Basic net income (loss) per share of common stock........... $ 0.21 $2.03 $(0.07) $ (0.85)
Diluted net income (loss) per share of common stock......... $ 0.17 $2.03 $(0.07) $ (0.85)
</TABLE>
The fair value for these options was estimated at the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions for the periods ended December 31, 1999 and 1998 and April 30, 1998
and 1997, respectively: dividend yield of 0% for each year; expected volatility
of 105% for December 31, 1999, 50% for December 31, 1998 and 20% for each
previous year; risk-free interest rate of 5.68% for December 31, 1999, 5.61% for
December 31, 1998, 6.13% for April 30, 1998, and 6.44% for April 30, 1997; and
an expected life of five years for each period presented. The weighted-average
fair value of options granted during the year ended December 31, 1999 was $1.58.
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee and consultant stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the
F-21
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
fair value estimates, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
The following table summarizes stock option activity for the periods ended
December 31, 1999, December 31, 1998 and April 30, 1998 as follows:
<TABLE>
<CAPTION>
SHARES WEIGHTED-AVERAGE
OUTSTANDING EXERCISE PRICE
----------- ----------------
<S> <C> <C>
Outstanding at April 30, 1997............................... 297,500 $2.97
Exercised................................................. -- --
Canceled.................................................. -- --
Granted................................................... 120,000 1.00
--------- -----
Outstanding at April 30, 1998............................... 417,500 2.35
Exercised................................................. -- --
Canceled.................................................. (97,500) 3.58
Granted................................................... 721,000 1.45
--------- -----
Outstanding at December 31, 1998............................ 1,041,000 1.58
Exercised................................................. (28,000) 1.00
Canceled.................................................. (172,000) 1.45
Granted................................................... 411,000 1.99
--------- -----
Outstanding at December 31, 1999............................ 1,252,000 $1.74
--------- -----
</TABLE>
Information with respect to stock-based compensation plan stock options
outstanding and exercisable at December 31, 1999 was as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------
WEIGHTED -------------------------------
AVERAGE
RANGE OF NUMBER OF WEIGHTED AVERAGE CONTRACTUAL NUMBER OF WEIGHTED AVERAGE
EXERCISE PRICES SHARES EXERCISE PRICE LIFE (YEARS) SHARES EXERCISE PRICE
--------------------- --------- ---------------- ------------ --------- ----------------
<S> <C> <C> <C> <C> <C>
$1.00-1.50 751,000 $1.33 8.27 350,700 $1.23
$1.75-2.19 401,000 1.99 9.64 -- --
$3.86 100,000 3.86 5.75 100,000 3.86
</TABLE>
15. COMMON AND PREFERRED STOCK
COMMON STOCK
During fiscal 1999, the stockholders of the Company approved an amendment to
increase the number of authorized shares of common stock from 25.0 million to
40.0 million.
PREFERRED STOCK
The Company is authorized to issue up to 300,000 shares of its Series B
Preferred Stock, par value $0.01 per share, 150,000 shares of its Series C
Preferred Stock, par value $0.01 per share and 120,000 shares of its Series D
Preferred Stock, par value $0.01 per share. At December 31, 1999, the Company
had outstanding 255,000 shares of Series B Preferred Stock, 140,000 shares of
Series C Preferred Stock and 120,000 shares of Series D Preferred Stock.
F-22
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During fiscal 1998, the Company, as part of the Exchange Transaction (see
Note 9), issued to Alpine and another company 247,951 shares of Series B
Preferred Stock in exchange for all of the then outstanding shares of the
Company's Series A Preferred Stock. In addition, the Company issued to Alpine
9,000 shares of Series B Preferred Stock as compensation for structuring and
assisting the Company in completing the acquisition of Alliance (see Note 9).
During fiscal 1999, 1,951 shares of Series B Preferred Stock, plus accrued
dividends, were converted into 35,443 shares of the Company's common stock.
The Series B Preferred Stock earns cumulative cash dividends at an annual
rate of 9% and has priority as to dividends over the common stock. In the case
of the voluntary or involuntary liquidation or dissolution of the Company, the
holders of the Series B Preferred Stock will be entitled to receive a
liquidation price of $50.00 per share ($12,750,000 aggregate liquidation value
at December 31, 1999), plus any accrued and unpaid dividends. These dividends
are prohibited through July 2001 under the terms of the Company's senior
subordinated credit facility and thereafter are restricted in amount and can
only be paid if the Company is in compliance with specified financial ratios.
These shares have no voting rights, except for certain significant business
transactions of the Company, and have customary antidilution provisions for
stock dividends, stock splits, share combinations, recapitalizations and other
capital adjustments. The Series B Preferred Stock may be converted into
4,250,000 shares of the Company's common stock at any time at a conversion price
of $3.00 per share.
During fiscal 1999, the Company sold 40,000 shares of its Series C Preferred
Stock to Alpine for $2.0 million. The proceeds were used to finance a portion of
the purchase price for Nelson Adams (see Note 9). In November 1998, the Company
sold 100,000 shares of its Series C Preferred Stock to Alpine for $5.0 million,
the proceeds of which were used to finance a portion of the purchase price for
Alliance (see Note 9). The Series C Preferred Stock may be converted at any time
into 3,500,000 shares of common stock at a conversion price of $2.00 per share.
Other than the conversion price, the terms of the Series C Preferred Stock are
identical to the terms of the Series B Preferred Stock and rank equally with
respect to distribution rights upon the liquidation, dissolution or winding-up
of the affairs of the Company and with respect to dividend rights.
During fiscal 1999, the Company issued 120,000 shares of its Series D
Preferred Stock as partial consideration for the Nelson Adams acquisition (see
Note 9). The shares of Series D Preferred Stock rank senior to all other classes
of capital stock except for the Series B Preferred Stock and the Series C
Preferred Stock, as to which they rank equally. The Series D Preferred Stock
earns cumulative cash dividends at an annual rate of 8% and has priority as to
dividends over the common stock. The Series D Preferred Stock and Series C
Preferred Stock may be converted into 1,500,000 shares of common stock at any
time at a conversion price of $4.00 per share. Other than conversion price, the
terms of Series D Preferred Stock are substantially identical to the terms of
the Series B Preferred Stock and the Series C Preferred Stock.
F-23
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. INCOME TAXES
The sources of income (loss) before income taxes and extraordinary gain for
the periods ended December 31, 1999 and 1998 and April 30, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31 APRIL 30,
------------------- -------------------
1999 1998 1998 1997
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
United States............................... $1,826 $(204) $1,025 $(5,109)
Foreign..................................... 2,923 645 -- --
------ ----- ------ -------
Income (loss) before income taxes and
extraordinary gain........................ $4,749 $ 441 $1,025 $(5,109)
------ ----- ------ -------
</TABLE>
The provision (benefit) for income taxes for the periods ended December 31,
1999 and 1998 and April 30, 1998 and 1997 comprised the following:
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 30,
------------------- --------------------
1999 1998 1998 1997
-------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Federal......................................... $ -- $ -- $15 $ --
State........................................... -- -- -- --
Foreign......................................... 1,973 92 -- --
------ ---- --- ---------
1,973 92 15 --
Deferred:
Federal......................................... (543) -- -- --
State........................................... 252 -- -- --
Foreign......................................... (20) 194 -- --
------ ---- --- ---------
(311) 194 -- --
------ ---- --- ---------
Provision for income taxes........................ $1,662 $286 $15 $ --
====== ==== === =========
</TABLE>
F-24
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The provision for income taxes differed from the amount computed by applying
the U.S. federal income tax rate for the periods ended December 31, 1999 and
1998 and April 30, 1998 and 1997 because of the following items:
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 30,
------------------- -------------------
1999 1998 1998 1997
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Expected income tax expense at U.S. federal
statutory tax rate.......................... $1,659 $154 $ 359 $(1,788)
State income tax expense, net of federal
income tax benefit.......................... 308 26 62 (307)
Goodwill amortization not deductible.......... 493 86 50 50
Alternative minimum tax....................... -- -- 15 --
Non-deductible expense........................ 308 109 -- --
Deemed dividend............................... 396 125 -- --
Change in valuation allowance................. (1,674) (272) (471) 2,045
Difference in foreign and U.S. statutory
rate........................................ 172 58 -- --
------ ---- ----- -------
Provision for income taxes................ $1,662 $286 $ 15 $ --
====== ==== ===== =======
</TABLE>
The Company accounts for income taxes under an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for both
the expected future tax impact of temporary differences arising from assets and
liabilities whose tax bases are different from financial statement amounts and
for the expected future tax benefit to be derived from tax loss carryforwards. A
valuation allowance is established if it is more likely than not that all or a
portion of deferred tax assets will not be realized. Realization of the future
tax benefits of deferred tax assets (including tax loss carryforwards) is
dependent on the Company's ability to generate taxable income within the
carryforward period and the periods in which net temporary differences reverse.
Although no assurance can be given that sufficient taxable income will be
generated for utilization of certain of the Company's consolidated net operating
loss carryforwards or for reversal of certain temporary differences, the Company
believes it is likely that all of the net deferred tax asset, after valuation
allowance, will be realized.
F-25
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Items that result in deferred tax assets and liabilities and the related
valuation allowance at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Inventory................................................. $ 336 $ --
Bad debt allowance........................................ 415 372
Accruals not currently deductible for tax................. 3,108 1,408
Net operating loss carryforwards.......................... 7,138 9,571
Other..................................................... 150 --
------ ------
Total deferred tax assets............................... 11,147 11,351
Less valuation allowance.................................... 6,835 10,813
------ ------
Net deferred tax assets................................. 4,312 538
------ ------
Deferred tax liabilities:
Depreciation.............................................. 4,453 3,893
Goodwill.................................................. 389 --
Other..................................................... -- 1,121
------ ------
Total deferred tax liabilities.......................... 4,842 5,014
------ ------
Net deferred tax liability.............................. $ 530 $4,476
====== ======
</TABLE>
As reflected above, the Company established a valuation allowance of
approximately $6.8 million and $10.8 million as of December 31, 1999 and 1998,
respectively, due to uncertainty regarding the realizability of certain deferred
tax assets. The valuation primarily relates to operating loss carryforwards,
which are available to reduce future taxable income of certain entities.
As of December 31, 1999, the Company had approximately $15.8 million in
unused federal net operating loss carryforwards. The use of approximately
$13.6 million of the carryforwards are restricted as a result of ownership
changes under Section 382 of the Internal Revenue Code and other limitations.
The carryforwards expire in various amounts from fiscal 2003 through fiscal
2019. Based on the Company's history of prior operating losses, no assurance can
be given that sufficient taxable income will be generated for utilization of any
net operating loss carryforwards and reversal of temporary differences.
17. ROYALTIES PAYABLE
With the discontinuance of the operations of APV as of April 30, 1997 (see
Note 10), the Company entered into an agreement in June 1998 that terminated a
royalty arrangement with Connecticut Innovations Inc. The agreement provided for
the Company to deliver 9,509 registered shares of Alpine common stock and a
payment of approximately $0.1 million in the form of a promissory note in
exchange for the extinguishment of approximately $0.8 million in past
obligation. The purchase of the Alpine common stock was financed by loans from
Alpine. In connection with this agreement, the Company recorded an extraordinary
gain of approximately $0.4 million in 1998. The remaining portion of the
promissory note of $62,500 is due in July 2000.
F-26
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. RELATED-PARTY TRANSACTIONS
During fiscal 1999, the Company entered into non-cancelable operating leases
for three manufacturing facilities and three sales offices from certain
employees of the Company. These leases expire at various times through 2016.
Rental expense under these non-cancelable leases amounted to approximately
$0.2 million in 1999. In the opinion of management, the terms of these leases
are as favorable as those which could be obtained from unrelated lessors.
In November 1998, the Company entered into the Exchange Transaction with
Alpine (see Note 9), in which Alpine exchanged approximately $25.2 million in
liquidation value of its Series A Preferred Stock (plus accrued dividends) and
indebtedness of approximately $7.4 million for approximately 5.2 million shares
of the Company's common stock and approximately $12.3 million in liquidation
value of the Company's Series B Preferred Stock. In addition, the Company issued
to Alpine 209,790 shares of its common stock and 9,000 shares of its Series B
Preferred Stock as compensation for structuring and assisting the Company in its
acquisition of Alliance. As a result of these transactions, Alpine's ownership
increased to approximately 48% of the Company's outstanding common stock.
19. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries lease property, plant and equipment under a
number of leases extending for varying periods of time. Operating lease rental
expense including related-party leases amounted to approximately $0.6 million,
$0.4 million, $0.6 million and $0.6 million for the periods ended December 31,
1999 and 1998 and April 30, 1998 and 1997, respectively.
Minimum rental commitments as of December 31, 1999 under non-cancelable
leases, including related-party leases, with terms of more than one year are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- ------------ --------------
(IN THOUSANDS)
<S> <C>
2000........................................................ $1,381
2001........................................................ 1,242
2002........................................................ 826
2003........................................................ 406
2004........................................................ 268
Thereafter.................................................. 2,303
------
Total..................................................... $6,426
======
</TABLE>
During fiscal 1994, Reliance Insurance Company of New York (the "Plaintiff")
commenced an action in the Supreme Court of the State of New York, County of
Suffolk, against several defendants, including the Company, seeking money
damages based on the purported sale and delivery by defendants of some 860
insulated metal curtain wall panels manufactured by the Company in 1987 and of
an additional 520 replacement panels in 1991 and 1992. Plaintiff has alleged
that such panels were defective in their design and manufacture. Among the
theories of liability advanced by Plaintiff are breach of contract, breach of
express warranty and implied warranty. Pursuant to orders of the Court, the
causes of action based on the 1987 transaction were dismissed on statute of
limitation grounds. However, Plaintiff has been granted leave to serve an
amended complaint to allege, among other things, a claim under New Jersey
Consumer Fraud Act (the "NJCFA") (which might permit treble damages), while
preserving the right of the defendants, including the Company, to challenge the
applicability of the NJCFA. The amended complaint was served during April 1997,
and Plaintiff currently seeks approximately $1.4 million in damages, from all
F-27
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
defendants, as well as treble damages under NJCFA. The Company has served its
answer to the amended complaint substantially denying Plaintiff's allegations of
defective design and manufacture and pleading affirmative defenses, as well as
commencing third party claims against an adhesives supplier whose product was
utilized by the Company in fabricating the subject panels. As of the date
hereof, discovery is continuing but it is premature to render an estimate of the
outcome of the litigation.
The Company is subject to routine lawsuits incidental to its business. In
the opinion of management, based on its examination of such matters and
discussions with counsel, the ultimate resolution of all pending or threatened
litigation, claims and assessments will have no material adverse effect upon the
Company's consolidated financial position, liquidity or results of operations.
The Company is partially self-insured for workers' compensation claims in
the United States. The Company has accrued for its workers' compensation claims
based on an assessment of claims outstanding, as well as an estimate (based on
experience) of incurred workers' compensations claims which have not yet been
reported.
Approximately 29% of the Company's hourly labor force is covered by
collective bargaining agreements. There are five contracts representing 8% of
the Company's employees that will expire within one year.
Certain executives of the Company have employment contracts, which generally
provide minimum base salaries, cash bonuses based on the Company's achievement
of certain performance objectives, stock options, and certain retirement and
other employee benefits. Further, in the event of termination other than for
"cause" or voluntary resignation for "good reason," accompanied by a change in
control of PolyVision, as defined, such employment agreements provide for
severance payments not in excess of two times annual cash compensation and bonus
and the continuation for stipulated periods of other benefits.
20. SEGMENT REPORTING
The Company currently conducts business through three operating divisions:
OEM, Public Sector, and Commercial. The accounting policies of the divisions are
the same as described in the summary of significant accounting policies.
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 where the expenses are incurred. As a result,
the components of operating income for one segment may not be comparable to
another segment. Included in corporate and other are corporate expenses and
expenses associated with the Company's information display technology during the
year ended April 30, 1997.
F-28
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following provides information about each business segment for the
periods ended December 31, 1999 and 1998 and April 30, 1998 and 1997:
<TABLE>
<CAPTION>
TWELVE MONTHS
TWELVE MONTHS EIGHT MONTHS ENDED
ENDED ENDED APRIL 30,
DECEMBER 31, DECEMBER 31, -------------------------
1999 1998 1998 1997
------------- ------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales:
OEM Group.............................. $ 45,508 $ 6,617 $ -- $ --
Public Sector Group.................... 61,052 23,058 27,813 26,152
Commercial Group....................... 7,553 4,202 6,354 6,081
-------- -------- ------- -------
$114,113 $ 33,877 $34,167 $32,233
======== ======== ======= =======
Depreciation and amortization expense:
OEM Group.............................. $ 3,247 $ 490 $ -- $ --
Public Sector Group.................... 779 143 169 106
Commercial Group....................... 238 148 213 191
Corporate and other.................... -- -- -- 201
-------- -------- ------- -------
$ 4,264 $ 781 $ 382 $ 498
======== ======== ======= =======
Operating income (loss):
OEM Group.............................. $ 9,075 $ 1,325 $ -- $ --
Public Sector Group.................... 3,861 2,032 1,275 (1,227)
Commercial Group....................... 734 285 552 (75)
Corporate and other.................... (813) (1,592) (435) (2,987)
-------- -------- ------- -------
$ 12,857 $ 2,050 $ 1,392 $(4,289)
======== ======== ======= =======
Capital expenditures:
OEM Group.............................. $ 1,070 $ 411 $ -- $ --
Public Sector Group.................... 1,030 102 520 228
Commercial Group....................... 109 73 19 207
-------- -------- ------- -------
$ 2,209 $ 586 $ 539 $ 435
======== ======== ======= =======
Identifiable assets:
OEM Group.............................. $ 83,329 $ 98,798 $ -- $ --
Public Sector Group.................... 56,296 13,891 12,252 10,925
Commercial Group....................... 7,068 6,021 5,995 5,446
Corporate and other.................... 10,241 3,498 217 530
-------- -------- ------- -------
$156,934 $122,208 $18,464 $16,901
======== ======== ======= =======
</TABLE>
F-29
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Geographic financial information for the periods ended December 31, 1999 and
1998 and April 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS
TWELVE MONTHS EIGHT MONTHS ENDED
ENDED ENDED APRIL 30,
DECEMBER 31, DECEMBER 31, -------------------------
1999 1998 1998 1997
------------- ------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales:
North America.......................... $ 80,168 $30,052 $34,167 $32,233
Belgium................................ 21,232 2,546 -- --
Europe, other.......................... 12,713 1,279 -- --
-------- ------- ------- -------
$114,113 $33,877 $34,167 $32,233
======== ======= ======= =======
Long-lived assets:
North America.......................... $ 79,715 $55,832 $ 5,215 $ 5,294
Belgium................................ 21,620 24,142 -- --
Europe, other.......................... 872 3,114 -- --
-------- ------- ------- -------
$102,207 $83,088 $ 5,215 $ 5,294
======== ======= ======= =======
</TABLE>
21. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1999 QUARTER ENDED
-----------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR
-------- -------- ------------ ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales............................... $22,288 $26,816 $36,432 $28,577 $114,113
Gross profit............................ 7,223 9,906 13,146 9,702 39,977
Operating income........................ 1,633 4,435 6,202 587 12,857
Net income (loss)....................... (583) 1,862 2,630 (822) 3,087
Preferred stock dividends............... (402) (402) (483) (570) (1,857)
------- ------- ------- ------- --------
Net income (loss) applicable to common
stock............................... $ (985) $ 1,460 $ 2,147 $(1,392) $ 1,230
======= ======= ======= ======= ========
Net income (loss) per diluted share of
common stock:
Net income (loss)..................... $ (0.04) $ 0.09 $ 0.12 $ (0.05) $ 0.17
Preferred stock dividends............. (0.03) (0.02) (0.02) (0.03) (0.11)
------- ------- ------- ------- --------
Net income (loss) to common
stockholders per diluted share of
common stock (a).................. $ (0.07) $ 0.07 $ 0.10 $ (0.08) $ 0.06
======= ======= ======= ======= ========
</TABLE>
F-30
<PAGE>
POLIVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FISCAL 1998 QUARTER ENDED
--------------------------------------------------
JULY 31 OCTOBER 31 DECEMBER 31 (B) YEAR
-------- ---------- --------------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales......................................... $11,021 $10,929 $11,927 $33,877
Gross profit...................................... 3,278 3,228 4,011 10,517
Operating income (loss)........................... 1,155 1,010 (115) 2,050
Income (loss) before extraordinary gain........... 921 709 (1,475) 155
Extraordinary gain on early extinguishment of
debt............................................ 436 -- -- 436
Preferred stock dividends......................... -- -- (179) (179)
Accretion of preferred stock...................... -- -- (312) (312)
Gain on conversion of preferred stock............. -- -- 19,252 19,252
------- ------- ------- -------
Net income applicable to common stock......... $ 1,357 $ 709 $17,286 $19,352
======= ======= ======= =======
Net income per diluted share of common stock:
Income (loss) before extraordinary gain......... $ 0.10 $ 0.08 $ (0.12) $ 0.02
Extraordinary gain on early extinguishment of
debt.......................................... 0.05 -- -- 0.05
Preferred stock dividends....................... -- -- (0.01) (0.02)
Accretion of preferred stock.................... -- -- (0.03) (0.03)
Gain on conversion of preferred stock........... -- -- 1.57 2.02
------- ------- ------- -------
Net income to common stockholders per diluted
share of common stock (a)................... $ 0.15 $ 0.08 $ 1.41 $ 2.04
======= ======= ======= =======
</TABLE>
- ------------------------
(a) Net income per diluted share of common stock for the fiscal year is
determined by computing a year-to-date weighted average of the number of
incremental shares included in each quarterly diluted net income per
share calculation. As a result, the sum of net income per share for the
four quarters may not equal the net income per share for the periods
ended December 31, 1999 and 1998.
(b) Represents the two months ended December 31, 1998 (see Note 8).
F-31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PolyVision Corporation:
We have audited in accordance with auditing standards generally accepted
in the United States, the consolidated financial statements of PolyVision
Corporation and subsidiaries and have issued our report thereon dated
February 11, 2000. Our audits were made for the purpose of forming an opinion
on the basic financial statements taken as a whole. The schedule of valuation
and qualifying accounts is the responsibility of management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 11, 2000
F-32
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Form 10-K of our reports dated February 11, 2000
included in PolyVision Corporation's Registration Statement File Numbers
333-03897, 333-62649 and 333-62651. It should be noted that we have not
audited any financial statements of the company subsequent to December 31,
1999 or performed any audit procedures subsequent to the date of our reports.
Arthur Andersen LLP
Atlanta, Georgia
March 27, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF POLYVISION CORPORATION AND SUBSIDIARIES AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000835405
<NAME> POLYVISION CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 8,128
<SECURITIES> 0
<RECEIVABLES> 27,191
<ALLOWANCES> 2,264
<INVENTORY> 14,033
<CURRENT-ASSETS> 54,727
<PP&E> 20,105
<DEPRECIATION> 2,798
<TOTAL-ASSETS> 156,934
<CURRENT-LIABILITIES> 31,830
<BONDS> 93,866
0
25,750
<COMMON> 14
<OTHER-SE> 3,419
<TOTAL-LIABILITY-AND-EQUITY> 156,934
<SALES> 114,113
<TOTAL-REVENUES> 114,113
<CGS> 74,136
<TOTAL-COSTS> 74,136
<OTHER-EXPENSES> 27,120
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,373
<INCOME-PRETAX> 4,749
<INCOME-TAX> 1,662
<INCOME-CONTINUING> 3,087
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,087
<EPS-BASIC> 0.22
<EPS-DILUTED> 0.17
</TABLE>
