FORM 10-Q\A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended: Commission File No.
September 30, 1994 33-27289
ADIENCE, INC.
Delaware 14-1671486
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1305 Grandview Avenue
Pittsburgh, Pennsylvania 15211
(Address of registrant's principal executive offices)
412-381-2600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for at least the past 90 days. Yes /X/ No
10,100,000 shares of common stock, par value $.01 per share, are
outstanding as of September 30, 1994.
<PAGE>
ADIENCE, INC.
INDEX
PART 1 - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets--
September 30, 1994 and December 31, 1993.................... 2
Consolidated Statements of Operations--
Post-Emergence Three Months Ended September 30, 1994;
Post-Emergence Three Months Ended September 30, 1993
Post-Emergence Nine Months Ended September 30, 1994;
Post-Emergence Three Months Ended September 30, 1993;
Pre-Emergence Six Months Ended June 30, 1993................ 4
Consolidated Statements of Cash Flows--
Post-Emergence Nine Months Ended September 30, 1994;
Post-Emergence Three Months Ended September 30, 1993;
Pre-Emergence Six Months Ended June 30, 1993................ 5
Notes to Consolidated Financial Statements--September 30, 1994. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 19
PART II - OTHER INFORMATION
- ---------------------------
Item 5. Other Information.............................................. 29
Item 6. Exhibits and Reports on Form 8-K............................... 29
SIGNATURES................................................................. 30
- ----------
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ADIENCE, INC.
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
September 30, December 31,
1994 1993
(In thousands of dollars, except share data) (Unaudited) (Audited)
- ------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 1,322 $ 2,200
Accounts receivable, less allowance
(1994 - $1,392; 1993 - $1,287) 26,645 27,046
Inventories 16,346 18,650
Costs and estimated earnings in excess of
billings on uncompleted contracts 2,106 1,924
Prepaid expenses, deposits and other 2,016 2,231
- ------------------------------------------------------------------------------
Total current assets 48,435 52,051
- ------------------------------------------------------------------------------
Deferred income taxes 3,609 3,609
Property, plant and equipment:
Land 2,803 2,763
Buildings 12,918 12,328
Machinery and equipment 25,899 24,877
- ------------------------------------------------------------------------------
41,620 39,968
Less allowances for depreciation 9,981 7,151
- ------------------------------------------------------------------------------
31,639 32,817
Other assets 4,539 4,720
Reorganization value in excess of
amounts allocable to identifiable assets, net 8,373 9,190
- ------------------------------------------------------------------------------
Total assets $96,595 $102,387
==============================================================================
The accompanying notes are an integral part of these financial statements.
2
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ADIENCE, INC.
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
September 30, December 31,
1994 1993
(In thousands of dollars, except share data) (Unaudited) (Audited)
- ------------------------------------------------------------------------------
Liabilities and shareholders' equity
Current liabilities:
Revolving lines of credit $13,862 $ 9,185
Current portion of long-term obligations 686 759
Accounts payable 9,594 11,424
Salaries, wages and withholdings 1,106 953
Payable to principal shareholder 487 569
Accrued expenses 4,947 3,727
Billings in excess of costs and estimated
earnings on uncompleted contracts 900 619
Accrued insurance 6,026 6,466
Accrued income taxes 1,392 1,569
Environmental liability 492 783
Deferred income taxes 66 66
- ------------------------------------------------------------------------------
Total current liabilities 39,558 36,120
- ------------------------------------------------------------------------------
Payable to principal shareholder 1,688 3,189
Long-term obligations 46,403 46,211
Deferred income taxes 3,930 3,930
Minority interest in subsidiary 3,458 3,428
Shareholders' equity:
Common stock, $.01 par value;
authorized 20,000,000 shares;
issued and outstanding 10,000,000 shares in 1993
and 10,100,000 shares in 1994 101 100
Additional paid-in capital 23,974 23,900
Retained deficit (22,272) (14,367)
Foreign currency translation (189) (124)
Unamortized stock compensation (56) --
Total shareholders' equity 1,558 9,509
Total liabilities and shareholders' equity $96,595 $102,387
==============================================================================
The accompanying notes are an integral part of these financial statements.
3
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<TABLE>
ADIENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(In thousands of dollars, except per share data)
<CAPTION>
Post-emergence Post-emergence | Pre-emergence
--------------------------------------- ----------------------------------------------------------
Three Months Ended Three Months Ended Nine Months Ended Three Months Ended | Six Months Ended
September 30, 1994 September 30, 1993 September 30, 1994 September 30, 1993 | June 30, 1993
- ----------------------------------------------------------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $38,478 $40,348 $99,098 $40,348 | $68,171
Costs and expenses: |
Cost of revenues 31,279 33,672 82,280 33,672 | 55,474
Selling, general |
and administrative 5,703 6,218 18,293 6,218 | 14,624
Amortization of intangible asset 263 510 810 510 | --
- ----------------------------------------------------------------------- ----------------------------------------------------------
37,245 40,400 101,383 40,400 | 70,098
- ----------------------------------------------------------------------- ----------------------------------------------------------
Operating profit (loss) 1,233 (52) (2,285) (52) | (1,927)
- ----------------------------------------------------------------------- ----------------------------------------------------------
Other income (expense): |
Interest and other income 93 506 554 506 | 258
Interest expense (2,052) (1,775) (5,773) (1,775) | (2,360)
- ----------------------------------------------------------------------- ----------------------------------------------------------
Loss from continuing operations |
before reorganization items, |
income taxes, minority interest |
in subsidiary and extraordinary |
item (726) (1,321) (7,504) (1,321) | (4,029)
- ----------------------------------------------------------------------- ----------------------------------------------------------
Reorganization items: |
Professional fees -- (411) -- (411) | (102)
Write-off of unamortized debt |
discount -- -- -- -- | (455)
Write-off of unamortized loan |
origination fees -- -- -- -- | (2,065)
Adjust accounts to fair value -- -- -- -- | 23,165
- ----------------------------------------------------------------------- ----------------------------------------------------------
-- (411) -- (411) | 20,543
(Loss) income from continuing |
operations before income taxes, |
minority interest in subsidiary |
and extraordinary item (726) (1,732) (7,504) (1,732) | 16,514
- ----------------------------------------------------------------------- ----------------------------------------------------------
Income tax expense 428 509 371 509 | 261
- ----------------------------------------------------------------------- ----------------------------------------------------------
(Loss) income from continuing |
operations before minority |
interest in subsidiary and |
extraordinary item (1,154) (2,241) (7,875) (2,241) | 16,253
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
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<TABLE>
ADIENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED - (Continued)
(In thousands of dollars, except per share data)
<CAPTION>
Post-emergence Post-emergence | Pre-emergence
--------------------------------------- ----------------------------------------------------------
Three Months Ended Three Months Ended Nine Months Ended Three Months Ended | Six Months Ended
September 30, 1994 September 30, 1993 September 30, 1994 September 30, 1993 | June 30, 1993
- ----------------------------------------------------------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Minority interest in subsidiary 71 105 30 105 | 1
- ----------------------------------------------------------------------- ----------------------------------------------------------
(Loss) income from continuing |
operations before |
extraordinary item (1,225) (2,346) (7,905) (2,346) | 16,252
- ----------------------------------------------------------------------- ----------------------------------------------------------
Discontinued operations: |
Income (loss) on disposal of |
discontinued operations -- 81 -- 81 | (400)
- ----------------------------------------------------------------------- ----------------------------------------------------------
(Loss) income before extraordinary
item (1,225) (2,265) (7,905) (2,265) | 15,852
|
Extraordinary item-gain on |
discharge of debt -- -- -- -- | 17,480
- ----------------------------------------------------------------------- ----------------------------------------------------------
Net (loss) income $(1,225) $(2,265) $(7,905) $(2,265) | $33,332
======================================================================= ==========================================================
Earnings per common share:* |
Loss from continuing operations $ (0.12) $ (0.23) $ (0.79) $ (0.23) | $ *
Income (loss) from discontinued |
operations -- -- -- -- | *
Extraordinary item -- -- -- -- | *
- ----------------------------------------------------------------------- ----------------------------------------------------------
Loss per common share $ (0.12) $ (0.23) $ (0.79) $ (0.23) | $ *
Average common shares outstanding 10,100 10,100 10,040 10,100 | *
======================================================================= ==========================================================
* Earnings per share are not meaningful due to reorganization and revaluation entries and the issueance of new common stock.
The accompanying notes are an integral part of these financial statements.
</TABLE>
4A
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<TABLE>
ADIENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<CAPTION>
Post-emergence | Pre-emergence
--------------------------------------------------------------
Nine Months Ended Three Months Ended | Six Months Ended
(In thousands of dollars) September 30, 1994 September 30, 1993 | June 30, 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flow from operating activities |
Net (loss) income $(7,905) $(2,265) | $33,332
Non-cash expenses and revenues included in loss income |
Depreciation and amortization 4,835 1,985 | 2,000
Provision for doubtful accounts 298 -- | 413
(Gain) loss on disposal of discontinued operations -- (81) | 400
(Gain) loss on disposal of property, plant and equipment (71) 37 | 23
Minority interest 30 105 | 1
Changes in operating assets and liabilities: |
Short-term investments -- 258 | (4)
Accounts receivable 296 (2,665) | (3,781)
Inventories, prepaid expenses, deposits and other 2,519 1,536 | 201
Costs and estimated earnings in excess of |
billings on uncompleted contracts (182) (653) | (1,050)
Income tax receivable -- 288 | 2,742
Accounts payable, salaries, wages and withholdings, accrued expenses, |
accrued insurance and payable to principal shareholder (2,477) (1,496) | 2,469
Billings in excess of costs and estimated |
earnings on uncompleted cotracts 281 221 | 614
Accrued income taxes (177) 442 | 1,549
Environmental liability (291) (18) | (82)
Other 68 174 | 470
Operating cash flows from reorganization items: |
Write-off of unamortized debt discount and loan origination fees -- -- | 2,520
Adjust accounts to fair value -- -- | (23,165)
Extraordinary gain on discharge of debt -- -- | (17,480)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by operating activities (2,776) (2,132) | 1,172
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flow from investing activities |
Purchase of property, plant and equipment (2,097) (454) | (697)
Other (426) (202) | (305)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (2,523) (656) | (1,002)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flow from financing activities |
Net borrowings (payments) on revolving lines of credit 4,677 3,739 | (1,849)
Principal payments on long-term obligations (256) (72) | (369)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 4,421 3,667 | (2,218)
- -----------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (878) 879 | (2,048)
Cash and cash equivalents at beginning of period 2,200 0 | 2,048
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,322 $ 879 | $ 0
===================================================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
September 30, 1994
(Dollar amounts in thousands, except share data, unless otherwise noted)
Note 1 - BASIS OF PRESENTATION AND COMPANY REORGANIZATION
- ---------------------------------------------------------
Adience, Inc. ("Adience" or "Company") has significant indebtedness, has
experienced continued losses from operations pre-and post-emergence under
Chapter 11, and although Adience has met operating and financial plans for the
three months ended September 30, 1994, it has not met operating and financial
plans for the nine months ended September 30, 1994 due to lower than expected
results at its refractory and information display operations. These factors
raise substantial doubt about Adience's ability to continue as a going
concern. Management's plans in regard to this matter include further
implementation of its plans to combine multi-functional resources as teams to
respond better to customer needs, making an investment in product and service
opportunities expected to produce a greater return on its investment,
continuing a cost control program begun in 1993, and exploring capital market
transactions such as the proposed acquisition of Adience by The Alpine Group,
Inc. (Item 5). Although management believes that these plans will enable
Adience to continue as a going concern for a reasonable period there can be no
assurance that this will be the case. These financial statements do not
include any adjustments relating to the recoverability and classification of
assets or to the classification of liabilities that might be necessary should
Adience not be able to continue in existence.
A Prepackaged Plan of Reorganization under Chapter 11 of the Bankruptcy Code
(the "Prepackaged Plan") was filed by Adience and the Unofficial Committee of
Noteholders of Adience on February 22, 1993. The Prepackaged Plan was
confirmed by the United States Bankruptcy Court for the Western District of
Pennsylvania on May 4, 1993 and consummated on June 30, 1993.
The Prepackaged Plan provided for a restructuring of Adience's capital
structure and allowed the holders of $66 million aggregate principal amount of
Adience's 15% Senior Subordinated Notes ("Old Reset Notes") to exchange them
for $49 million aggregate principal amount of new 11% Senior Secured Notes
("New Secured Notes") due June 15, 2002, plus common stock representing 55% of
the outstanding common stock of Adience. The Prepackaged Plan also included
forgiveness of accrued interest totaling approximately $8.8 million. The
value of the cash and securities distributed was $17.5 million less than the
allowed claims; the resultant gain was recorded as an extraordinary gain.
6
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - Continued
NOTE 1 - CONTINUED
- ------------------
Neither Adience Canada, a wholly-owned subsidiary, or Information Display
Technology, Inc. ("IDT"), a majority-owned subsidiary of Adience, guarantee
the new 11% Notes issued by Adience under the Prepackaged Plan. The new Notes
are secured by a lien on all the assets of Adience, including the stock of
IDT.
Adience Canada and IDT did not file plans of reorganization.
The sum of allowed claims plus post petition liabilities exceeded the
reorganization value of the assets of Adience immediately before the date of
consummation. Also, the Company experienced a change in control as pre-
reorganization holders of common stock received less than 50% of the new
common stock issued pursuant to the Prepackaged Plan. AICPA SOP 90-7,
Financial Reporting by Entities in Reorganization under the Bankruptcy Code
("SOP 90-7"), requires that under these circumstances, a new reporting entity
is created and assets and liabilities should be recorded at their fair values.
This accounting treatment is referred to in these statements as "fresh start
reporting". The Company's basis of accounting for financial reporting
purposes changed on June 30, 1993 as a result of applying SOP 90-7.
Specifically, application of SOP 90-7 required the adjustment of the Company's
assets and liabilities to reflect a reorganization value generally
approximating the fair value of the Company as a going concern on an
unleveraged basis, the elimination of its retained deficit, and adjustments to
its capital structure to reflect consummation of the Prepackaged Plan. Fresh
start reporting has not been adopted by Adience Canada and IDT.
The consolidated statements of operations and cash flows after June 30, 1993
are not comparable to the respective financial statements prior to such date,
accordingly a solid black line has been shown to separate it from prior year
information since it is not prepared on a comparable basis.
Reorganization value at the June 30, 1993 consummation date was determined by
management with the assistance of independent advisors. The methodology
employed involved estimation of enterprise value (i.e., the market value of
the Company's debt and shareholders' equity), taking into account a discounted
cash flow analysis, as well as the capitalization of earnings and cash flow
approaches. The discounted cash flow analysis was based on five-year cash
flow projections prepared by management.
7
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - Continued
NOTE 1 - CONTINUED
- ------------------
The five-year cash flow projections were based on estimates and assumptions
about circumstances and events that had not yet taken place. Such estimates
and assumptions are inherently subject to significant economic and competitive
uncertainties and contingencies beyond the control of the corporation,
including, but not limited to, those with respect to the future courses of the
Company's business activity. Accordingly, there will usually be differences
between projections and actual results because events and circumstances
frequently do not occur as expected; and those differences may be material.
The assumptions included: a rate of sales growth of approximately 2.5% per
annum in excess of the anticipated rate of inflation; selling, general and
administrative expenses, after adjustment for non-recurring items, increase in
line with the rate of sales growth; operating profit margins for each of the
five years are approximately equal to one half of the average annual operating
profit margins achieved during the most recent profitable period of 1988-1990;
and effective tax rates of 33%.
At June 30, 1993, the adjustment to record confirmation of the plan of $23
million was allocated to assets and liabilities as follows:
Inventories $ 1,287
Property, plant and equipment 19,448
Reorganization value in excess of amounts
allocable to identifiable assets 18,329
Intangible assets (3,032)
Deferred income taxes (1,108)
Additional paid-in capital (10,896)
Prepaid contribution to employee stock ownership plan (863)
--------
$ 23,165
========
Current assets and liabilities were recorded at fair value. Property, plant
and equipment was recorded at reorganization value, which approximated fair
value in continued use, based on an independent appraisal. In addition, under
SOP 90-7, the long-term debt was recorded at present values on June 30, 1993.
The resulting unamortized discount is being accreted to interest expense over
the term of the New Secured Notes.
8
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - Continued
NOTE 1 - CONTINUED
- ------------------
Based on the allocation of equity value in conformity with SOP 90-7, the
portion of the equity value which was not attributed to specific tangible or
identifiable intangible assets of the reorganized Company of $18,329 was
reported as "reorganization value in excess of amounts allocable to
identifiable assets". This value was initially being amortized on a straight
line basis in equal annual amounts over 9 years. On a quarterly basis,
management evaluates the recoverability of the unamortized portion of the
reorganization value in excess of amounts allocable to identifiable assets by
comparing actual cash flows with the projected cash flows used to arrive at
the reorganization value. Should a material difference exist, management will
then consider whether the assumptions made in the preparation of the projected
cash flows are still reasonable. If management is of the opinion that new
projected cash flows are required and that a permanent impairment of the
remaining reorganization value has occurred, a reduction of some or all of the
unamortized value will be immediately recognized.
In the fourth quarter of 1993, the Company recorded a charge of $8 million to
reduce the recorded reorganization value in excess of amounts allocable to
identifiable assets based on management's comparison of actual cash flows
post-emergence through December 31, 1993, with the projected cash flows used
to arrive at the reorganization value. This comparison resulted in the
preparation of new cash flow projections, which in turn led the Company to the
conclusion that permanent impairment of the reorganization value had occurred
and that an immediate reduction of approximately 50% of the remaining
unamortized value needed to be recognized.
The Company has adopted "fresh start reporting" in accordance with SOP 90-7 in
preparing its consolidated balance sheet as of June 30, 1993. The balance
sheet became the opening balance sheet for Adience, Inc., as reorganized, on
July 1, 1993.
The accompanying unaudited consolidated financial statements of Adience have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
The consolidated results of operations for the three and nine month periods
ended September 30, 1994, are not necessarily indicative of the results that
may be expected for the year ended December 31, 1994.
9
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ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - Continued
NOTE 1 - CONTINUED
- ------------------
The accompanying unaudited financial statements should be read in conjunction
with Adience's audited financial statements included in Adience's annual
report on Form 10-K for the six month periods ended December 31 and June 30,
1993.
Earnings per common share is computed by dividing net loss by the weighted
average number of shares outstanding.
Note 2 - Pro Forma Results of Operations
- ----------------------------------------
The following consolidating pro forma statement of operations reflects the
financial results of the Company as if the reorganization had been effective
January 1, 1993:
10
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<TABLE>
ADIENCE, INC.
CONSOLIDATING PRO FORMA STATEMENT OF OPERATIONS
UNAUDITED
<CAPTION>
For the NIne Months Ended September 30, 1 9 9 3
- -----------------------------------------------------------------------------------------------------------------------------------
Pro Forma Unconsolidated
Unconsolidated Adjustments Adience ADIENCE ADIENCE, INC.
ADIENCE Debit Credit Pro Forma IDT CANADA CONSOLIDATED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues $61,565 $61,565 $38,761 $ 8,193 $108,519
Costs and expenses:
Cost of revenues (51,174) $ 1,164(1) (52,338) (31,656) (5,878) (89,872)
Selling, general and administrative (13,840) $ 564(1) (13,276) (6,118) (1,322) (20,716)
Amortization of intangible asset (509) 301(1) (810) (810)
- -----------------------------------------------------------------------------------------------------------------------------------
(65,523) 1,465 564 (66,424) (37,774) (7,200) (111,398)
- -----------------------------------------------------------------------------------------------------------------------------------
Operating (loss) profit (3,958) 1,465 564 (4,859) 987 993 (2,879)
Other income (expense):
Interest and other income 705 705 29 30 764
Interest expense (4,007) 1,318(2) (5,325) (128) (5,453)
- -----------------------------------------------------------------------------------------------------------------------------------
(3,302) 1,318 (4,620) (99) 30 (4,689)
- -----------------------------------------------------------------------------------------------------------------------------------
(Loss) income from continuing operations
before reorganization items, income taxes,
minority interest in subsidiary, and
extraordinary item (7,260) 2,783 564 (9,479) 888 1,023 (7,568)
Reorganization items:
Professional fees (513) 513(3) 0 0
Write-off of unamortized debt discount (455) 455(3) 0 0
Write-off of unamortized loan
origniation fees (2,065) 2,065(3) 0 0
Adjust accounts to fair value 23,165 23,165(3) 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
20,132 23,165 3,033 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
(Loss) income from continuing operations
before income taxes, minority interest
in subsidiary, and extraordinary item 12,872 25,948 3,597 (9,479) 888 1,023 (7,568)
Income taxes expense 6 6 355 409 770
- -----------------------------------------------------------------------------------------------------------------------------------
(Loss) income from continuing operations
before minority interest in subsidiary,
and extraordinary item 12,866 25,948 3,597 (9,485) 533 614 (8,338)
Minority interest in subsidiary (106) (106) (106)
- -----------------------------------------------------------------------------------------------------------------------------------
(Loss) income from continuing operations
before extraordinary item $12,760 $25,948 $3,597 $(9,591) $ 533 $ 614 $(8,444)
===================================================================================================================================
For explanations of (1), (2) and (3) see page 12.
</TABLE>
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - Continued
NOTE 2 - CONTINUED
- ------------------
(1) Reflects impact of additional depreciation expense resulting from the
write-up of property, plant and equipment, the amortization of the write-
up in inventory values, the amortization of reorganization value in
excess of fair value, and the reduction of ESOP expense and goodwill
amortization which was written off in conjunction with fresh start
reporting.
(2) Interest expense on reorganized long-term debt.
(3) Elimination of the effect of non-recurring reorganization items on
operations.
NOTE 3 - INVENTORIES
- --------------------
Inventories consist primarily of raw materials of $7,593 and $7,512, work-in-
process of $1,746 and $2,374 and finished goods of $7,007 and $8,764 at
September 30, 1994 and December 31, 1993, respectively.
NOTE 4 - CONTRACTS IN PROGRESS
- ------------------------------
The status of contract costs on uncompleted construction contracts was as
follows:
Costs and estimated Billings in excess
earnings in of costs and
excess of billings estimated earnings Net
- ------------------------------------------------------------------------------
September 30, 1994:
Costs and estimated
earnings of $1,839 $24,849 $ 9,355
Billings 22,743 10,255
- ------------------------------------------------------------------------------
$ 2,106 $ 900 $ 1,206
==============================================================================
December 31, 1993:
Costs and estimated
earnings of $1,649 $20,113 $ 6,218
Billings 18,189 6,837
- ------------------------------------------------------------------------------
$ 1,924 $ 619 $ 1,305
==============================================================================
12
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ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - Continued
NOTE 4 - CONTINUED
- ------------------
Accounts receivable at September 30, 1994 and December 31, 1993 include
amounts billed but not yet paid by customers under retainage provisions of
approximately $2,816 and $2,989, respectively. Such amounts are generally due
within one year.
NOTE 5 - INCOME TAX PAYMENTS
- ----------------------------
For the nine month period ended September 30, 1994, the three month period
ended September 30, 1993 and the six months ended June 30, 1993 the Company
made income tax payments totaling $609, $2 and $32, respectively.
NOTE 6 - LINES OF CREDIT
- ------------------------
On the consummation date of the plan of reorganization, June 30, 1993, Adience
entered into a financing agreement with Congress Financial Corporation
("Congress") that had a renewal date of June 30, 1994 (the "Renewal Date").
Certain revisions were made to the terms of the agreement during 1994,
including the extension of the Renewal Date to June 30, 1995. The facility
remains in effect year to year thereafter, unless terminated upon sixty days
written notice by either party on the anniversary of the Renewal Date in any
year. Under the revised agreement, Adience may request loan advances not to
exceed the lesser of $14 million or available collateral (85% of eligible
accounts receivable less than 90 days, 50% of eligible bagged inventory plus
30% of eligible raw material and finished goods inventory which does not
constitute bagged inventory). The loan is collateralized by accounts
receivable, inventory, fixed assets, intangible assets and Adience's shares of
IDT. In addition, IDT has guaranteed the Adience line of credit and has
pledged as collateral its own accounts receivable, inventory and equipment.
The interest rate on the loan is 2.5% over the prime rate (effective rate of
10.25% at September 30, 1994). At September 30, 1994 Adience had borrowed
$11,843 under the credit facility including checks in transit of $1,603.
Letters of credit issued under the facility totaled $1,143 at September 30,
1994, which reduced the availability under the financing arrangement in a like
amount.
13
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - Continued
NOTE 6 - CONTINUED
- ------------------
In addition, IDT entered into a financing agreement with Congress, which was
also renewed through June 30, 1995. The facility remains in effect year to
year thereafter, unless terminated upon sixty days written notice by either
party on the anniversary date of the Renewal Date in any year. Certain
revisions were also made to the terms of the agreement during 1994. Under the
revised agreement, IDT may request loan advances not to exceed the lesser of
$5 million or available collateral (85% of eligible accounts receivable less
than 90 days plus 30% of raw material and finished goods inventory). The loan
is collateralized by accounts receivable, inventory and fixed assets. Adience
guarantees IDT's debt to Congress. The interest rate on the loan is 2.5% over
the prime rate. At September 30, 1994, IDT had borrowed $2,019 under the
credit facility including checks in transit of $398. Letters of credit issued
under the facility totaled $700 at September 30, 1994, which reduced the
availability under the financing arrangement in a like amount.
Both Adience and IDT pay commitment fees on the unused portion of their credit
facility of 0.5% per annum. Under the terms of the financing agreements, both
companies are required to maintain certain financial ratios and meet other
financial conditions. The agreements do not allow the companies to incur
additional indebtedness, pay cash dividends, make certain investments,
advances or loans, and limits annual capital expenditures. As of September
30, 1994, Adience and IDT were in compliance with the covenants of their
respective agreements. Adience's ability to continue to comply with such
conditions is dependent upon Adience's ability to achieve specified levels of
sales, profitable operations and borrowing availability. Waivers or
amendments may be required in the future to ensure compliance. Inability to
achieve compliance in the future could affect Adience's access to further
borrowings or require it to secure additional capital by other means.
14
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - Continued
NOTE 7 - LONG-TERM OBLIGATIONS
- ------------------------------
September 30, December 31,
1994 1993
- ------------------------------------------------------------------------------
Long-term obligations consisted of the following:
New Senior Secured Notes due in 2002,
interest at 11% $49,079 $49,079
Notes payable with monthly installments of
principal and interest of $22
through December 1997, interest at 10% 701 836
Capital lease obligations 602 745
Other (interest ranges from 10% to 13%) 582 560
- ------------------------------------------------------------------------------
50,964 51,220
Less current portion 686 759
- ------------------------------------------------------------------------------
50,278 50,461
Discount on New Senior Secured Notes 3,875 4,250
- ------------------------------------------------------------------------------
$46,403 $46,211
==============================================================================
In connection with the Plan of Reorganization, $49,079 of New Senior Secured
Notes with an annual interest rate of 11% were issued under an indenture
agreement dated as of June 30, 1993. The New Senior Secured Notes are
redeemable at the option of Adience after December 15, 1997. The New Senior
Secured Notes are not guaranteed by subsidiaries of Adience. The New Notes
are secured by a lien on all the assets of Adience, including the stock of
IDT.
Adience, on a consolidated basis, has agreed to certain restrictive covenants
which are ordinary to such financings including, among other things,
limitations on asset sales, limitations on additional indebtedness and
restrictions on the payment of dividends.
15
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - Continued
NOTE 8 - STOCK PLANS
- --------------------
On May 24, 1994, the Board of Directors of Adience adopted the 1994 Stock
Option Plan ("Stock Option Plan") and 1994 Directors Stock Grant Plan ("Stock
Grant Plan"). Under the Stock Option Plan, 1,250,000 shares have been
reserved for issuance upon the exercise of stock options, which may be granted
to employees by the Compensation Committee of the Company's Board of
Directors. Under the Stock Option Plan, options generally become exercisable
six months following the date of grant or over a period determined by the
Board of Directors and expire ten years from the date of grant. The Stock
Option Plan provides for the option price to be paid in cash, shares of
Adience's common stock owned by the option holder, or a combination of such
shares and cash. As of September 30, 1994, 225,000 options have been granted
under the Stock Option Plan. Each option granted entitles the holder to
acquire one share of Adience common stock at an exercise price not to be less
that the fair market value of the underlying shares on the date of grant.
There is currently no public market for the common stock.
Compensation resulting from stock options is initially measured at the grant
date based on the market value of the common stock, with adjustments to be
made quarterly for market price fluctuations. The Company recognized no Stock
Option Plan compensation expense for the nine months ended September 30, 1994.
The Stock Grant Plan provides that up to 300,000 shares of common stock may be
granted to the members of the Board of Directors, at no cost to the directors.
The Stock Grant Plan authorized the automatic grant of 10,000 shares of common
stock to each director on June 13, 1994, and 10,000 shares of common stock to
each director on the date of each of the next two successive annual meetings
of shareholders of the Company provided the director is then re-elected to the
board, up to an aggregate of not more than 30,000 shares for each director.
These grants have been made in lieu of a cash retainer which would have been
paid to each director.
The aggregate fair market value of the shares granted under the Stock Grant
Plan is considered unearned compensation at the time of grant and compensation
is earned ratably over the year. The unamortized unearned compensation value
is shown as a reduction of shareholders' equity in the accompanying
consolidated balance sheet.
Additionally, Steib & Company, a New York general partnership, was granted
options to purchase 1,275,000 shares of Company common stock as partial
compensation for services to be performed under an advisory agreement with the
Company. Steven S. Elbaum, a member of the Company's Board of Directors, is a
general partner of Steib & Company.
16
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - Continued
NOTE 9 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
At September 30, 1994, Adience and IDT had $1,143 and $700, respectively, in
irrevocable standby letters of credit outstanding, not reflected in the
accompanying consolidated financial statements, as guarantees in force for
various insurance policies, performance and bid bonds. These instruments are
usually for the duration of the contract. The letters of credit reduce
Adience's and IDT's availability under the Congress credit facility.
In February 1992, IDT was cited by the Ohio Environmental Protection Agency
(the "Ohio EPA") for violations of Ohio's hazardous waste regulations,
including speculative accumulation of waste and illegal disposal of hazardous
waste on the site of its Alliance, Ohio facility. IDT had $783 accrued at
December 31, 1993 for the clean up of this site.
In December 1993, IDT and Adience signed a consent order with the Ohio EPA and
Ohio Attorney General which required IDT and Adience to pay to the State of
Ohio a civil penalty of $200 (of which IDT paid $175 and Adience paid $25).
In addition, the consent order requires the payment of stipulated penalties of
up to $1 per day for failure to satisfy certain requirements of the consent
order including milestones in the closure plan. IDT expects that the work to
be conducted under the closure plan will be substantially completed in 1994,
subject to IDT receiving all necessary approvals from the Ohio EPA. At
September 30, 1994, environmental accruals amounted to $492 which represents
management's reasonable estimate of the amounts remaining to be incurred in
this matter, including the costs of effecting the closure plan, bonding and
insurance costs, penalties and legal and consultants' fees. Since 1991,
Adience and IDT have together paid $614 (excluding the civil penalty) for the
environmental clean-up related to the Alliance facility.
IDT has commenced discussions with the Ohio EPA concerning a modification to
the closure plan which would reduce the scope of work required. Based on
administrative precedent, IDT believes that it is likely that the Ohio EPA
will agree to the modification. If such a modification is not made,
additional costs may have to be incurred to complete the project. Although
there is no assurance that additional costs will not have to be incurred, the
Company believes that such costs will not need to be incurred.
Under the acquisition agreement pursuant to which IDT acquired the property
from Adience, Adience represented and warranted that, except as otherwise
disclosed to IDT, no hazardous material has been stored or disposed of on the
property. No disclosure of storage or disposal of hazardous material on the
site was made. Accordingly, Adience is required to indemnify IDT for any
losses in excess of $250. IDT has notified Adience that it is claiming the
right to indemnification for all costs in excess of $250 incurred by IDT in
this matter and has received assurance that Adience will honor such claim.
Adience has reimbursed IDT $421; if Adience is financially unable to honor its
remaining obligation, such costs would be borne by IDT.
17
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - Continued
NOTE 9 - CONTINUED
- ------------------
In October 1994, three district sales managers of IDT filed a lawsuit in the
United States District Court for the Western District of Pennsylvania against
IDT alleging breach of their employment contracts and age discrimination.
Although management of IDT believes that the lawsuit can be successfully
defended and is without merit, no assurance can be given as to the outcome of
the action.
Adience is engaged in various other legal actions arising in the ordinary
course of business. Management believes, after discussions with internal and
external counsel, that the ultimate outcome of the proceedings will not have a
material adverse effect on Adience's consolidated financial position.
18
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Reorganization and Fresh-Start Reporting
- ----------------------------------------
Adience, Inc. has experienced continued losses from continuing operations
(before reorganization items) both pre- and post-emergence under Chapter 11.
In addition, a write down of reorganization value in excess of amounts
allocable to identifiable assets was recorded at December 31, 1993, based on
management's belief that a permanent impairment of this asset existed.
The continued viability of the Company is dependent upon, among other factors,
the ability to generate sufficient funds from operations, financing, or other
sources that will meet ongoing obligations over a sustained period.
Management has prepared detailed operating and financial plans which combine
multifunctional resources as teams to respond better to customer needs and
make an investment in product and service opportunities expected to produce a
significantly greater return on investment. Management believes that the
successful implementation of these plans will enable the Company to continue
as a going concern. There can be no assurance, however, that such activities
will achieve the intended improvement in results of operations or financial
position.
On February 22, 1993, Adience and the unofficial committee of noteholders of
Adience filed a "prepackaged" plan of reorganization (the "Prepackaged Plan")
under Chapter 11 of the United States Bankruptcy Code (the "Reorganization").
The Prepackaged Plan was confirmed by the United States Bankruptcy Court for
the Western District of Pennsylvania on May 4, 1993 and consummated on June
30, 1993.
The filing was precipitated by a combination of an overall decline in the
demand for refractory products and services during 1991 and 1992 caused by a
decrease in the production of refractory using industries in the United
States, particularly steel, and losses from discontinued operations. The
primary purposes of the Prepackaged Plan were to reduce Adience's debt service
requirements and overall indebtedness, to realign its capital structure and to
provide Adience with greater liquidity. Neither IDT nor Adience Canada, Inc.
filed a plan of reorganization.
The Prepackaged Plan provided for a restructuring of Adience's capital
structure and allowed the holders of $66 million aggregate principal amount of
Adience's Senior Subordinated Reset Notes ("Old Subordinated Notes") to
exchange them for $49 million aggregate principal amount of new 11% Senior
Secured Notes ("New Senior Notes") due June 15, 2002, plus common stock
representing 55% of the outstanding common stock of Adience. The Prepackaged
Plan also included forgiveness of outstanding interest totaling approximately
$8.8 million. The value of the cash and securities distributed was $17.5
million less than the allowed claims; the resultant gain was recorded as an
extraordinary gain.
19
<PAGE>
In connection with the Reorganization described above, Adience applied the
provisions of the American Institute of Certified Public Accountants'
Statement of Position No. 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" ("SOP 90-7") as of June 30, 1993.
The Company's basis of accounting for financial reporting purposes changed as
a result of applying SOP 90-7. Specifically, SOP 90-7 required the adjustment
of the Company's assets and liabilities to reflect a reorganization value
generally approximating the fair value of the Company as a going concern on an
unleveraged basis, the elimination of its accumulated deficit, and adjustments
to its capital structure to reflect consummation of the Prepackaged Plan.
Accordingly, the results of operations after June 30, 1993 are not comparable
to the results of operations prior to such date.
Results of Operations
- ---------------------
Historical Financial Information for the Nine Months Ended September 30, 1994
and Pro Forma Financial Information for the Nine Months Ended September 30,
1993.
- ------------------------------------------------------------------------------
The following table summarizes the Company's consolidated results of
operations for the historical period ended September 30, 1994 and the pro
forma period ended September 30, 1993, and provides a consistent basis for
further discussion and analysis of those results.
Nine Months Ended
September 30,
Historical Pro Forma
1994 1993
- ------------------------------------------------------------------------------
Operating (loss) income:
Heat Technology $ (2,406) $ (3,866)
IDT 121 987
(Loss) income from continuing operations
before extraordinary item:
Heat Technology (8,059) (8,977)
IDT 154 533
A comparison of the Company's historical financial information for the nine
months ended September 30, 1994 and pro forma financial information for the
nine months ended September 30, 1993 shows a decrease in the operating loss of
21%. The consolidated operating loss declined by $594 during the nine month
period ended September 30, 1994 despite an 88% decline in operating profit at
IDT. The upward trend within Heat Technology is attributable to a small
increase in revenues and lower selling, general and administrative expenses.
20
<PAGE>
Earnings per share from continuing operations before extraordinary item
increased to ($.79) in the first nine months of fiscal 1994 from ($.84) in the
comparable pro forma period of fiscal 1993. Higher earnings in the Company's
Heat Technology business segment offset lower earnings in Information Display
Technology. The domestic economy remained generally strong for integrated
steel producers which accounted for 71% of total Heat Technology revenues for
the nine months ended September 30, 1994 compared with 63% for the pro forma
nine months ended September 30, 1993.
Net revenues by industry segment for the historical nine months ended
September 30, 1994 and the pro forma nine months ended September 30, 1993 were
as follows:
Nine Months Ended
September 30,
Historical Pro Forma
Net Revenues 1994 1993 % Change
- ------------------------------------------------------------------------------
Heat Technology $73,209 $69,758 5%
IDT 25,889 38,761 (33%)
- ------------------------------------------------------------------------------
Total $99,098 $108,519 (9%)
==============================================================================
A comparison of the Company's historical financial information for the nine
months ended September 30, 1994 and the pro forma results for the nine months
ended September 30, 1993 shows an increase in net revenues for Heat Technology
of 5% from $69,758 to $73,209. Heat Technology revenues have historically
depended closely on integrated steel makers and their spending on both routine
maintenance (a function of overall steel production) and capital improvements.
Approximately 71% and 63% of Heat Technology revenues for the nine month
periods ended September 30, 1994 and 1993, respectively, were generated from
sales and services to steel related industries. Heat Technology is engaged in
the rebuilding, repair and maintenance of coke ovens through its Furnco
refractory division. Net revenues for this unit increased by $3.5 million or
112% during the nine months ended September 30, 1994 from the corresponding
period in 1993 due to increased capital spending within the industry.
Included in net revenues for IDT for the nine months ended September 30, 1993
is one large project with incremental revenues of $4.5 million. This project
was substantially completed in the fourth quarter 1993. Also included in the
nine months ended September 30, 1993 were $2.1 million of revenues
attributable to IDT's Kensington division, which was sold during December
1993. The remaining decline is attributable to the concentration of sales
efforts towards IDT manufactured products rather than material purchased from
other suppliers and distributed by IDT. Market conditions remain relatively
flat overall compared with 1993. However, the down turn in the northeast
market, which typically represents the largest concentration of IDT's
revenues, has been partially offset by increased demand in the west and
southeast markets. IDT's backlog as of September 30, 1994 was $16,550
compared with $21,790 at September 30, 1993. The reduction in the backlog is
due to management's decision to redirect sales efforts so that IDT
manufactured product is the primary market focus instead of resale product
purchased from other suppliers and distributed by IDT.
21
<PAGE>
Nine Months Ended
September 30,
Historical Pro Forma
Cost of Revenues 1994 1993 % Change
- ------------------------------------------------------------------------------
Heat Technology $61,555 $58,216 6%
IDT 20,725 31,656 (35%)
- ------------------------------------------------------------------------------
Total $82,280 $89,872 (8%)
==============================================================================
Cost of revenues for Heat Technology increased by a slightly higher percentage
than the net revenue increase for the nine months ended September 30, 1994.
Competitive pressures continue to prevent Heat Technology from improving gross
margins.
During the first quarter of 1993, IDT won a decision by the order of the Board
of Finance and Revenue of Pennsylvania, relating to a reassessment of use tax
on casework sold during the period February 1988 through September 1990. As a
result, an adjustment to decrease cost of revenues by $438 was recorded during
the first quarter of 1993 resulting from the reversal of the provision
relating to this contingency. In addition, some raw material prices used in
the IDT manufacturing process have increased significantly over the same
period in 1993. Specifically, prices have increased for wood products used in
institutional casework and aluminum and steel products used in the
manufacturing of chalk and marker boards. IDT's gross margin for the nine
months ended September 30, 1993 excluding the Kensington division, the 1993
use tax adjustment and the one large project mentioned above, would have been
comparable to 1994 as a result of significant raw material price increases and
the decline in the northeast market in 1994. This has affected overall
margins since IDT operates from a backlog mainly comprised of fixed fee
contracts. IDT anticipates the prices to normalize on these raw materials and
is attempting to increase selling prices in a market that remains relatively
flat.
Nine Months Ended
September 30,
Selling, General and Historical Pro Forma
Administrative Expenses 1994 1993 % Change
- ------------------------------------------------------------------------------
Heat Technology $13,250 $14,598 (9%)
IDT 5,043 6,118 (18%)
- ------------------------------------------------------------------------------
Total $18,293 $20,716 (12%)
==============================================================================
Selling, general and administrative expenses decreased during the nine months
ended September 30, 1994, primarily as a result of increases to reserves
related to Adience's self insurance coverage for workers' compensation and
general liability, which were recorded during the nine months ended September
30, 1993. In addition, included in selling, general and administrative
expenses for the pro forma nine months ended September 30, 1993 are
approximately $426 of costs relating to Heat Technology's Los Angeles
operations which were sold during December 1993.
22
<PAGE>
Selling, general and administrative expenses for IDT decreased $1,075 or 18%
compared with the nine months ended September 30, 1993. This decline is
primarily attributable to lower commissions on reduced levels of sales and
cost reductions realized by organizational changes made in late 1993.
In connection with the plan of reorganization, Adience entered into a multi-
year agreement, to be effective as of October 1, 1992, with the principal
shareholder for a period of seven years. Certain revisions were made to this
agreement during 1994 which resulted in a reduction to the net present value
of payments over the term of the agreement. The resultant gain of $174 was
classified as other income in the accompanying consolidated financial
statements for the nine months ended September 30, 1994.
Interest expense increased 6% for the nine months ended September 30, 1994 to
$5.8 million from $5.5 million for the pro forma nine months ended September
30, 1993. The increase in interest expense is attributable to increased
borrowings on Adience's line of credit agreement with Congress Financial
Corporation ("Congress"). The interest rate on borrowings is 2.5% over the
prime rate (which has increased 1.75% in the last year). The effective rates
were 10.25% and 8.5% at September 30, 1994 and December 31, 1993,
respectively.
The Company remains in a net operating loss position. Therefore, the Company
does not anticipate that the new tax laws will have a significant effect on
its results of operations in fiscal 1994.
Historical Financial Information for the Three Month Periods Ended September
30, 1994 and 1993
- ------------------------------------------------------------------------------
Net revenues by industry segment for the three months ended September 30, 1994
and 1993 were as follows:
Three Months Ended
September 30,
Historical Pro Forma
Net Revenues 1994 1993 % Change
- ------------------------------------------------------------------------------
Heat Technology $27,796 $25,327 10%
IDT 10,682 15,021 (29%)
- ------------------------------------------------------------------------------
Total $38,478 $40,348 (5%)
==============================================================================
The increase in net revenues for Heat Technology is attributable to the Furnco
refractory division and one large job with incremental revenues totaling $2.1
million for the three months ended September 30, 1994.
23
<PAGE>
Included in net revenues for IDT for the three months ended September 30, 1993
is one large project with incremental revenues of $591. Also included in the
three months ended September 30, 1993 were $618 of revenues attributable to
IDT's Kensington division. The remaining decline is attributable to weak
sales in the northeast region and management's efforts to reduce the number of
contracts which require the use of purchased rather than manufactured product
because the former generate unsatisfactory gross margins.
Three Months Ended
September 30,
Historical Pro Forma
Cost of Revenues 1994 1993 % Change
- ------------------------------------------------------------------------------
Heat Technology $22,777 $21,562 6%
IDT 8,502 12,110 (30%)
- ------------------------------------------------------------------------------
Total $31,279 $33,672 (7%)
==============================================================================
Cost of revenues for Heat Technology increased at a rate lower than the
increase in net revenues for the comparable period. Included in the three
months ended September 30, 1993 is $644 of amortization related to the write-
up of inventory values in accordance with fresh start reporting.
Gross margins for IDT increased to 20% of net revenues for the three months
ended September 30, 1994 compared to 19% for the same period in 1993. The
improvement in gross margins results principally from a greater amount of
revenues from contracts using manufactured products. During the three months
ended September 30, 1993, there was a higher percentage of contracts using
material purchased from other suppliers and distributed by IDT. During 1994,
some raw materials used in IDT manufactured products have increased in price
dramatically. These items include steel, wood products and aluminum. This
has affected overall margins since IDT operates from a backlog mainly
comprised of fixed fee contracts. IDT anticipates the prices to normalize on
these raw materials and is attempting to increase prices in a market that
remains flat.
Three Months Ended
September 30,
Selling, General and Historical Pro Forma
Administrative Expenses 1994 1993 % Change
- ------------------------------------------------------------------------------
Heat Technology $4,109 $4,214 (2%)
IDT 1,594 2,004 (20%)
- ------------------------------------------------------------------------------
Total $5,703 $6,218 (8%)
==============================================================================
The reduction in selling, general and administrative expenses in Heat
Technology for the three months ended September 30, 1994 is attributable to
the sale of Heat Technology's Los Angeles operations which incurred
approximately $149 of selling, general and administrative expenses during the
three month period ended September 30, 1993.
24
<PAGE>
Selling, general and administrative expenses for IDT decreased $410 or 20%
compared with the three months ended September 30, 1993. This decline is
primarily attributable to cost reductions realized by organizational changes
made in late 1993.
Other income for the three months ended September 30, 1993 includes a
retroactive health insurance settlement of approximately $215 for the
Company's medical self-insurance program for the period from September 1991 to
February 1992.
The increase in interest expense for the three months ended September 30, 1994
reflects the $956 increase in accounts receivable which increased the need for
short-term borrowings.
Liquidity and Sources of Capital
- --------------------------------
The Company's principal sources of liquidity are cash from operations, cash on
hand and certain credit facilities available to the Company. The Company has
significant indebtedness, has experienced continued losses from operations
pre- and post-emergence under Chapter 11, and although the Company has met
operating and financial plans for the three months ended September 30, 1994,
it has not met operating and financial plans for the nine months ended
September 30, 1994 due to lower than expected results at its refractory and
information display operations. These factors raise substantial doubt about
Adience's ability to continue as a going concern. Management's plans in
regard to this matter include further implementation of its plans to combine
multi-functional resources as teams to respond better to customer needs,
making an investment in product and service opportunities expected to produce
a greater return on its investment, continuing a cost control program begun in
1993, and exploring capital market transactions such as the proposed
acquisition of the Company by The Alpine Group, Inc. (Item 5). Although
management believes that these plans will enable the Company to continue as a
going concern for a reasonable period, there can be no assurance that this
will be the case. In the event that these plans are not implemented within
the time frame anticipated or do not produce the results expected, management
will need to develop other alternatives to meet its cash requirements over the
next twelve months.
Net cash flows used by operating activities totaled $2.8 million for the nine
months ended September 30, 1994. The decrease in working capital of $7
million during 1994 relates primarily to lower trade receivables arising from
a decrease in sales for IDT, lower inventory levels within Heat Technology and
an increase in short-term borrowings.
Capital expenditures used approximately $2.1 million of funds through
September 30, 1994. The 82% increase in capital spending over the comparable
period in 1993 is due to the purchase of a new plant facility to expand
current production of a specific product line. The total cost of this
facility and the necessary capital expenditures for machinery and equipment
will be partially financed through the Pennsylvania Industrial Development
Authority. As of September 30, 1994 the Company had no material commitments
for capital spending. It is anticipated that necessary capital expenditures
in future years will not exceed depreciation expense but will represent a
material use of operating funds. Future capital needs of the Company are
expected to be provided by future operations, existing cash balances and
additional borrowings when necessary.
<PAGE>
Adience and IDT together had $3.9 million in available credit as of September
30, 1994 under their short-term borrowing arrangements with Congress.
On the consummation date of the plan of reorganization, June 30, 1993, Adience
entered into a financing agreement with Congress that had a renewal date of
June 30, 1994 (the "Renewal Date"). Certain revisions were made to the terms
of the agreement during 1994, including the extension of the Renewal Date to
June 30, 1995. The facility remains in effect from year to year thereafter,
unless terminated upon sixty days written notice by either party on the
anniversary of the Renewal Date in any year. Under the revised agreement,
Adience may request loan advances not to exceed the lesser of $14 million or
available collateral (85% of eligible accounts receivable less than 90 days,
50% of eligible bagged inventory plus 30% of eligible raw material and
finished goods inventory which does not constitute bagged inventory). The
loan is collateralized by accounts receivable, inventory, fixed assets,
intangible assets and Adience's shares of IDT. In addition, IDT guaranteed
the Adience line of credit and has pledged its own accounts receivable,
inventory and equipment. The interest rate on the loan is 2.5% over the prime
rate (effective rate of 10.25% at September 30, 1994). At September 30, 1994,
Adience had borrowed $11,843 under the credit facility including checks in
transit of $1,603. Letters of credit issued under the facility totaled $1,143
at September 30, 1994, which reduced the availability under the financing
arrangement in a like amount.
IDT entered into a financing agreement with Congress which is also renewed
through June 30, 1995. The facility remains in effect year to year
thereafter, unless terminated upon sixty days written notice by either party
on the anniversary date of the Renewal Date in any year. Certain revisions
were also made to the terms of the agreement during 1994. Under the revised
agreement, IDT may request loan advances not to exceed the lesser of $5
million or available collateral (85% of eligible accounts receivable less than
90 days plus 30% of raw material and finished goods inventory). The loan is
collateralized by accounts receivable, inventory and fixed assets. Adience
has guaranteed IDT's debt to Congress. The interest rate on the loan is 2.5%
over the prime rate. At September 30, 1994, IDT had borrowed $2,019 under the
credit facility including checks in transit of $398. Letters of credit issued
under the facility totaled $700 at September 30, 1994, which reduced the
availability under the financing arrangement in a like amount.
Both Adience and IDT pay commitment fees on the unused portion of their credit
facilities. Under the terms of the revised financing agreements, Adience is
required to maintain minimum levels of net worth of negative $1,500 and
working capital of $6,000. The agreements additionally contain other
restrictive covenants applicable to Adience and its subsidiaries which, among
other things, limit (i) the incurrence of additional indebtedness, (ii) the
granting of liens, (iii) the making of loans, investments and guaranties, (iv)
transactions with affiliates, (v) the payment of dividends and other
distributions, (vi) the amount of annual capital expenditures, and (vii) the
disposition of real property.
26
<PAGE>
As of September 30, 1994, Adience and IDT were in compliance with the
covenants of their respective agreements. Adience's ability to continue to
comply with such conditions is dependent upon Adience's ability to achieve
specified levels of sales, profitable operations and borrowing availability.
Waivers or amendments may be required in the future to ensure compliance.
Inability to achieve compliance in the future could affect Adience's access to
further borrowings or require it to secure additional capital by other means.
Long-term liquidity is dependent upon the Company's ability to operate
profitably and generate cash flow. Adience's New Senior Notes are due in June
2002, and may not be redeemed at the option of Adience prior to December 15,
1997. Adience has not yet formulated plans to meet these long-term debt
requirements. The Indenture under which the New Senior Notes were issued
contains restrictive covenants similar to those included in the financing
agreements with Congress, and additionally limits the use of cash proceeds
from the sale of Adience's assets. The Indenture provides that Adience may
not make any asset sale outside of the ordinary course of business unless (i)
such asset sale is for fair value and (ii) at least 50% of the consideration
therefor received by Adience is in the form of cash and/or cash equivalents.
In the case of the sale by Adience of all or substantially all of the stock of
IDT or any other asset for which the gross cash proceeds exceed $2 million,
Adience is required, within 180 days after the receipt of the net cash
proceeds of such asset sale, to make an offer to repurchase the New Senior
Notes at a price equal to 100% of the principal amount of the New Senior Notes
plus accrued interest thereon. In addition, a default on the Congress
financing agreement will result in a default under the Indenture.
Both internal and external factors are material to the Company's long-term
liquidity. External factors include general economic conditions, the
performance of the steel industry and spending by public school systems.
Long-term liquidity is dependent upon the Company's ability to control costs
during periods of low demand so as to sustain positive cash flow from
operations. The Company, even after Reorganization, continues to operate with
a significant amount of interest-bearing debt. Should additional financing be
needed, the Company's access to new sources of capital or the amount of
available and unused lines of bank credit may be limited.
In February 1992, IDT was cited by the Ohio Environmental Protection Agency
(the "Ohio EPA") for violations of Ohio's hazardous waste regulations,
including speculative accumulation of waste and illegal disposal of hazardous
waste on the site of its Alliance, Ohio Facility. IDT had $783 accrued at
December 31, 1993 for the clean-up of this site.
27
<PAGE>
In December 1993, IDT and Adience signed a consent order with the Ohio EPA and
Ohio Attorney General which required IDT and Adience to pay to the State of
Ohio a civil penalty of $200 (of which IDT paid $175 and Adience paid $25).
In addition, the consent order requires the payment of stipulated penalties of
up to $1 per day for failure to satisfy certain requirements of the consent
order including milestones in the closure plan. IDT expects that the work to
be conducted under the closure plan will be substantially completed in 1994,
subject to IDT receiving all necessary approvals from the Ohio EPA. At
September 30, 1994, environmental accruals amounted to $492 which represents
management's reasonable estimate of the amounts remaining to be incurred in
this matter, including the costs of effecting the closure plan, bonding and
insurance costs, penalties and legal and consultants' fees. Since 1991,
Adience and IDT have together paid $614 (excluding the civil penalty) for the
environmental clean-up related to the Alliance facility.
IDT has commenced discussions with the Ohio EPA concerning a modification to
the closure plan which would reduce the scope of work required. Based on
administrative precedent, IDT believes that it is likely that the Ohio EPA
will agree to the modification. If such a modification is not made,
additional costs may have to be incurred to complete the project. Although
there is no assurance that additional costs will not have to be incurred, the
Company believes that such costs will not need to be incurred.
Under the acquisition agreement pursuant to which IDT acquired the property
from Adience, Adience represented and warranted that, except as otherwise
disclosed to IDT, no hazardous material has been stored or disposed of on the
property. No disclosure of storage or disposal of hazardous material on the
site was made. Accordingly, Adience is required to indemnify IDT for any
losses in excess of $250. IDT has notified Adience that it is claiming the
right to indemnification for all costs in excess of $250 incurred by IDT in
this matter and has received assurance that Adience will honor such claim.
Adience has reimbursed IDT $421; if Adience is financially unable to honor its
remaining obligation, such costs would be borne by IDT.
28
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
On October 12, 1994, Adience, Inc. and its 80.3% owned subsidiary, Information
Display Technology, Inc. jointly announced that they have been informed that
The Alpine Group, Inc. has reached agreements to acquire approximately 85% of
the outstanding common stock of Adience and approximately 85% of Adience's
outstanding 11% Senior Secured Notes. Completion of the transaction is
subject to the execution of definitive documentation containing customary
conditions, receipt of regulatory approvals and Alpine's obtaining adequate
financing.
Alpine has stated that Adience's refractories and related operations will be
merged into a newly-formed Alpine subsidiary. Alpine has also indicated that
it intends to merge its existing information display operations, consisting of
its PolyVision technology development and commercialization program and its
Posterloid menuboard and data display operations, with those of IDT. The
merged information display operations are expected to be renamed "PolyVision
Corporation" and spun off to Alpine shareholders. The merger of PolyVision
and Posterloid with IDT will be subject to approval by the holders of a
majority of the outstanding common stock of IDT, which will be sought at a
special meeting of IDT's shareholders. Alpine, which will then control 80.3%
of the outstanding shares of IDT has indicated that it will vote in favor of
such merger.
Item 6. Exhibits and Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three months ended
September 30, 1994.
29
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADIENCE, INC.
Date: December 12, 1994 By: /s/ Fletcher L. Byrom
-------------------- -------------------------
Fletcher L. Byrom
Chairman and
Chief Executive Officer
Date: December 12, 1994 By: /s/ Stephen M. Grimshaw
-------------------- -------------------------
Stephen M. Grimshaw
Vice President - Finance and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Adience,
Inc. September 30, 1994 Consolidated Financial Statements and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000846972
<NAME> ADIENCE, INC.
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> OTHER 3-MOS 3-MOS 9-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994 DEC-31-1993 DEC-31-1994 DEC-31-1993
<PERIOD-END> SEP-30-1994 SEP-30-1994 SEP-30-1993 SEP-30-1994 JUN-30-1993
<CASH> $ 1,322 0<F2> 0<F2> 0<F2> 0<F2>
<SECURITIES> 0 0<F2> 0<F2> 0<F2> 0<F2>
<RECEIVABLES> 28,037 0<F2> 0<F2> 0<F2> 0<F2>
<ALLOWANCES> (1,392) 0<F2> 0<F2> 0<F2> 0<F2>
<INVENTORY> 16,346 0<F2> 0<F2> 0<F2> 0<F2>
<CURRENT-ASSETS> 48,435 0<F2> 0<F2> 0<F2> 0<F2>
<PP&E> 41,620 0<F2> 0<F2> 0<F2> 0<F2>
<DEPRECIATION> (9,981) 0<F2> 0<F2> 0<F2> 0<F2>
<TOTAL-ASSETS> 96,595 0<F2> 0<F2> 0<F2> 0<F2>
<CURRENT-LIABILITIES> 39,558 0<F2> 0<F2> 0<F2> 0<F2>
<BONDS> 46,403 0<F2> 0<F2> 0<F2> 0<F2>
<COMMON> 101 0<F2> 0<F2> 0<F2> 0<F2>
0 0<F2> 0<F2> 0<F2> 0<F2>
0 0<F2> 0<F2> 0<F2> 0<F2>
<OTHER-SE> 1,457 0<F2> 0<F2> 0<F2> 0<F2>
<TOTAL-LIABILITY-AND-EQUITY> 96,595 0<F2> 0<F2> 0<F2> 0<F2>
<SALES> 0<F2> 0<F2> 0<F2> 0<F2> 0<F2>
<TOTAL-REVENUES> 0<F2> $38,478 $40,348 $99,098 $68,171
<CGS> 0<F2> 0<F2> 0<F2> 0<F2> 0<F2>
<TOTAL-COSTS> 0<F2> 31,279 33,672 82,280 55,474
<OTHER-EXPENSES> 0<F2> 5,966 6,728 19,103 14,624
<LOSS-PROVISION> 0<F2> 25 0 298 413
<INTEREST-EXPENSE> 0<F2> 2,052 1,775 5,773 2,360
<INCOME-PRETAX> 0<F2> (726) (1,321) (7,504) (4,029)
<INCOME-TAX> 0<F2> 428 509 371 261
<INCOME-CONTINUING> 0<F2> (1,225) (2,346) (7,905) 16,252
<DISCONTINUED> 0<F2> 0 81 0 (400)
<EXTRAORDINARY> 0<F2> 0 0 0 17,480
<CHANGES> 0<F2> 0 0 0 0
<NET-INCOME> 0<F2> (1,225) (2,265) (7,905) 33,332
<EPS-PRIMARY> 0<F2> (0.12) (0.23) (0.79) 0<F1>
<EPS-DILUTED> 0<F2> 0<F2> 0<F2> 0<F2> 0<F2>
<FN>
<F1>Earnings per share are not meaningful due to reorganization and revaluation
entries and the issuance of new common stock.
<F2>Not applicable.
</FN>
</TABLE>