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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
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OR
[_] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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For the six month periods ended December 31 and June 30, 1993 Commission File
No. 1-10379
ADIENCE, INC.
(Exact name of registrant as specified in the charter.)
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)
Registrant's telephone number, including area code: 412-381-2600
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value, $.01 per share
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 ___ No X .
---
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 .
---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No ___.
---
The registrant estimates that as of March 29, 1994 the aggregate market
value of the shares of its Common Stock held by non-affiliates of the registrant
was approximately $3.2 million.
As of March 29, 1994, 10,000,000 shares of Common Stock of the registrant
were outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Form 10-K
Document Part Number
Proxy Statement filed pursuant to III
Regulation 14(A) in connection with
registrant's 1994 annual meeting of
shareholders
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TABLE OF CONTENTS
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PART I Item 1. Business 1
Item 2. Properties 10
Item 3. Legal Proceedings 12
Item 4. Submission of Matters
to a Vote of Security Holders 13
PART II Item 5. Market for Registrant's Common
Equity and Related Stockholder
Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 17
Item 8. Financial Statements and
Supplementary Data 27
Item 9. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure 57
PART III Item 10. Directors and Executive Officers
of the Registrant 57
Item 11. Executive Compensation 57
Item 12. Security Ownership of Certain
Beneficial Owners and Management 57
Item 13. Certain Relationships and Related
Transactions 57
PART IV Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form
8-K 58
Signatures 62
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TABLE OF CONTENTS
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(Continued)
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Schedule II Amounts Receivable from Related
Parties and Underwriters, and
Employees other than Related
Parties 68
Schedule IV Indebtedness of and to Related
Parties--Not Current 70
Schedule V Property, Plant and Equipment 71
Schedule VI Accumulated Depreciation,
Depletion and Amortization of
Property, Plant and Equipment 72
Schedule VIII Valuations and Qualifying Accounts 73
Schedule IX Short-Term Borrowings 74
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PART I
Item 1. Business
Adience, Inc. ("Adience," and together with its subsidiaries, the
"Company") is engaged in the manufacture, sale, installation and maintenance of
specialty refractory products through its Heat Technology Division. Refractory
products, which are made primarily from fireclays and minerals such as
bauxities and aluminas, are used in virtually every industrial process
requiring heating or containment at a high temperature of a solid, liquid or
gas. Iron and steel producers use Adience's products in various types of iron
and steel making furnaces, in coke ovens and in iron and steel handling and
finishing operations. Adience also provides installation and maintenance
services in connection with its specialty refractory products to the steel,
aluminum, glass, petrochemical and other non-ferrous industries. See
"Operations of Adience" below.
The Company is also engaged, through its 80.3%-owned subsidiary,
Information Display Technology, Inc. ("IDT"), in the manufacture, sale and
installation of writing, projection and other visual display surfaces; customer
cabinetry, work station and conference center casework; and architectural
composite panels for building exteriors. See "Operations of Information
Display Technology" below.
The "Industry Segment Data" note to the Company's consolidated financial
statements contained in Item 8 sets forth historical information concerning the
net revenues and operating profit by, and identifiable assets attributable to,
each of the Company's segments.
Operations of Adience
Adience's Heat Technology Division consists of four refractory units:
BMI, J.H. France, Findlay and Furnco. Through BMI and J.H. France (acquired in
1985 and 1987, respectively), the Heat Technology Division engages in the
manufacture, sale, installation and maintenance of specialty unformed
refractory products and bricks, which must be replaced, in many cases, as often
as several times a day. Refractory products are ceramic materials used as
insulation on surfaces that are exposed to high temperatures, such as from
contact with molten metals or steam. Through Findlay (acquired in 1989), the
Heat Technology Division manufactures and sells specialty refractory block used
in the production of glass and glass products. Through Furnco, the Heat
Technology Division is engaged in the rebuilding, repair and maintenance of
coke ovens.
Adience has elected to focus on the specialty material sector, rather than
the commodity sector, of the refractory industry and estimates that it is one
of the largest producers of specialty refractory products for ironmaking
applications. See "Refractory Products and Services" below.
Adience's wholly-owned subsidiary, Adience Canada, Inc. ("Adience
Canada"), owns and operates its own headquarters and refractory manufacturing
facility in Ontario, Canada, from where it markets Adience's full range of
products throughout Canada.
Background of Adience
Adience was incorporated in the State of Delaware in 1985 for the purpose
of acquiring BMI, Inc. ("BMI"), a private company principally engaged in the
refractory and information display product businesses. From 1986 through 1990,
Adience made a number of acquisitions in these and other lines of business. In
1991, Adience determined to streamline and consolidate its overall business by
disposing of operations outside its core refractory and information display
product businesses and by selling unprofitable operations within such core
businesses.
In its refractory business, certain Texas operations, which were part of
the original BMI, were sold in May 1991. In July 1991, Adience sold its
heating and ventilation duct connector business, which was also part of the
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original BMI operation. In August 1991, Adience sold its Utah electrical and
construction contracting business, originally acquired in 1990. In November
1991, Adience sold its Entec operations (engineering and construction of heat
exchange devices), which were acquired in June 1988.
In 1992, Adience sold its Geotec operations (caisson design and
construction and environmental testing services) and Hotworks operations
(preheating services to refractory maintenance companies), which were acquired
in September 1988 and July 1990, respectively. In 1993, Adience sold its Los
Angeles operations.
In the information display product area, Adience's 80.3%-owned subsidiary,
IDT, sold its "EHB" operations (catalog sales for the office market) in
February 1992, which had been acquired in 1986. In 1993, IDT sold its
Kensington Lighting operation. See "Operations of Information Display
Technology" below.
On February 22, 1993, Adience filed a prepackaged plan of reorganization
(the "Prepackaged Plan") under Chapter 11 of the Bankruptcy Code, which 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 firstly, an overall decline in the demand for
refractory products and services in 1991 and 1992 caused by a decrease in the
production of refractory using industries in the United States, particularly
steel, and secondly, losses from discontinued operations. The Prepackaged Plan
reduced the long-term debt of Adience by exchanging $66 million aggregate
principal amount of 15% Senior Subordinated Reset Notes for $49 million
aggregate principal amount of new 11% Notes, plus common stock representing 55%
of the outstanding common stock of Adience. IDT does not guarantee the 11%
Senior Secured Notes issued by Adience under the reorganization plan and IDT
did not itself file a plan of reorganization under Chapter 11 of the Bankruptcy
Code. IDT is a guarantor of Adience's loan from Congress Financial Corporation
(see Liquidity and Sources of Capital).
After emerging from the reorganization proceeding, Adience adopted fresh
start reporting in accordance with AICPA Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization under the Bankruptcy Code." The
application of fresh start reporting is set forth in greater detail in the
Notes to Adience's Consolidated Financial Statements.
Refractory Products and Services
The Heat Technology Division primarily manufactures unformed refractory
materials. Through its J.H. France operation, the Division also manufactures
specialty refractory brick and through the Findlay operation, specialty
refractory block. Adience does not focus on the commodity brick market, which
are primarily standard pre-formed bricks, and instead focuses on specialty
refractory products which are custom designed and often shaped on site to
customer requirements. The largest consumer of Adience's refractory products
and services is the basic iron and steel industry, followed by the aluminum,
glass, petrochemical, cement and cogeneration industries. Adience's products
and services are used principally in the production of iron. Adience also
performs refractory product installation services on coke ovens. Because of the
high temperatures involved in the transportation of molten iron, the coking of
coal in coke ovens and the melting or transportation of other non-ferrous
materials, the equipment employed in such processes must have linings made of
refractory products. These linings deteriorate and must be repaired frequently
or replaced as part of regular plant maintenance.
In addition to linings, Adience also manufactures blast furnace taphole
plugs made from refractory materials. These plugs must be replaced eight to 12
times during a typical full production day. Adience is a major supplier in the
United States of such blast furnace taphole plugs, according to internal market
data. To expand the scope and value of its services, Adience also provides
general plant maintenance services related to refractory products either in
specific areas or plant-wide.
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From 1985 through 1990, Adience experienced significant growth in demand
for its specialty refractory products and services. This resulted largely from
increasing reliance by the steel industry during this period on the services of
outside contractors such as Adience for plant-wide maintenance work, due in
part to the lower labor costs maintained by outside contractors. Additionally,
steel producers sought to avoid the high overhead associated with carrying the
trained personnel and specialized equipment needed for this work.
In 1991, Adience experienced a significant decline in demand for its
specialty refractory products and services. This resulted primarily from the
most serious downturn in the steel industry since the early 1980's coupled with
contraction in non-steel industries served by Adience. In the steel industry,
one effect of the downturn was increased pressure from the steelworkers union
to retain refractory installation work which in the past had been performed by
Adience. With the reduction in such work, Adience has been more dependent upon
refractory materials sales, which are more price competitive.
Manufacturing
The manufacturing process for specialty refractory products involves the
mixing and kiln firing of various raw materials, particularly fireclays and
minerals such as bauxites and aluminas. Adience operates seven refractory
product manufacturing plants located near major industrial centers in the
United States and Canada. Predominantly all of the refractory products sold by
Adience are manufactured in its own plants. Adience custom designs the
refractory products it manufactures for specific applications.
To better serve the Canadian market, a refractory manufacturing plant was
built in Canada by BMI in 1981, and is currently owned and operated by Adience
Canada. In November 1989, Adience acquired all of the stock of Cardinal
Refractories, Inc. which was engaged in the building, maintenance and repair of
refractory-consuming facilities in Canada. In January 1991, Cardinal
Refractories, Inc. was merged into Adience Canada.
Raw Materials
Adience utilizes more than one hundred different raw materials which come
from a variety of sources, the majority of which are obtained within the United
States. Some of the more important raw materials are alumina, including high
purity alumina, bauxite and brown fused alumina; silicon carbide; calcium
aluminate cements; and clays. The number of sources of supply varies with each
raw material. Adience management believes that it is not dependent in its
manufacturing processes on any one source of supply, such that discontinuation
of production by any one supplier would seriously jeopardize Adience's
competitive position.
Installation and Maintenance
Adience installs and maintains linings made of specialty refractory
products by one of the following processes: guniting, grouting, pumping,
ramming, casting of unformed materials and laying of brick.
"Guniting" is a process by which granulated refractory products are mixed
with water and applied to surfaces through the use of a pneumatic spray gun. In
the related process known as "grouting," refractory material is applied to a
furnace lining through apertures in the furnace wall without interrupting the
normal operation of the furnace. Guniting and grouting are relatively
inexpensive methods for maintaining a brick refractory lining and thereby
avoiding a major rebuild which involves a substantial capital outlay and
lengthy downtime for the furnace. The guniting installation technique requires
highly skilled crews and specialized equipment.
In the "pumping" process, the refractory product is pumped directly into
the refractory lining and cast in a removable mold. In the "ramming" process,
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a refractory lining is installed on a surface by applying the refractory
product to the surface with a pneumatic hammer and in the "casting" process,
the refractory lining is cast in a mold and subsequently installed on the
surface being lined.
The ability to react quickly to customer requests for products or
installation and maintenance services is particularly important in the
refractory industry because of the extremely high cost of manufacturing
downtime. Consequently, the Company maintains refractory service facilities
located near its major customers in the United States and Canada. Each
facility contains guniting and other equipment required for the installation of
refractory products. In addition, each facility is staffed with the
supervisory personnel and skilled crews required for specialty refractory
applications. All other personnel required for installation projects are hired
on an as-needed basis from readily available local union labor pools. These
persons are maintained on Adience's payroll only for the duration of each job.
The Findlay unit's products are used to line furnaces, troughs, runways
and other surfaces exposed to molten glass or the molten tin used in the "float
glass" method of production. In the "float glass" method of production, molten
glass is poured from the furnace onto a layer of molten tin. The molten glass
"floats" on top of the molten tin along specially prepared runways. By
controlling the temperature and the rate of flow of the molten glass, the
manufacturer is able to achieve the desired thickness of the glass. All of
Findlay's products are custom manufactured according to customer
specifications.
Findlay's products are distinguished by their resistance to corrosion.
These product characteristics are particularly important in the glass industry
where, unlike the steel industry, certain refractory products are designed to
last for up to ten years.
Sales and Markets
The principal markets for products sold by Adience's Heat Technology
Division are the iron and steel, aluminum, glass, petrochemical, cement and
cogeneration industries. The iron and steel industry has historically been the
major consumer of Adience's refractory products and services, and of products
produced by the refractory industry generally. For the six month periods ended
December 31 and June 30, 1993 and the fiscal year ended December 31, 1992,
direct sales to the iron and steel industry accounted for approximately 52%,
58% and 54%, respectively, of the Heat Technology Division's total revenues.
Adience also sells its refractory products to other refractory contractors and
buys refractory products produced by other manufacturers in performing its
contracting services.
Adience also performs specialty refractory product installation and
service for the glass, aluminum, petrochemical, cement and cogeneration
industries. Each industry is a large consumer of refractory products and
services. Many of the competitors in such markets are entities against which
Adience already competes in the steel industry.
Adience's Findlay unit is among the leading manufacturers in the United
States of specialty refractory products used in the glass industry, based on
internal market share data. Findlay's customers include major glass producers
such as PPG Industries and Corning Glass Works. Findlay markets and sells its
products worldwide.
Marketing to the steel industry is conducted by an employed sales force
working out of sales offices located strategically near major steelmaking
centers. Each salesperson is assigned to particular steelmaking facilities, and
each handles the full range of Adience products and services. Marketing to
customers in the non-steel industries is handled by a sales force working out
of sales offices located throughout the country. The refractory products and
services sales force is compensated through a base salary plus incentive
bonuses based on performance.
Within the steel industry, Adience's principal customers have
traditionally been the largest companies in the industry. The three largest
customers, USX Corp., Bethlehem Steel Corporation and LTV Steel Co., together
accounted for approximately 25% and 29% of the Heat Technology Division's
revenues for the six month periods ended December 31 and June 30, 1993,
respectively, and 26% of such revenues for the fiscal year ended December 31,
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1992. USX Corp. alone accounted for approximately 10% of the Division's
revenues for the six month periods ended December 31 and June 30, 1993 and the
fiscal year ended December 31, 1992. Each of the other companies accounted for
less than 10% of the Division's revenues during such periods.
Competition
In the production of refractory materials, Adience competes with a number
of companies, including North American Refractories Co., Indresco Inc., A.P.
Green Industries, Inc., National Refractories Co. and Premier Refractories &
Chemicals, Inc., some of which are substantially larger than Adience and all of
which produce a full line of refractory products, with an emphasis on commodity
brick production. Adience has elected to focus on the specialty material
sector, rather than the commodity sector, of the refractory industry and
estimates that it is one of the largest producers of specialty refractory
products for ironmaking applications.
Adience's primary competitors in the installation of refractory products
are in-house employees of steel companies and also regional refractory service
contractors which, unlike Adience, do not engage in the production of the
materials. The major refractory producers typically contract with these
regional companies to install the product, or the customers install the product
in-house. Competition is based primarily on service, price and product
performance. Adience believes that it provides an added advantage to its
customers due to its ability to produce, install and maintain its refractory
products.
Research and Development
Constant revisions to industry processes and chemistries require changes
in refractory products to meet customer demand. Adience maintains fully
staffed research and development facilities for improving existing refractory
products and installation methods, as well as developing new products for
existing and new markets. Research and development expenditures for the Heat
Technology Division were approximately $541,000, $541,000 and $1,200,000 for
the six month periods ended December 31 and June 30, 1993 and the fiscal year
ended December 31, 1992, respectively.
Backlog
The Heat Technology Division operates on releases from blanket orders and,
therefore, does not have a significant amount of backlog orders, except in the
case of its Findlay operations which had $2.3 million and $3.1 million in
backlog at December 31, 1993 and 1992, respectively. Generally, Adience's
customers place orders on the basis of their short-range needs for which sales
are made out of inventory or manufactured just in time.
Operations of Information Display Technology
IDT manufactures and sells custom-designed and engineered writing and
projection surfaces (such as chalkboards and markerboards) for instruction and
communication; custom cabinets for health care facilities, offices and
institutions; modular partitions; and exterior architectural building panels.
IDT has its own nationwide marketing network that enables it to market its
products to schools, hospitals and offices throughout the country. In certain
product areas, IDT operates under the trade name "Greensteel."
IDT has achieved its current position in the specialized markets it serves
due largely to its integrated approach to customer needs. In many cases, IDT
performs a full range of services, including the custom design, production,
installation and maintenance of its products. IDT believes that this integrated
approach, which many of its competitors do not provide, enhances its
responsiveness to customer needs. This approach, which allows the customer to
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obtain a full line of products and services from a single source, better
enables IDT to establish an ongoing relationship with its customers to provide
for their future requirements. Competition in IDT's markets is based largely on
product quality, responsiveness, reliability and price.
Most of the products of IDT are sold in connection with new facility
construction or renovation. Such products are generally sold as part of a bid
process conducted through architects and general contractors working with IDT's
salespeople, and are custom-made to specifications. Successful marketing of
these products is dependent upon the maintenance of a strong relationship with
architects and general contractors, particularly in the education and health
care construction fields. IDT has been advised by its customers that its
products have achieved general recognition as quality products.
IDT is a publicly-owned corporation whose shares are traded on the
American Stock Exchange. Adience owns 10,692,165 shares of IDT's common stock,
representing approximately 80.3% of the outstanding shares. On March 29, 1994,
the closing sale price of IDT's common stock was $0.8125 per share.
Background of IDT
IDT was incorporated in the State of New York in May 1987 under the name
RT Acquisition Associates, Inc. ("RT") for the purpose of serving as a vehicle
for the acquisition of an operating business. Effective April 1, 1990, IDT
acquired substantially all of the assets and assumed certain of the liabilities
of the Information Display Division of Adience in exchange for 21,100,000
newly-issued shares of IDT's common stock and a convertible note (the
"Convertible Note") in the principal amount of $2,500,000, convertible into
IDT's common stock at $2.00 per share. In November 1990, IDT prepaid the
Convertible Note in full at a price of $2,485,000. Upon the consummation of
such acquisition (the "Acquisition"), Adience became the owner of approximately
80.1% of IDT's common stock. In July 1990, RT changed its name to Information
Display Technology, Inc.
In July 1990, IDT's shareholders approved a one-for-two reverse stock
split (the "Reverse Stock Split") pursuant to which 26,350,000 issued and
outstanding shares of IDT's common stock (including the 21,100,000 shares
issued to Adience pursuant to the Acquisition) were changed into 13,175,000
shares of "new" IDT common stock, on the basis of one "new" share for each two
"old" shares. The conversion price for the Convertible Note was automatically
changed to $4.00 per share
In October 1990, IDT purchased substantially all of the assets of
Adience's Kensington Lighting Division in exchange for 142,165 shares of IDT's
Common Stock at which time Adience became the owner of approximately 80.3% of
IDT's common stock. In November 1990, IDT prepaid the Convertible Note in full
for a price of $2,485,000. Substantially all of the assets of the Kensington
Lighting Division were sold in 1993.
Products
IDT manufactures custom-made systems incorporating chalkboards,
markerboards, tackboards and bulletin boards. IDT manufactures porcelain and
masonite chalkboards which are sold in new construction or as replacements for
traditional slate or glass blackboards. Porcelain products are manufactured at
IDT's Alliance, Ohio plant, where porcelain is fused to sheet steel in electric
furnaces. The porcelain-enameled product is then shipped to one of four other
IDT production facilities for fabrication into chalkboards.
Porcelain chalkboards, which are available in a range of colors, are
virtually unbreakable and maintenance free, and are warranted by IDT to retain
their original writing and erasing qualities under normal usage and wear. As a
result of these product qualities and the reduced availability of slate for
chalkboard production, IDT believes that porcelain chalkboards currently
account for approximately 75% of all chalkboard sales in the United States.
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IDT's chalkboards, markerboards, building panels and cabinetry are
typically sold together as a package to finish wall surfaces in school rooms
and offices. These products are generally manufactured at one or more of IDT's
five production and fabrication facilities and are generally sold together as
part of a package to end-users through one sales force operating out of IDT's
sales offices.
In addition to chalkboards, IDT manufactures dry-marker boards, which are
high-gloss porcelain enameled boards on which the user writes with a dry
felt-tip marker. IDT also manufactures a variety of other information display
surfaces for educational and health care facilities, such as tackboards and
pegboards.
Unlike most of its competitors, IDT installs as well as manufactures its
information display surfaces. IDT designs, engineers and installs manual and
motorized information display systems for educational and office use, using
combinations of chalkboards, markerboards and other surfaces.
IDT manufactures architectural building panels at its porcelain enameling
plant using a fusing process similar to that used to manufacture chalkboards
and markerboards. Porcelain panels are used for movable dividing walls, store
fronts, window walls, window replacements, and the complete "cladding" (the
application of a protective covering to the outside surface) of older
buildings. Such panels are laminated to an insulation backing to achieve energy
conservation. Panels are also manufactured with finishes other than porcelain
enamel. Non-porcelain aluminum panels are used in a variety of lightweight
architectural applications.
IDT manufactures and installs cabinetry in wood or plastic laminate for
hospitals, schools, laboratories and industry. The products are manufactured in
a variety of surfaces with resistance to heat and chemicals. In addition, IDT
manufactures and installs indoor and outdoor display cases.
Sales and Markets
Most of IDT's products are sold as part of a bid process conducted through
architects and general contractors working with IDT's sales staff. Warranties
made by IDT with respect to IDT's products and services are consistent with
industry standards, except for the lifetime warranty on the writing surface of
its porcelain chalkboards, which is in excess of industry standards. IDT markets
its products through a sales staff of 25 persons, most of whom work on a
commission basis. IDT maintains 13 sales offices in a number of states (see
"Properties"). As stated above, IDT's products are generally sold as part of a
package to finish wall surfaces in school rooms and offices. While most of the
products incorporated into such packages are manufactured by IDT, some
components are purchased from other suppliers and distributed by IDT as part of
the package. In this way, IDT acts as a distributor for certain related products
which it does not manufacture to the extent necessary to complement sale and
installation of its own products. Sales of its own products accounted for
approximately 52% and 63% of the revenues of IDT in 1993 and 1992, respectively.
In 1993, sales to educational institutions and health care facilities
accounted for a majority of IDT's revenues. Most of IDT's business is
concentrated in the eastern half of the United States and IDT believes that it
is the dominant supplier in the Northeast.
In order to focus on its core business, IDT has begun to implement a
business plan which, among other things, is designed to reduce construction
activity and reduce the resale of products manufactured by others. IDT has
also sold its Kensington Lighting operation.
Raw Materials
The porcelain coatings used by IDT are currently produced to its
specifications by a single supplier so as to maintain consistent color and
quality standards; however, alternative sources of supply are available. IDT
has never experienced any difficulty with the quantity or quality of product
from its porcelain coatings supplier. All other raw materials are readily
available from a variety of sources.
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Competition
IDT competes with a variety of companies which manufacture chalkboards,
institutional cabinetry and modular partitions. The competitors are typically
privately owned. A number of regional companies manufacture architectural
building panels which compete with those produced by IDT, but none has a
significant market share. IDT has attained its competitive position primarily as
a result of design quality and reliability, both with respect to product and
installation.
Seasonality
IDT's business is seasonal and most of its sales and pre-tax profits occur
in the third quarter of the year. This occurs primarily as a result of
increased business activity in the summer months when schools are closed and
construction activity increases. IDT typically incurs a loss in the first
quarter of each year.
Backlog
At December 31, 1993, total backlog for IDT was approximately $21,300,000,
as compared with approximately $27,900,000 as of December 31, 1992. Management
expects that all of the backlog will be filled in its next fiscal year. The
reduction in the backlog is due to one large project being completed during
1993. IDT believes that its order backlog represents only a portion of the net
sales revenue anticipated by IDT in any given fiscal year.
Employees of the Company
Adience currently employs approximately 800 people in the Heat Technology
Division (including Adience Canada) and 32 people in its general and
administrative staff. The number of individuals employed in the Heat Technology
Division does not reflect members of the building trades, who are hired by
Adience as required.
Some employees at the South Webster, Ohio plant (approximately 30 persons)
are members of the United Steelworkers Union. Some employees at the
Smithville, Ontario plant (approximately 10 persons) are members of the
Aluminum, Brick and Glassworkers Union. Employees at the Canon City, Colorado
plant (approximately 15 persons) are members of the Oil, Chemical and Atomic
Workers Union. The current labor contracts at these plants expire in July
1995, July 1994 and October 1995, respectively. All three plants are operated
by the Heat Technology Division.
Approximately 125 employees at the J.H. France plant in Snow Shoe,
Pennsylvania are represented by the Aluminum, Brick and Glassworkers Union
under a contract that expires in July 1998.
The majority (approximately 60 persons) of the employees at Findlay are
represented by the Aluminum, Brick and Glassworkers of America and are working
under a labor agreement which expires in August 1994.
Of the remaining full-time employees at Adience (approximately 590
persons), approximately 290 are union members who are not covered by collective
bargaining agreements. The remaining employees of Adience (approximately 300
persons) are not unionized.
IDT currently employs approximately 380 people. About 125 employees at
the Dixonville, Pennsylvania plant are members of the Carpenters Union, with
the current labor contract expiring in January 1995.
Of IDT's remaining employees, approximately 70 persons are union members
not covered by collective bargaining agreements.
Management considers relations with employees at Adience, IDT and Adience
Canada to be good.
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Patents and Trademarks
The Company holds a number of patents and trademarks covering various
products and processes relating to its Heat Technology Division and IDT. The
Company believes the "Greensteel" trademark is important to IDT, but otherwise
its patents and trademarks are not of material importance in terms of the
Company's total business.
Regulation
The Company's manufacturing operations are subject to numerous federal,
state and local laws and regulations relating to the storage, handling,
emission, transportation and discharge of materials. From time to time, the
Company experiences on-site inspections by environmental regulatory authorities
who may impose penalties or require remedial actions. Compliance with these
laws has not been a material cost to the Company and has not had a material
effect upon the capital expenditures, earnings or competitive position of the
Company. A violation of such laws or regulations, however, even if
inadvertent, could have an adverse impact on the operations of the Company.
As more fully described under "BUSINESS -- Legal Proceedings," 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 $1,106,000 accrued at
December 31, 1992 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 $200,000 (of which IDT paid $175,000 and Adience paid
$25,000). In addition, the consent order requires the payment of stipulated
penalties of up to $1,000 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 December 31, 1993, environmental accruals amounted to $783,000
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 $341,000 (excluding the civil penalty)
for the environmental clean-up related to the Alliance facility.
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 $250,000. IDT has notified Adience that it is claiming the
right to indemnification for all costs in excess of $250,000 incurred by IDT in
this matter, and has received assurance that Adience will honor such claim.
Adience has reimbursed IDT $196,000; if Adience is financially unable to honor
its remaining obligation, such costs would be borne by IDT.
Insurance
The Company maintains insurance with respect to its properties and
operations in such form, in such amounts and with such insurers as is customary
in the businesses in which the Company is engaged. Management believes that the
amount and form of its insurance coverage is adequate at the present time.
9
<PAGE>
Item 2. Properties
Adience owns its 15,600 square foot headquarters in Pittsburgh,
Pennsylvania along with approximately 37,000 square feet of contiguous
commercial space. Adience also owns 14 of its facilities. Substantially all of
the real property owned by Adience is subject to liens. Management believes
that all of its facilities are well-maintained, in good condition and adequate
for its present business. At present and anticipated levels of utilization,
Adience's production facilities have sufficient capacity to meet demand for
Adience's products.
In October 1993, Adience committed to purchase a new plant facility which
it currently leases in Altoona, Pennsylvania to expand current production of a
specific line of refractory product. See "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Results of Operations."
Heat Technology Division.
Adience owns plants at the following locations:
<TABLE>
<CAPTION>
Approximate
Floor Area Operating
Location (Square Feet) Unit
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Farber, Missouri...................................... 278,000 Findlay
Washington, Pennsylvania.............................. 201,881 Findlay
Snow Shoe, Pennsylvania............................... 162,080 J.H. France
South Webster, Ohio................................... 131,154 BMI
Crown Point, Indiana.................................. 76,106 BMI
Smithville, Ontario, Canada........................... 46,900 Adience Canada
Canon City, Colorado.................................. 35,626 BMI
South Rockwood, Michigan.............................. 28,776 BMI
Wheelersburg, Ohio.................................... 8,370 BMI
</TABLE>
The plants located in both Farber, Missouri and South Rockwood, Michigan
have been idled and future capital expenditures deferred due to a decline in
orders. Adience's lost production capacity has been replaced by its other
manufacturing plants.
10
<PAGE>
In addition, Adience owns or leases construction yards, sales facilities
and other facilities in the following locations:
<TABLE>
<CAPTION>
Approximate
Owned/ Floor Area Lease Operating
Location Leased (Square Feet) Expiration Unit
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Carnegie, Pennsylvania................. Owned 71,604 BMI
Gary, Indiana.......................... Owned 12,500 BMI
Lorain, Ohio........................... Owned 11,140 BMI
Long Island City, New York............. Owned 5,000 J.H. France
Riverview, Michigan.................... Owned 4,744 BMI
Johnstown, Pennsylvania................ Leased 27,000 month to month J.H. France
Altoona, Pennsylvania.................. Leased 30,000 month to month J.H. France
Gate City Industrial Park, Indiana..... Leased 28,873 February 1995 BMI
Louisville, Kentucky................... Leased 15,000 February 1998 BMI
Birmingham, Alabama.................... Leased 11,000 November 1997 BMI
Philadelphia, Pennsylvania............. Leased 8,320 June 1996 J.H. France
Lackawanna, New York................... Leased 4,000 month to month Furnco
</TABLE>
IDT. IDT owns five of its facilities. Real estate owned by IDT is not
subject to mortgage. Management believes that all of its facilities are
well-maintained, in good condition and adequate for its present business. IDT's
production facilities are currently utilized to the extent of one production
shift per day. At such level of utilization, IDT's production facilities have
sufficient capacity to meet demand for IDT's products.
IDT owns or leases production and fabrication facilities at the following
locations:
<TABLE>
<CAPTION>
Approximate
Owned/ Floor Area
Location Leased (Square Feet) Expiration
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dixonville, Pennsylvania.................... Owned 199,226
Landis, North Carolina...................... Owned 46,800
Alliance, Ohio.............................. Owned 28,032
Leechburg, Pennsylvania..................... Owned 32,975
Shoemakersville, Pennsylvania............... Owned 7,270
Corona, California.......................... Leased 30,000 January 1995
Portland, Oregon............................ Leased 12,800 September 1995
</TABLE>
IDT also leases sales offices at the following locations: Corona,
California; Fraser, Michigan; Millersburg, Ohio; Lakewood, New Jersey; Buffalo,
New York; Deer Park, New York; Portland, Oregon; and Lorton, Virginia.
11
<PAGE>
Item 3. Legal Proceedings
Ohio Environmental Matter. 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 has $1,106,000 accrued at December 31, 1992 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 $200,000 (of which IDT paid $175,000 and Adience paid
$25,000). In addition, the consent order requires the payment of stipulated
penalties of up to $1,000 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
December 31, 1993, environmental accruals amounted to $783,000, which represents
management's reasonable estimate of the amounts remaining to be incurred in the
resolution of 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 $341,000 (excluding the civil penalty)
for the environmental cleanup related to the Alliance facility..
Under the acquisition agreement pursuant to which IDT acquired the property
from Adience in 1990, Adience represented and warranted that, except as
otherwise disclosed to IDT, no hazardous material had been stored or disposed of
on such 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 $250,000. IDT has notified Adience that it is claiming the
right to indemnification for all costs in excess of $250,000 incurred by IDT in
this matter, and has received assurance that Adience will honor such claim.
Adience has reimbursed IDT $196,000; if Adience is financially unable to honor
its remaining obligation, such costs would be borne by IDT.
Resolution of Asbestos Litigation. The Company's J.H. France unit, which
was merged into Adience in December 1991, has been named as a party in
approximately 8,000 pending lawsuits filed in eight jurisdictions principally by
employees and former employees of certain customers of J.H. France, alleging
that a single product, a plastic insulating cement manufactured more than 20
years ago by J.H. France, caused asbestosis or silicosis in such persons. Such
lawsuits typically involve multiple defendants and seek monetary damages ranging
from $20,000 each, which is the minimal jurisdictional requirement for personal
injury cases in a majority of such state courts, to $1,000,000 each. J.H.
France and its insurance carriers have historically settled these lawsuits
typically for an average amount per case of less than the minimum amount stated.
Punitive damages have also been claimed in some cases.
In addition to the lawsuits against J.H. France, Adience has been named a
party in approximately 250 pending lawsuits filed in the States of Pennsylvania,
Ohio, Michigan and West Virginia, principally by employees and former employees
of certain customers of the Company alleging that products produced by the
Company caused silicosis, not asbestosis, in such persons. The majority of such
lawsuits involve multiple defendants and seek unstated monetary damages in
excess of $20,000 each, which is the minimal jurisdictional requirement for
personal injury cases in a majority of such state courts, to $1,000,000 each.
Adience and its insurance carriers have historically settled these lawsuits for
an average amount per case of less than the minimum amount stated.
All such claims and all costs of defense for these cases are covered by
insurance. The insurance companies which had issued policies covering the J.H.
France cases had asserted that each insurance company was only responsible for a
pro rata share of the liability in these cases, based upon the number of years
for which the carriers provided coverage during the period of the exposure,
development and manifestation of each plaintiff's asbestosis or silicosis. In
June 1993, the Supreme Court of Pennsylvania held that the insurance policies
12
<PAGE>
covering the claims in these J.H. France cases covered liabilities and defense
costs up to the amounts of the limits of the respective policies, without regard
to the period of time said policies were in effect. As a result of this
judicial determination and based upon the Company's experience in obtaining
dismissals or settlements in closed cases, the Company anticipates, although no
assurance can be given, that the expected costs and liabilities in all pending
cases will be adequately covered by insurance. The Company believes that the
aggregate limits on the insurance policies in effect exceed the potential
liabilities and defense costs which will be incurred in the 8,000 J.H. France
cases and the other 250 cases for which the scope of coverage has never been an
issue.
Other Legal Actions. The Company has been engaged in various other legal
actions and claims arising in the ordinary course of business. Management
believes that, after discussions with internal and external legal counsel, the
ultimate outcome of such litigations and claims will not have a material adverse
effect on the Company's consolidated financial position.
For information regarding Adience's proceedings under Chapter 11, see
"BUSINESS -- Background of Adience".
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders of the Company
during the fiscal quarter ended December 31, 1993.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
On January 27, 1994, the Company's Registration Statement on Form S-1 was
declared effective by the Securities and Exchange Commission. Pursuant to the
Registration Statement, all of the Company's outstanding shares of Common Stock
were registered. There currently is no established public trading market for
the Common Stock and, accordingly, market prices are not available.
Adience has not to date filed any application to list the Common Stock on
any stock market or exchange. If a substantial number of Adience's stockholders
seek to sell their shares of Common Stock in the public market, the market price
of the Common Stock could be adversely affected.
Since its inception, Adience has paid only one dividend, in September 1990,
of $.10 per share ($1,000,000 in the aggregate). Under the terms of Adience's
financing agreement with Congress Financial Corporation and the indenture under
which its New Senior Secured Notes were issued, Adience at present is prohibited
from declaring or paying any dividends on account of any shares of any class of
its capital stock. As a result of this prohibition, it is unlikely that Adience
will pay any dividend on its Common Stock in the foreseeable future. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Sources of Capital; Financing Agreements."
As of March 29, 1994, the Company had 152 holders of record of its Common
Stock (excluding beneficial owners of shares held of record by nominees).
13
<PAGE>
Item 6. Selected Consolidated Financial Data
The selected consolidated financial statement data presented below for
periods subsequent to June 30, 1993 give effect to the consummation of the
Prepackaged Plan and to the application of fresh-start reporting by the Company
as of that date in accordance with the American Institute of Certified Public
Accountants' Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code." Accordingly, periods through June
30, 1993 have been designated "Pre-emergence," and periods subsequent to June
30, 1993 have been designated "Post-emergence." Selected financial consolidated
balance sheet and income statement data of the pre-emergence periods are not
comparable to those of the post-emergence periods and a line has been drawn in
the tables to separate the post-emergence financial data from the pre-emergence
financial data.
The following table presents selected (i) historical consolidated financial
data of the Company (pre-emergence) for each of the four fiscal years in the
period ended December 31, 1992 and the six-month period ended June 30, 1993,
(ii) historical consolidated financial data of the Company (post-emergence) for
the six-month period ended December 31, 1993, and (iii) pro forma consolidated
income statement data for the fiscal year ended December 31, 1993.
The pro forma data (i) eliminate the effect of non-recurring transactions
resulting from the Reorganization included in the results of the Company, (ii)
adjust pre-emergence results of the Company to reflect the assumed
implementation of fresh-start reporting as of January 1, 1993 for income
statement purposes, and (iii) assume the exchange of $65,975,000 aggregate
principal amount of Old Subordinated Notes for $48,628,625 aggregate principal
amount of New Senior Secured Notes and the issuance of 10,000,000 shares of
Common Stock pursuant to the Prepackaged Plan as of January 1, 1993. The
information below should be read in conjunction with "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," the Company's
Consolidated Financial Statements, including the notes thereto, and other
information contained elsewhere herein.
The historical consolidated financial data presented below for each of the
three fiscal years in the period ended December 31, 1991 have been derived from
the Company's Consolidated Financial Statements, which were audited by Ernst &
Young, independent accountants. Ernst & Young's report on the consolidated
financial statements for the year ended December 31, 1991, which appears
elsewhere herein, includes a description of uncertainties that might have led to
the Company's inability to continue as a going concern. The historical
consolidated financial data for the six months ended December 31 and June 30,
1993 and the fiscal year ended December 31, 1992 have been derived from the
Company's Consolidated Financial Statements, which were audited by Price
Waterhouse, independent accountants. The data should be read in conjunction
with the consolidated financial statements, related notes and other financial
data included elsewhere herein.
14
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Post-emergence Pre-emergence
----------------------------------------------------------------------------------------------
Fiscal Year Six Months Six Months
Ended Ended Ended Fiscal Years Ended December 31,
December 31, December 31, June 30, ------------------------------------------------
1993 1993 1993 1992 1991 1990 1989
------------- ------------ ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share amounts)
Statement of Operations Data:
Net revenues $147,050 $78,879 $68,171 $145,595 $165,519 $183,701 $167,937
Cost of revenues 123,633 67,588 55,474 121,182 134,802 140,146 129,308
------------- ------------ ---------- --------- ---------- ---------- ---------
Gross profit 23,417 11,291 12,697 24,413 30,717 43,555 38,629
Selling, general and
administrative expense 27,575 13,096 14,624 30,519 29,001 24,931 21,751
Amortization of
intangible asset 9,011 9,011 -- -- -- -- --
------------- ------------ ---------- --------- ---------- ---------- ---------
Operating profit (loss) (13,169) (10,816) (1,927) (6,106) 1,716 18,624 16,878
Other income (expense):
Interest and other income 910 652 258 148 896 1,294 2,464
Interest expense (7,469) (3,812) (2,360) (13,445) (12,360) (12,746) (10,524)
Other expense -- -- -- -- (1,037) -- --
------------- ------------ ---------- --------- ---------- ---------- ---------
(Loss) income from continuing
operations before
reorganization items, income
taxes, minority interest in
subsidiary and
extraordinary item (19,728) (13,976) (4,029) (19,403) (10,785) 7,172 8,818
Reorganization items:
Professional fees -- (746) (102) (950) -- -- --
Write-off of unamortized
debt discount -- -- (455) -- -- -- --
Write-off of unamortized
loan origination fees -- -- (2,065) -- -- -- --
Adjust accounts to fair value -- -- 23,165 (4,848) -- -- --
------------- ------------ ---------- --------- ---------- ---------- ---------
(Loss) income from
continuing operations
before income taxes,
minority interest in
subsidiary and
extraordinary item (19,728) (14,722) 16,514 (25,201) (10,785) 7,172 8,818
Income taxes (benefit) (261) (522) 261 (726) (2,272) 3,365 4,076
------------- ------------ ---------- --------- ---------- ---------- ---------
(Loss) income from
continuing operations
before minority interest
in subsidiary and
extraordinary item (19,467) (14,200) 16,253 (24,475) (8,513) 3,807 4,742
Minority interest
in subsidiary 84 83 1 81 337 191 --
------------- ------------ ---------- --------- ---------- ---------- ---------
(Loss) income from
continuing operations
before extraordinary item (19,551) (14,283) 16,252 (24,556) (8,850) 3,616 4,742
(Loss) income from discontinued
operations -- -- -- (1,328) (5,177) (1,057) 1,654
Gain (loss) on disposal
of discontinued operations -- (84) (400) (3,973) 1,852 -- --
------------ ---------- --------- ---------- ---------- ---------
(Loss) income before
extraordinary item (14,367) 15,852 (29,857) (12,175) 2,559 6,396
Extraordinary gain (loss)
on early extinguishment
of debt -- -- 17,480 -- -- 276 (2,479)
------------ ---------- --------- ---------- ---------- ---------
Net (loss) income
(historical periods only) $(14,367) $33,332 $(29,857) $(12,175) $ 2,835 $ 3,917
============ ========== ========= ========== ========== =========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Post-emergence Pre-emergence
----------------------------------------------------------------------------------------------
Fiscal Year Six Months Six Months
Ended Ended Ended Fiscal Years Ended December 31,
December 31, December 31, June 30, ------------------------------------------------
1993 1993 1993 1992 1991 1990 1989
------------- ------------ ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share amounts)
Earnings per common share (1):
(Loss) income from
continuing operations
before extraordinary item $ (1.96) $ (1.43)
(Loss) income from discontinued
operations -- (0.01)
Extraordinary item -- --
=========
Earnings per common share -- $ (1.44)
=========
Balance Sheet Data
(at end of period) (2):
Working capital $ 15,931 $ 22,797 $ 25,437 $ 33,925 $ 40,959 $ 52,659
Total assets 102,387 115,935 82,437 111,464 127,119 124,712
Long-term obligations 46,211 46,210 77,703 68,429 70,165 79,831
Shareholders' equity
(deficit) (3) 9,509 24,040 (34,677) (5,138) 6,357 6,672
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Adience's management believes the per share amounts are not meaningful
prior to June 30, 1993 due to the Reorganization.
(2) Pro forma balance sheet information is not presented since the
historical balance sheet data as of December 31, 1993 includes the
effects of the Prepackaged Plan and the implementation of
fresh-start-reporting.
(3) On February 10, 1989, Adience's Board of Directors authorized an
amendment to Aidence's Certificate of Incorporation to increase the
authorized number of shares of common stock from 200 shares, no par
value, to 20,000,000 shares, par value $0.15 per share, and a
100,000-for-1 stock split. On September 30, 1990, Adience's Board of
Directors declared a $.10 per share cash dividend. No dividends were
declared on Adience's common stock for any other period covered.
16
<PAGE>
Item 7. 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 has been recorded at December 31, 1993, based on
management's belief that a permanent impairment of this asset now exists. The
Company is currently seeking to replace and improve the terms of its line of
credit financing agreement with Congress Financial Corporation (Congress) which
expires June 30, 1994.
The continued viability of the Company is dependent upon, among other
factors, the ability to generate sufficient cash 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, make an
investment in product and service opportunities expected to produce a
significantly greater return on investment, continue a cost control program
begun in 1993, and assume refinancing of the line of credit arrangement on
improved terms. Management believes that the successful implementation of this
plan will enable the Company to continue as a going concern for a reasonable
period.
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 service 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 $65,975,000 aggregate principal amount of
Adience's Senior Subordinated Reset Notes ("Old Subordinated Notes") to exchange
them for $48,628,625 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 $8,800,000. The
value of the cash and securities distributed was $17,480,000 less than the
allowed claims; the resultant gain was recorded as an extraordinary gain.
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 the
operations prior to such date, and the results of operations for the six months
ended June 30, 1993 and the six months ended December 31, 1993 have not been
aggregated. Further, the financial position of the Company after June 30, 1993
is not comparable to its financial position at any date prior thereto.
17
<PAGE>
Results of Operations
Fiscal Year ended December 31, 1993 Compared to Fiscal Year ended December 31,
1992
The following table summarizes the Company's consolidated results of operations
for 1993 and 1992 and provides a consistent basis for further discussion and
analysis of those results.
<TABLE>
<CAPTION>
1993 1992
---- ----
(In thousands)
<S> <C> <C>
Net income (loss) $(29,857)
Pre-emergence $ 33,332
Post-emergence (14,367)
Reorganization items (1):
Reorganization items 19,797 (5,798)
Extraordinary gain on discharge of debt 17,480 --
Loss excluding the effect of reorganization items $(24,059)
Pre-emergence $ (4,691)
Post-emergence $(13,621)
</TABLE>
(1) For further discussion, see Note 1 to Consolidated Financial Statements.
Excluding the effects of reorganization items, the pre-emergence and
post-emergence loss of $4.7 million and 13.6 million, respectively, decreased by
$5.7 million from 1992, reflecting primarily a reduction in selling, general and
administrative expenses of $2.8 million and a decrease in interest expense of
$7.3 million, offset partially by a net increase in depreciation and
amortization expense of $7.2 million. Included in the net increase in
amortization expense for 1993 is the fourth quarter write down of the Company's
reorganization value in excess of amounts allocable to identifiable assets. The
amount written down was based on management's comparison of actual cash flows
for the post-emergence period through December 31, 1993 with the projected cash
flows used to arrive at the reorganization value at June 30, 1993. This charge
increased the post-emergence loss by $8 million or $.80 per share.
Additional losses from previously discontinued operations and disposals
amounted to $400,000 and $84,000 for the pre-emergence and post-emergence
periods, respectively, and $5.3 million in 1992. Management's decision to
discontinue these operations was made after concluding that these businesses no
longer fit Adience's long-term growth plans.
Net revenues by industry segment for 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
Net Revenues 1993 1992 % Change
- ------------ ---- ---- --------
(In thousands)
<S> <C> <C> <C>
Heat Technology Division $ 97,276 Not meaningful
Pre-emergence $ 44,431
Post-emergence 54,572
IDT 48,047 48,319 (1%)
-------- -------- ----
Total $147,050 $145,595 1%
======== ======== ====
</TABLE>
18
<PAGE>
During the Reorganization period, which initially began in December 1992,
Adience operated under strict payment terms with many of its suppliers, thereby
experiencing higher costs. Increased competition in the refractory product
sector prohibited the Company from passing along to customers increases in the
costs of some important raw materials. As a result, sales opportunities were
lost due to Adience's inability to compete on price and offer extended payment
terms. In addition, the necessity of management's concentration of efforts on
the Reorganization resulted in a loss of business in certain primary steel
markets.
During 1993, steel producers generally operated at levels close to
capacity. However, Adience's restructuring under the supervision of the
Bankruptcy Court did not enable the Heat Technology division to capitalize on
these favorable economic conditions in the first half of 1993. The Company
reacted to the sales decline during the first half of 1993 by taking several
significant steps which, due to timing, only modestly impacted 1993 results.
The primary steps included the election of a new Board of Directors and the
appointment of a new Chief Executive Officer. The problems experienced in the
past are being addressed by the new Board and executive management. As a
result, new incentive plans are being implemented for the sales force and a
realignment of duties is being accomplished within the internal operations of
the Company. The Heat Technology division has also expanded its research and
development programs through the hiring of seven new ceramic engineers during
1993. A management focus for 1994 is customer service and product quality.
Teams of sales and service representatives have been established to respond to
customer needs within the various industries that are supplied or serviced with
refractory product. Net revenues for the Heat Technology division increased by
23% for the six month period ended December 31, 1993 compared to the six month
period ended June 30, 1993.
Net revenues for IDT remained consistent with prior year's net revenues.
Included in 1993 and 1992 revenues is one large project with incremental
revenues of $4.7 million and $2 million, respectively. Excluding this project,
net revenues declined $3 million or 6.4% during 1993 within this segment. This
decline is attributable to management's efforts to reduce the number of
contracts which require the use of purchased rather than manufactured product
because the former generate lower gross margins.
<TABLE>
<CAPTION>
Cost of Revenues 1993 1992 % Change
- ---------------- ---- ---- --------
(In thousands)
<S> <C> <C> <C>
Heat Technology Division $ 81,262 Not meaningful
Pre-emergence $ 35,928
Post-emergence 47,779
IDT 39,355 39,920 (1%)
-------- -------- ----
Total $123,062 $121,182 2%
======== ======== ====
</TABLE>
The Heat Technology Division's cost of revenues amounted to 80.9% and 87.6%
of net revenues for the pre-emergence and post-emergence periods respectively,
compared with 83.5% for the year ended December 31, 1992. The increase in the
Heat Technology Division's cost of revenues as a percentage of net revenues
during the post-emergence period was primarily due to negative variances in the
refractory production facilities due to a decline in volume (caused by a
decrease in material shipments as opposed to construction activity) and the
reduced ability to cover overhead costs. The decrease in direct material sales
for the Heat Technology Division which caused these negative variances has been
partially offset by the increase in construction revenues during the
post-emergence period. Additional depreciation expense on buildings and
machinery and equipment written up as a result of fresh start reporting
(approximately $500,000) and the write-up of inventory values on June 30, 1993
(approximately $1,287,000) through the application of SOP 90-7, accounted for
3.7% of the increase in cost of revenues during the post-emergence period.
19
<PAGE>
Going forward, cost of revenues as a percentage of net revenues is expected to
remain close to post-emergence levels due to the impact of additional
depreciation expense on buildings and machinery and equipment written up as a
result of fresh start reporting. (See Notes to Consolidated Financial
Statements for further details).
IDT's gross margins increased $300,000 to 18.1% of revenues during 1993.
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 $438,000 was recorded
during 1993 resulting from the reversal of the provision relating to this
contingency.
IDT's Kensington division, which was sold during the fourth quarter of
1993, contributed to the overall gross margin by $378,000 and $385,000 for the
years ended December 31, 1993 and 1992, respectively. IDT's gross margin
percentage excluding the Kensington division, the 1993 sales tax adjustment and
the one large project, which recognized a loss of $290,000 during 1993, would
have been 9% higher than 1992. The improvement in gross margin results
principally from significant charges incurred in 1992 related to project cost
overruns. The project cost overruns of approximately $600,000 were due to
weaknesses in sales and project management in specific territories. Controls
have been established during 1993 to minimize these types of overruns.
<TABLE>
<CAPTION>
Selling, General and Administrative Expenses 1993 1992 % Change
- -------------------------------------------- ---- ---- --------
(In thousands)
<S> <C> <C> <C>
Heat Technology Division $22,829 Not meaningful
Pre-emergence $10,510
Post-emergence 9,302
IDT 7,908 7,690 3%
------- ------- -----
Total $27,720 $30,519 (10%)
======= ======= =====
</TABLE>
For the pre and post-emergence periods in 1993, selling, general and
administrative expenses of the Company amounted to 21.5% and 16.6% of net
revenues respectively, compared with 21% for the year ended December 31, 1992.
The increase in selling, general and administrative expenses during the
pre-emergence period is attributable to the low level of sales during the same
period. The major component in the overall decrease in 1993 over 1992 related
to insurance expense. Adience was self-insured from November 1988 to June 1992
for workers' compensation and general liability. For this period, Adience is
responsible for the first $250,000 of losses per occurrence. A loss calculation
is performed at the end of each policy year summarizing incurred losses, paid
losses and the outstanding reserve. Based upon this calculation and an estimate
for potential changes in reserves and for new claims, Adience recorded an
additional $2.3 million in insurance expense during the fourth quarter of 1992.
In addition, the reduction in selling, general and administrative expenses is
due to significant charges of approximately $1.1 million incurred in 1992
related to clean-up activities and other costs associated with the environmental
issue at one of IDT's facilities. These activities were accounted for in 1992
and did not have a significant impact on operating costs in 1993.
Other income (expense) for the pre-emergence period in 1993 includes
retroactive health insurance premium refunds of approximately $215,000 for the
Company's medical self-insurance program for the period September 1991 to
February 1992. In addition, during June 1993, the Supreme Court of Pennsylvania
held that the insurance policies covering these asbestosis and silicosis claims
covered liabilities and defense costs up to the amounts of the limits of the
respective policies, without regard to the period of time said policies were in
effect. As a result of this judicial determination, the court awarded a refund
to J.H. France for its pro rata share of the funds paid in these cases or
20
<PAGE>
$265,000. Also included in other income (expense) for the post-emergence period
in 1993 is the $220,000 loss on the sale of the Heat Technology Division's Los
Angeles operations and the $94,000 loss on the sale of IDT's Kensington
division. Both sales were recorded during December 1993.
Fiscal Year ended December 31, 1992 Compared to Fiscal Year ended December 31,
1991
The following table sets forth as a percentage of net revenues certain
items appearing in the Company's consolidated financial statements.
Percentage of Net Revenues
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1992 1991
---- ----
<S> <C> <C>
Net revenues 100.0% 100.0%
Cost of revenues 83.2% 81.4%
Gross profit 16.8% 18.6%
Selling, general and administrative expenses 21.0% 17.5%
Operating (loss) profit (4.2%) 1.1%
Interest and other income 0.1% 0.5%
Interest expense 9.2% 7.5%
Other expense -- 0.6%
Loss from continuing operations before
reorganization items, income taxes,
minority interest in subsidiary and
extraordinary item (13.3%) (6.5%)
</TABLE>
<TABLE>
<CAPTION>
Net Revenues 1992 1991 % Change
- ------------ ---- ---- --------
(in thousands)
<S> <C> <C> <C>
Heat Technology Division $ 97,276 $106,314 (9%)
IDT 48,319 59,205 (18%)
-------- -------- -----
Total $145,595 $165,519 (12%)
======== ======== =====
</TABLE>
During 1992, a decline in the demand for refractory products and services
caused by a decrease in the production of refractory-using industries in the
United States, particularly steel, precipitated the decline in revenues.
Compounding the decline in demand for refractory products and services during
1992 was the effect of the Prepackaged Plan which increased customer
apprehension.
Net revenues for the Heat Technology Division's top ten customers declined
by $3,500,000 in 1992. The contributing factors in this revenue decline were
customer plant closings and major construction projects which were performed in
1991 and not repeated during 1992.
IDT's revenues declined by $10,900,000 from 1991. IDT's primary market
depends on the construction or refurbishing of educational buildings which,
according to industry statistics, reported a 12% decline in capital expenditures
in 1992. Industry reports attributed the decline to unusually conservative state
21
<PAGE>
and municipal budgets rather than a result of a permanent decline in demand.
IDT's major market in the eastern portion of the United States declined,
according to industry reports, by approximately 20%. IDT's revenues from this
market segment suffered a corresponding percentage decline, which in turn
accounted for 70% of IDT's total decrease in net revenues. In addition, the
sale of EHB, one of IDT's divisions, in the first quarter accounted for 3% of
the decrease in net revenues.
<TABLE>
<CAPTION>
Cost of Revenues 1992 1991 % Change
- ---------------- ---- ---- --------
(in thousands)
<S> <C> <C> <C>
Heat Technology Division $ 81,262 $ 87,921 (8%)
IDT 39,920 46,881 (15%)
-------- -------- -----
Total $121,182 $134,802 (10%)
======== ======== =====
</TABLE>
The Heat Technology Division's cost of revenues declined by 8% to 84% of
net revenues, compared with 83% in 1991. Included in cost of revenues for 1992
was a $1,100,000 write-down of property, plant and equipment for a facility
which was anticipated to close during 1993.
IDT's cost of revenues declined in line with the reduction in net revenues.
However, project cost overruns in excess of $600,000 and enhanced pricing
pressures caused by the market also resulted in the increase in cost of revenues
as a percentage of net revenues to 83% compared with 79% in 1991. The project
cost overruns were due to weaknesses in sales and project management in specific
territories. Management controls have been established by IDT to minimize these
types of overruns by the creation of centralized estimating and project
management departments which are responsible for the preparation of costs
estimates and ongoing cost management of all IDT projects.
<TABLE>
<CAPTION>
Selling, General and Administrative Expenses 1992 1991 % Change
- -------------------------------------------- ---- ---- --------
(in thousands)
<S> <C> <C> <C>
Heat Technology Division $22,829 $19,613 (16%)
IDT 7,690 9,388 (18%)
-------- ------- -----
Total $30,519 $29,001 (5%)
======== ======== =====
</TABLE>
The increase in selling, general and administrative expenses for the Heat
Technology Division reflects an adjustment to the workers' compensation and
general liability insurance accrual accounts during the fourth quarter of 1992.
Adience is self-insured for workers' compensation and general liability coverage
for claims incurred during the period November 1988 to June 1992 for the first
$250,000 of losses per occurrence. A loss calculation is performed at the end
of each policy year summarizing incurred losses, paid losses and the outstanding
reserve plus an estimate for potential changes in reserves and for new claims.
Based upon this calculation, Adience recorded an additional $2,300,000 in
insurance expense during the fourth quarter of 1992, representing Adience's
portion of the outstanding reserves.
In addition, as more fully described in the Notes to the Company's
Consolidated Financial Statements, Adience agreed to indemnify IDT for any
losses in excess of $250,000 resulting from the environmental issue at one of
IDT's facilities. As a result of this indemnification, Adience recorded a
$1,052,000 environmental liability which represents Adience's portion of IDT's
liability for environmental issues.
IDT's selling, general and administrative expenses decreased as a result of
reduced sales commission expense on lower gross margin dollars.
22
<PAGE>
Included in reorganization items was the Company's settlement with its
principal shareholder and his son as a result of Adience's Prepackaged Plan
under Chapter 11 of the Bankruptcy Code. In addition, professional fees
incurred as a result of the restructuring have also been segregated for
presentation purposes.
Liquidity and Sources of Capital
As described above, the Company's financial position at December 31, 1993
as presented in its Consolidated Financial Statements reflects fresh start
reporting and the amount of New Senior Notes negotiated under the Prepackaged
Plan. Consequently, it is not comparable to prior periods and comparisons
normally discussed under this heading would not be meaningful.
The following comments on operating cash flows, capital expenditures,
working capital and liquidity are considered to be relevant in evaluating the
Company's present financial position.
The Company's principal sources of liquidity are cash from operations, cash
on hand, and certain credit facilities available to the Company.
The Prepackaged Plan included forgiveness of accrued interest totaling
approximately $8.8 million and the value of the New Senior Secured Notes, cash
and securities distributed was $17.5 million less than the allowed claims.
Management of the Company believes that cash on hand and funds from
operations, together with borrowings under credit facilities described below,
will be sufficient to cover its working capital, capital expenditure and debt
service requirements through 1994. The Company is actively seeking an increase
in its credit line through its current lender or different financing resources.
The Company expects average borrowings in 1994 to exceed those of 1993. The
Company intends to seek further to strengthen its financial position and
increase its financial flexibility and may from time to time consider possible
additional transactions, including other capital market transactions.
Net cash flows provided by operating activities totaled $1.0 million and
$1.2 million for the six months ended December 31 and June 30, 1993,
respectively. Included in net cash flows provided by operating activities is
$4.3 million received during the six months ended June 30, 1993, which relates
to a federal tax refund for net operating loss carrybacks. The Company has
exhausted any future refunds for net operating loss carrybacks.
As discussed previously, the Company benefited as a result of the
Reorganization from a forgiveness of interest on the Old Subordinated Notes
during the six months ended June 30, 1993. Future cash flows from operations
will no longer receive such benefit. In addition, Adience's restructuring under
Chapter 11 of the Bankruptcy Code had forced Adience to comply with stricter
payment terms from major vendors beginning in 1992. During the current year,
however, these stricter payment terms were suspended and accounts payable and
accrued expenses increased by $2,469,000 during the six months ended June 30,
1993.
Capital expenditures used $1.7 million of funds through December 31, 1993.
During 1993, Adience committed to purchase a new plant facility to expand
current production of a specific product line. The estimated total cost of this
facility and the necessary capital expenditures for machinery and equipment will
be $1.5 million and is expected to be partially financed through the
Pennsylvania Industrial Development Authority. It is anticipated that necessary
capital expenditures in future years will not exceed depreciation expense but
will represent a material use of operating funds.
Adience and IDT together had $5,293,000 and $1,762,000 in available credit
as of December 31, 1993 and February 28, 1994, respectively, under its
short-term borrowing arrangement with Congress Financial Corporation
("Congress").
Short-term liquidity is dependent, in large part, on general economic
conditions and the effect of those conditions on the steel industry. Due to the
cyclical nature of the steel business and considering current trends and
23
<PAGE>
industry forecasts, it appears the recent period of low steel demand has ended.
The Company's level of material shipments decreased by 29% during 1993, but
construction activity remained relatively strong during the same period. It is
anticipated that although construction activity will decline during the first
half of 1994, material shipments are expected to increase during the same
period.
Financing Agreements. On the consummation date of the plan of
reorganization, June 30, 1993, Adience entered into a financing agreement with
Congress for the twelve month period ending June 30, 1994. Under this
agreement, Adience may request loan advances not to exceed the lesser of $12
million or available collateral (80% 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, fixed assets, intangible
assets and Adience's shares of IDT. In addition, IDT guaranteed the Adience
line of credit and pledged its own accounts receivable, inventory and
equipment. The interest rate on the loan is 2.5% over the prime rate (effective
rate of 8.5% at December 31, 1993). At December 31, 1993 and February 28,
1994, Adience had borrowed $8,007,000 and $11,595,000, respectively, under the
credit facility. Letters of credit issued under the facility totaled $1
million at December 31, 1993, which reduced the availability under the
financing arrangement in a like amount.
IDT also renewed its financing agreement with Congress through June 30,
1994. Under this agreement, IDT may request loan advances not to exceed the
lesser of $3 million or available collateral (80% 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 December 31, 1993 and at February
28, 1994, no amounts were outstanding under this agreement. Letters of credit
issued under the facility totaled $700,000 at December 31, 1993, 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 financing agreements, both companies
are required to maintain minimum levels of net worth of $1,500,000 and working
capital of $12,000,000. 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
making of annual capital expenditures, and (vii) the disposition of real
property.
The following is a summary of certain of these covenants:
Indebtedness. Adience may not, and may not permit any subsidiary to,
create, incur, assume or permit to exist, contingently or otherwise, any
indebtedness, except (a) indebtedness to Congress, (b) indebtedness consisting
of unsecured current liabilities incurred in the ordinary course of its business
which are not more than 90 days past due, (c) indebtedness incurred in the
ordinary course of its business secured only by permitted liens (e.g., purchase
money mortgages), (d) indebtedness other than for borrowed money, which is and
remains contingent and unmatured, (e) indebtedness pursuant to the New Senior
Notes, and (f) indebtedness to or from Adience's subsidiaries.
Limitation on Liens. Adience may not, and may not permit any subsidiary
to, create or suffer to exist any mortgage, pledge, security interest, lien,
encumbrance, defect in title or restriction upon the use of their real or
personal properties, whether now owned or hereafter acquired, except (a) the
liens or security interest in favor of Congress, (b) tax, mechanics and other
like statutory liens arising in the ordinary course of Adience's or its
subsidiaries' respective businesses, (c) purchase money mortgages or other
purchase money liens or security interest upon any specific fixed assets
hereafter acquired, and (d) existing liens.
Loans, Investments, Guaranties. Adience may not, and may not permit any
subsidiary to, directly or indirectly, make any loans or advance money or
property to any person, or invest in (by capital contribution or otherwise) or
purchase or repurchase the stock or indebtedness or all or a substantial part of
the assets or property of any person, or guarantee, assume, endorse, or
otherwise be or become responsible for (directly or indirectly) the
24
<PAGE>
indebtedness, performance, obligations or dividends of any person or agree to do
any of the foregoing, except (a) intercompany loans from and to Adience and its
subsidiaries; (b) guarantees by any subsidiary of Adience with respect to the
obligations in favor of Congress and guarantees by Adience and any subsidiary of
Adience with respect to the obligations in favor of Congress and guarantees by
Adience and any subsidiary of Adience with respect to the obligations of IDT in
favor of Congress; (c) the endorsement of instruments for collection or deposit
in the ordinary course of business; and (d) after written notice thereof to
Congress, investments in the following instruments, which shall be pledged and
delivered to Congress upon Congress' request, (i) marketable obligations issued
or guaranteed by the United States of America or an instrumentality or agency
thereof, maturing not more than one (1) year after the date of acquisition
thereof, (ii) certificates of deposit or other obligations maturing not more
than one (1) year after the date of acquisition thereof issued by any bank or
trust company organized under the laws of and located in the United States of
America or any state thereof and having capital, surplus and undivided profits
of at least $100,000,000, and (iii) open market commercial paper with a maturity
not in excess of two hundred seventy (270) days from the date of acquisition
thereof which have the highest credit rating by either Standard & Poor's
Corporation or Moody's Investors Service, Inc.
Transactions with Affiliates. Adience may not, and may not permit any
subsidiary to, directly or indirectly (a) purchase, acquire or lease any
property or receive any services from, or sell, transfer or lease any property
or services to, any affiliate of Adience, except for any such transactions
between Adience and Adience's subsidiaries and except for such transactions on
prices and terms no less favorable than would have been obtained in an arm's
length transaction with a non-affiliated person; or (b) make any payment of
management or other fees or of the principal amount of or interest on any
indebtedness owing to any shareholder, officer, director or affiliate of
Adience, except, that Adience and any subsidiary may make such payments to
Adience or a subsidiary, as the case may be, when due.
Dividends. Adience may not, and may not permit any subsidiary to, directly
or indirectly, during any fiscal year, declare or pay any dividends on account
of any shares of any class of capital stock of Adience or its subsidiary now or
hereafter outstanding, or set aside or otherwise deposit or invest any sums for
such purpose, or redeem, retire, defease, purchase or otherwise acquire any
shares of any class of capital stock (or set aside or otherwise deposit or
invest any sums for such purpose) for any consideration other than stock or
apply or set apart any sums, or make any other distribution (by reduction of
capital or otherwise) in respect of any such shares or agree to do any of the
foregoing, except, that, dividends may be declared and paid to Adience by its
subsidiaries on any class of capital stock or any other interest in, or measured
by its profit, owned by Adience or any subsidiary of Adience, in each case out
of legally available funds therefore and otherwise in accordance with applicable
law.
Capital Expenditures. (a) Adience may not, and may not permit any
subsidiary to, in the aggregate for all of them, directly or indirectly, expend
or commit to expend, capital expenditures in excess of $6,500,000 in any fiscal
year of Adience, excluding capital expenditures paid under existing leases; and
(b) Adience may not, directly or indirectly, expend or commit to expend, capital
expenditures in excess of $4,000,000 in any fiscal year of Adience, excluding
capital expenditures paid under existing leases. IDT is subject to a capital
expenditure limit of $2,500,000 in any fiscal year, excluding capital
expenditures paid under existing leases.
Real Property. Adience may not, and may not, permit any subsidiary to
sell, lease (as lessor) transfer, or otherwise dispose of any of its or their,
as the case may be, real property or any interest therein.
As of December 31, 1993, 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. Inability to achieve
compliance could affect Adience's access to further borrowings or require it to
secure additional capital by other means.
25
<PAGE>
Both Adience and IDT anticipate that the financing agreements with Congress
will be renewed at June 30, 1994 or, alternatively, both companies will be able
to secure financing from other sources. However, no commitment letters have
been requested or received.
Long-term liquidity is dependent upon the Company's ability to operate
profitably and generate cash flow following favorable changes made to its
capital structure and the restructuring of its management structure. 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 the 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.
As more fully described under "BUSINESS -- Legal Proceedings," 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 $1,106,000 accrued at December 31, 1992 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 $200,000 (of which IDT paid $175,000 and Adience paid
$25,000). In addition, the consent order requires the payment of stipulated
penalties of up to $1,000 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
December 31, 1993, environmental accruals amounted to $783,000 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 $341,000 (excluding the civil penalty) for the environmental
clean-up related to the Alliance facility.
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 $250,000. IDT has notified Adience that it is claiming the right to
indemnification for all costs in excess of $250,000 incurred by IDT in this
matter, and has received assurance that Adience will honor such claim. Adience
has reimbursed IDT $196,000; if Adience is financially unable to honor its
remaining obligation, such costs would be borne by IDT.
26
<PAGE>
Item 8. Financial Statements and Supplementary Data
The following financial statements and related report and supplementary
data are filed as part of this annual report.
<TABLE>
<CAPTION>
Page in this
Financial Statements and Related Reports Annual Report
- ---------------------------------------- -------------
<S> <C>
Report of Independent Accountants
Post-emergence for the six months ended December 31, 1993 28
Pre-emergence at December 31, 1992 and the
six months ended June 30, 1993 29
Consolidated Balance Sheets as of
Post-emergence December 31, 1993 and Pre-emergence 1992 30
Consolidated Statements of Operations for the
Post-emergence six months ended December 31, 1993,
Pre-emergence six months ended June 30, 1993 and the
Pre-emergence years ended December 31, 1992 and 1991 32
Consolidated Statements of Cash Flows for the
Post-emergence six months ended December 31, 1993,
Pre-emergence six months ended June 30, 1993 and the
Pre-emergence years ended December 31, 1992 and 1991 33
Consolidated Statements of Shareholders' Equity (Deficit) for the
Post-emergence six months ended December 31, 1993,
Pre-emergence six months ended June 30, 1993 and the
Pre-emergence years ended December 31, 1992 and 1991 35
Notes to Consolidated Financial Statements 36
Supplementary Data
- ------------------
Quarterly Data and Fourth Quarter Adjustments - Unaudited 56
</TABLE>
27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS - POST-EMERGENCE
CONSOLIDATED FINANCIAL STATEMENTS
To the Board of Directors and Shareholders of
Adience, Inc.
In our opinion, the accompanying consolidated financial statements listed in the
Index appearing under Item 14(a)(1) and (2) on Page 58 present fairly, in all
material respects, the financial position of Adience, Inc., and its subsidiaries
(Adience) at December 31, 1993, and the results of their operations and their
cash flows for the six months ended December 31, 1993, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of Adience's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with generally accepted
auditing standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, the Adience
Plan of Reorganization was confirmed on May 4, 1993, and was consummated on June
30, 1993. Adience has accounted for the reorganization in accordance with the
American Institute of Certified Public Accountants Statement of Position 90-7
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code."
Accordingly, Adience's assets and liabilities as of June 30, 1993, were restated
by management, with the assistance of independent advisors, to their reorganized
value, which approximated their fair value at the date of reorganization. The
financial statements subsequent to the emergence from Chapter 11 have been
prepared using a different basis of accounting and therefore, are not comparable
to the pre-emergence consolidated financial statements.
As discussed in Notes 1 and 6, the Adience line of credit financing agreement
expires June 30, 1994. Management expects that financing agreements with the
lender will be renewed, or alternatively, that financing will be secured from
other sources.
PRICE WATERHOUSE
Pittsburgh, Pennsylvania
March 28, 1994
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS - PRE-EMERGENCE
CONSOLIDATED FINANCIAL STATEMENTS
To the Board of Directors and Shareholders of
Adience, Inc.
In our opinion, the accompanying consolidated financial statements listed in the
Index appearing under Item 14(a)(1) and (2) on Page 58 present fairly, in all
material respects the financial position of Adience, Inc., and its subsidiaries
(Adience) at December 31, 1992, and the results of their operations and their
cash flows for the six months ended June 30, 1993, and for the year ended
December 31, 1992, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Adience's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above. The financial statements of Adience for the year ended December 31,
1991, were audited by other independent accountants whose report dated April 9,
1992, included an explanatory paragraph as to Adience's ability to continue as a
going concern.
As discussed in Note 1 to the consolidated financial statements, the Adience
Plan of Reorganization was confirmed on May 4, 1993, and was consummated on June
30, 1993. Adience has accounted for the reorganization in accordance with
American Institute of Certified Public Accountants Statement of Position 90-7
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code."
Accordingly, Adience's assets and liabilities as of June 30, 1993, were restated
by management, with the assistance of independent advisors, to their reorganized
value, which approximated their fair value at the date of reorganization.
PRICE WATERHOUSE
Pittsburgh, Pennsylvania
March 28, 1994
29
<PAGE>
ERNST & YOUNG
ONE OXFORD CENTRE
PITTSBURGH, PA 15219
412-644-7800
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Adience, Inc.
We have audited the accompanying consolidated statements of income, cash flows,
and shareholders' equity (deficit) of Adience, Inc. (Adience) and subsidiaries
for the year ended December 31, 1991. These financial statements are the
responsibility of Adience's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
Adience and subsidiaries for the year ended December 31, 1991, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that Adience
will continue as a going concern. As discussed in Notes 1 and 7 to the
financial statements, it is unlikely that Adience will be able to generate
sufficient cash from operations to enable it to meet its debt obligations in
June 1992. This condition raises substantial doubt about Adience's ability to
continue as a going concern. Management's plans to mitigate these matters are
also described in Notes 1 and 7. The 1991 financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
ERNST & YOUNG
April 9, 1992
29A
<PAGE>
ADIENCE, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except Share Data)
<TABLE>
<CAPTION>
Post-emergence Pre-emergence
-------------- -------------
December 31 December 31,
1993 1992
-------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,200 $ 2,048
Short-term investments (certificate of deposit) -- 254
Accounts receivable, less allowance
(1993 - $1,287; 1992 - $1,556) 27,046 27,392
Inventories 18,650 19,568
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,924 2,431
Income tax receivable -- 3,030
Prepaid expenses, deposits and other 2,231 1,905
-------------- -------------
Total current assets 52,051 56,628
-------------- -------------
Deferred income taxes 3,609 --
Property, plant and equipment:
Land 2,763 1,000
Buildings 12,328 9,501
Machinery and equipment 24,877 14,232
-------------- -------------
39,968 24,733
Less allowances for depreciation 7,151 9,065
-------------- -------------
32,817 15,668
Other assets 4,720 10,141
Reorganization value in excess of
amounts allocable to identifiable assets, net 9,190 --
-------------- -------------
Total assets $102,387 $82,437
============== =============
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Post-emergence Pre-emergence
--------------- --------------
December 31, December 31,
1993 1992
--------------- --------------
<S> <C> <C>
Liabilities and shareholders' equity (deficit)
Current liabilities:
Revolving lines of credit $ 9,185 $ 8,507
Current portion of long-term obligations 759 980
Accounts payable 11,424 9,087
Salaries, wages and withholdings 953 1,001
Payable to principal shareholder 569 538
Accrued expenses 3,727 6,269
Billings in excess of costs and estimated
earnings on uncompleted contracts 619 684
Accrued workers' compensation 6,466 4,074
Accrued income taxes 1,569 --
Environmental liability 783 --
Deferred income taxes 66 51
--------------- --------------
Total current liabilities 36,120 31,191
--------------- --------------
Payable to principal shareholder 3,189 3,758
Long-term obligations 46,211 1,900
Environmental liability -- 1,106
Deferred income taxes 3,930 12
Liabilities subject to compromise:
Old Senior Subordinated Reset Notes -- 65,474
Accrued interest -- 10,329
Minority interest in subsidiary 3,428 3,344
Shareholders' equity (deficit):
Old common stock, $.015 par value;
authorized 20,000,000 shares;
issued 13,400,000 shares -- 300
New common stock, $.01 par value;
authorized 20,000,000 shares;
issued and outstanding 10,000,000 shares 100 --
Additional paid-in capital 23,900 --
Retained deficit (14,367) (33,332)
Foreign currency translation (124) 84
--------------- --------------
9,509 (32,948)
Less:
3,400,000 shares of common stock in treasury, at cost -- (396)
Prepaid contribution to employee stock ownership plan (ESOP) -- (1,333)
--------------- --------------
Total shareholders' equity (deficit) 9,509 (34,677)
--------------- --------------
Total liabilities and shareholders' equity (deficit) $102,387 $ 82,437
=============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
ADIENCE, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of Dollars, Except Per Share Data)
<TABLE>
<CAPTION>
Post-emergence Pre-emergence
-------------- -------------------------------------------
Six Months Ended Six Months Ended
December 31, June 30, Years ended December 31,
1993 1993 1992 1991
------------ ---------------- -------- --------
<S> <C> <C> <C> <C>
Net revenues $ 78,879 $68,171 $145,595 $165,519
Costs and expenses:
Cost of revenues 67,588 55,474 121,182 134,802
Selling, general and administrative 13,096 14,624 30,519 29,001
Amortization of intangible asset 9,011 -- -- --
-------- ------- -------- --------
89,695 70,098 151,701 163,803
-------- ------- -------- --------
Operating (loss) profit (10,816) (1,927) (6,106) 1,716
Other income (expense):
Interest and other income 652 258 148 896
Interest expense (3,812) (2,360) (13,445) (12,360)
Other expense -- -- -- (1,037)
-------- ------- -------- --------
(3,160) (2,102) (13,297) (12,501)
-------- ------- -------- --------
Loss from continuing operations
before reorganization items, income taxes,
minority interest in subsidiary and
extraordinary item (13,976) (4,029) (19,403) (10,785)
Reorganization items:
Professional fees (746) (102) (950) --
Write-off of unamortized debt discount -- (455) -- --
Write-off of unamortized loan origination fees -- (2,065) -- --
Adjust accounts to fair value -- 23,165 -- --
0ther -- -- (4,848) --
-------- ------- -------- --------
(746) 20,543 (5,798) --
-------- ------- -------- --------
(Loss) income from continuing operations before
income taxes, minority interest in subsidiary
and extraordinary item (14,722) 16,514 (25,201) (10,785)
Inoome taxes (benefit) (522) 261 (726) (2,272)
-------- ------- -------- --------
(Loss) income from continuing operations
before minority interest in subsidiary
and extraordinary item (14,200) 16,253 (24,475) (8,513)
Minority interest in subsidiary 83 1 81 337
-------- ------- -------- --------
(Loss) income from continuing operations
before extraordinary item (14,283) 16,252 (24,556) (8,850)
Discontinued operations:
Loss from discontinued operations
(net of tax benefits of $265 and $2,084) -- -- (1,328) (5,177)
(Loss) gain on disposal of discontinued
operations (net of taxes (benefits)
of $0, $0, $(791), and $392) (84) (400) (3,973) 1,852
-------- ------- -------- --------
(84) (400) (5,301) (3,325)
-------- ------- -------- --------
(Loss) income before extraordinary item (14,367) 15,852 (29,857) (12,175)
Extraordinary item--gain on discharge of debt -- 17,480 -- --
-------- ------- -------- --------
Net (loss) income $(14,367) $33,332 $(29,857) $(12,175)
======== ======= ======== ========
Earnings per common share:
Loss from continuing operations $ (1.43) * * *
Loss from discontinued operations (0.01) * * *
Extraordinary item -- * * *
-------- ------- -------- --------
Net loss per common share $ (1.44) * * *
======== ======= ======== ========
Average common shares outstanding 10,000 * * *
</TABLE>
* Earnings per common share are not meaningful prior to June 30,1993 due to the
reorganization - see Note 1.
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
ADIENCE, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Post-emergence Pre-emergence
------------- --------------------------------------------
Six Months Ended Six Months Ended
December 31, June 30, Years ended December 31,
1993 1993 1992 1991
------------ ---------------- -------- --------
<S> <C> <C> <C> <C>
Cash flow from operating activities
Net (loss) income $(14,367) $ 33,332 $(29,857) $(12,175)
Non-cash expenses and revenues included
in income
Depreciation and amortization 11,431 2,000 6,251 9,645
Deferred income taxes (784) -- (1,788) (3,597)
Provision for doubtful accounts 380 413 2,030 2,157
Loss (gain) on disposal of
discontinued operations 84 400 4,764 (2,244)
Loss on sale of divisions 314 -- -- --
(Gain) loss on disposal of property, plant and equipment (170) 23 254 571
Minority interest 83 1 81 337
Changes in operating assets and liabilities
net of effects from disposals:
Short-term investments 258 (4) 3,947 (4,201)
Accounts receivable 3,730 (3,781) 7,400 6,793
Inventories 1,929 (159) 143 6,301
Costs and estimated earnings in excess
of billings on uncompleted contracts 1,557 (1,050) 1,507 (334)
Income tax receivable 288 2,742 (282) (819)
Prepaid expenses, deposits and other (759) 360 545 (1,383)
Accounts payable, salaries, wages and
withholdings, accrued expenses, workers'
compensation and payable to principal
shareholder (2,119) 2,469 4,098 (1,086)
Billings in excess of costs and estimated
earnings on uncompleted contracts (679) 614 (399) (221)
Accrued income taxes 20 1,549 -- --
Environmental liability (241) (82) 846 260
Other -- 470 (1,213) --
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) -- --
Deferred computer costs -- -- 5,798 --
Net cash provided by operating activities 955 1,172 4,125 4
Cash flow from investing activities
Purchase of property, plant and equipment (959) (697) (2,l76) (4,116)
Proceeds from sale of property,
plant and equipment 237 -- -- --
Proceeds from sale of divisions 510 -- 2,406 5,650
Employee advances -- -- -- (220)
Deferred computer costs (746) (305) (742) --
-------- -------- ------ -------
Net cash (used) provided by investing activities (958) (1,002) (512) 1,314
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Post-emergence Pre-emergence
---------------- ---------------------------------------------
Six Months Ended Six Months Ended
December 31, June 30, Years ended December 31,
1993 1993 1992 1991
--------------- ---------------- -------- --------
<S> <C> <C> <C> <C>
Cash flow from financing activities
Net borrowings (payments) on revolving
lines of credit 2,527 (1,849) (6,061) 4,318
Principal payments on long-term obligations (324) (369) (867) (2,113)
Loan origination fees paid -- -- -- (753)
Issuance of note receivable -- -- -- (600)
Other -- -- -- 39
-------- ------- -------- --------
Net cash provided (used) by financing activities 2,203 (2,218) (6,928) 891
-------- ------- -------- --------
Net increase (decrease) in cash and cash
equivalents 2,200 (2,048) (3,315) 2,209
Cash and cash equivalents at beginning
of period 0 2,048 5,363 3,154
-------- ------- -------- --------
Cash and cash equivalents at end of period $2,200 $ 0 $ 2,048 $ 5,363
======== ======= ======== ========
Supplemental cash flow information:
Cash paid for interest $ 3,031 $ 651 $ 3,116 $ 11,551
Cash paid for income taxes $ 211 $ 32 $ 1,124 $ 1,461
</TABLE>
See Note 1 for significant non-cash transactions not reflected above. The
accompanying notes are an integral part of these financial statements.
34
<PAGE>
ADIENCE, INC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(In Thousands of Dollars, Except Per Share Data)
<TABLE>
<CAPTION>
Total
Additional Retained Foreign Shareholders'
Common Paid-in Earnings Currency Treasury Equity
Stock Capital (Deficit) Translation Stock ESOP (Deficit)
------ ---------- --------- ----------- -------- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,1991 $ 300 $ -- $ 8,700 $ 564 $(396) $ (2,811) $ 6,357
Net loss -- -- (12,175) -- -- -- (12,175)
Repayment of loan to ESOP -- -- -- -- -- 1,375 1,375
Prepaid contribution to ESOP -- -- -- -- -- (715) (715)
Foreign currency translation adjustment -- -- -- 20 -- -- 20
------ -------- -------- ----- -------- ------ -------
Balance at December 31,1991 300 -- (3,475) 584 (396) (2,151) (5,138)
Net loss -- -- (29,857) -- -- -- (29,857)
Prepaid contribution to ESOP -- -- -- -- -- 818 818
Foreign currency translation adjustment -- -- -- (500) -- -- (500)
------ -------- -------- ----- -------- ------ -------
Balance at December 31,1992 300 -- (33,332) 84 (396) (1,333) (34,677)
Net loss--pre-emergence -- -- (7,313) -- -- -- (7,313)
Prepaid contribution to ESOP -- -- -- -- -- 470 470
Foreign currency translation adjustment -- -- -- (44) -- -- (44)
------ -------- -------- ----- -------- ------ -------
Balance at June 30,1993--pre-emergence 300 -- (40,645) 40 (396) (863) (41,564)
Adjustments for reorganization:
Extraordinary gain on discharge of debt 55 13,145 17,480 -- -- -- 30,680
Fresh start reporting adjustments -- 10,896 23,165 -- 396 863 35,320
Issuance of New Common Stock (255) (141) -- -- -- -- (396)
------ -------- -------- ----- -------- ------ -------
Balance at June 30,1993--post-emergence 100 23,900 -- 40 -- -- 24,040
Net loss -- -- (14,367) -- -- -- (14,367)
Foreign currency translation adjustment -- -- -- (164) -- -- (164)
------ -------- -------- ----- -------- ------ -------
Balance at December 31,1993 $ 100 $ 23,900 $(14,367) $(124) $ -- $ -- $ 9,509
====== ======== ======== ===== ======== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
(Dollar Amounts in Thousands, Except Share Data, Unless Otherwise Noted)
1. Basis of Presentation and Company Reorganization
Adience, Inc. ("Adience" or "Company") 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 has been recorded at December 31,
1993, based on management's belief that a permanent impairment of this asset now
exists. The Company is currently seeking to replace and improve the terms of
its line of credit financing agreement with Congress Financial Corporation
(Congress) which expires June 30, 1994.
The continued viability of the Company is dependent upon, among other factors,
the ability to generate sufficient cash 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, make an
investment in product and service opportunities expected to produce a
significantly greater return on investment, continue a cost control program
begun in 1993, and assume refinancing of the line of credit arrangement on
improved terms. Management believes that the successful implementation of this
plan will enable the Company to continue as a going concern for a reasonable
period.
There can be no assurance however, that such activities will achieve the
intended improvement in results of operations or financial position.
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 Reset 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 included forgiveness of the
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 is recorded as an extraordinary gain.
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 reorganization 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.
36
<PAGE>
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 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.
Adience has applied 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. Since the December 31, 1993 consolidated
balance sheet has been prepared as if it is a new reporting entity, a solid
black line has been shown to separate it from prior year information since it is
not prepared on a comparable basis. The consolidated statements of operations
and cash flows after June 30, 1993 are not comparable to the respective
financial statements prior to such date, and the consolidated results of
operations for the six months ended June 30, 1993 and the six months ended
December 31, 1993 have therefore not been aggregated.
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.
The five-year cash flow projections were based on estimates and assumptions
about circumstances and events that have 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%.
37
<PAGE>
At June 30, 1993, the adjustment to record confirmation of the plan of $23
million was allocated to assets and liabilities as follows:
<TABLE>
<S> <C>
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
========
</TABLE>
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 (See Note 7).
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 will
continue to evaluate 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 has occurred and that an
immediate reduction of approximately 50% of the remaining unamortized value
needs to be recognized. This special charge increased the net loss for the six
months ended December 31, 1993 by $8 million or $.80 per share. At December 31,
1993, accumulated amortization was approximately $9,011.
The effect of the plan of reorganization and the adoption of the provisions of
SOP 90-7 in the Company's consolidated balance sheet as of June 30, 1993 was as
follows:
38
<PAGE>
<TABLE>
<CAPTION>
ADIENCE, INC. Adjustments to record confirmation of the plan
CONSOLIDATING BALANCE SHEET ADIENCE, INC. DR(CR) ADIENCE, INC.
AS OF JUNE 30, 1993 (Debtor-in-possession) Reorganized
UNAUDITED Pre-confirmation Debt Exchange Fresh Balance
Balance Sheet Discharge of Stock Start Sheet IDT
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ (2,219) $ (2,219)
Short-term investments
(certificate of deposit) 258 258
Accounts receivable, less allowance
(1993-$1,592) 14,111 14,111 $ 13,411
Intercompany accounts
receivable (payable) (2,631) (2,631) 1,808
Inventories 13,879 $ 1,287 (3) 15,166 4,916
Cost and estimated earnings in excess
of billings on uncompleted contracts 1,101 1,101 2,121
Income tax receivable 0 0 65
Prepaid expenses, deposits and other 1,038 (80)(3) 958 99
Deferred income taxes (921) 1,359 (3) 438 921
-----------------------------------------------------------------------------------------
Total current assets 24,616 2,566 27,182 23,341
-----------------------------------------------------------------------------------------
Deferred income taxes (222) (222) 220
Investment in subsidiaries 19,118 19,118
Property, plant and equipment
Land 823 1,730 2,553 122
Buildings 7,120 2,730 9,850 2,053
Machinery and equipment 8,954 10,082 19,036 3,284
-----------------------------------------------------------------------------------------
16,897 14,542 31,439 5,459
Less allowances for depreciation 4,906 4,906 0 3,630
-----------------------------------------------------------------------------------------
11,991 19,448 (3) 31,439 1,829
Other assets 7,020 (2,952)(3) 4,068 367
Reorganization value in excess of amounts
allocable to identifiable assets 0 18,329 (3) 18,329
-----------------------------------------------------------------------------------------
Total assets $ 62,523 $37,391 $99,914 $25,757
=========================================================================================
</TABLE>
<TABLE>
<CAPTION>
ADIENCE, INC.
CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1993 CONSOLIDATED
UNAUDITED ADIENCE ELIMIN ADIENCE, INC.
CANADA DR(CR) CONSOLIDATED
-----------------------------------------------------
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 35 $ 2,184 $ 0
Short-term investments
(certificate of deposit) 258
Accounts receivable, less allowance
(1993-$1,592) 2,949 30,471
Intercompany accounts
receivable (payable) 827 (4) 0
Inventories 932 21,014
Cost and estimated earnings in excess
of billings on uncompleted contracts 259 3,481
Income tax receivable 223 288
Prepaid expenses, deposits and other 411 4 1,472
Deferred income taxes 0 1,359
-----------------------------------------------------
Total current assets 5,636 2,184 58,343
-----------------------------------------------------
Deferred income taxes 2 0
Investment in subsidiaries (19,118) 0
Property, plant and equipment
Land 55 2,730
Buildings 629 12,532
Machinery and equipment 1,931 24,251
-----------------------------------------------------
2,615 39,513
Less allowances for depreciation 1,775 5,405
-----------------------------------------------------
840 34,108
Other assets 720 5,155
Reorganization value in excess of
amounts allocable to
identifiable assets 18,329
-----------------------------------------------------
Total assets $ 7,198 $(16,934) $115,935
=====================================================
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
ADIENCE, INC. Adjustments to record confirmation of the plan
CONSOLIDATING BALANCE SHEET ADIENCE, INC. DR(CR) ADIENCE, INC.
AS OF JUNE 30, 1993 Pre-confirmation Reorganized
UNAUDITED (Debtor-in-possession) Debt Exchange Fresh Balance
Balance Sheet Discharge of Stock Start Sheet IDT
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Liabilities and shareholders'
equity (deficit)
Liabilities not subject to compromise:
Current liabilities:
Revolving lines of credit $ 1,914 $ 1,914 $ 2,560
Current portion of long term
obligations 834 834
Accounts payable 6,759 6,759 3,206
Salaries, wages and withholdings 583 583 294
Payable to principal shareholder 553 553
Accrued expenses 2,945 $ 450 (1) 2,495 600
Billings in excess of costs
and estimated earnings on
uncompleted contracts 321 321 626
Accrued workers' compensation 6,076 6,076 361
Accrued interest 0 (2,924)(1) 2,924
Income tax payable 1,549 1,549
Deferred income taxes 0 0
-----------------------------------------------------------------------------------------
Total current liabilities 21,534 (2,474) 24,008 7,647
Payable to principal shareholder 3,291 3,291
Long term obligations 1,531 1,531 100
Environmental liability 0 0 1,024
Deferred income taxes (2) $ (2,467)(3) 2,465
Liabilities subject to compromise
Old Senior Subordinated Reset Notes 65,975 65,975 (1) 0
Accrued interest 11,758 11,758 (1) 0
New Senior Secured Notes 0 (44,579)(1) 44,579
Minority interest in subsidiary 0 0
Shareholders' equity (deficit):
Old common stock, $.015 par value;
authorized 20,000,000 shares;
issued 13,400,000 shares 300 $ 300 (2) 0 13
New common stock, $.01 par value;
authorized 20,000,000 shares;
issued and outstanding
10,000,000 shares 0 (55)(1) (45)(2) 100
Additional paid in capital 0 (13,145)(1) 141 (2) (10,896)(3) 23,900 7,451
Retained (deficit) earnings (40,689) (17,480)(1) (23,165)(3) (44) 9,522
Foreign currency translation 84 84
-----------------------------------------------------------------------------------------
(40,305) (30,680) 396 (34,061) 24,040 16,986
Less:
3,400,000 shares of common stock in
treasury, at cost (396) (396)(2) 0
Prepaid contribution to employee stock
ownership plan (ESOP) (863) (863)(3) 0
-----------------------------------------------------------------------------------------
Total shareholders' equity (deficit) (41,564) (30,680) 0 (34,924) 24,040 16,986
-----------------------------------------------------------------------------------------
Total liabilities and shareholders'
equity (deficit) $ 62,523 $ 0 $ 0 $(37,391) $99,914 $25,757
=========================================================================================
</TABLE>
<TABLE>
<CAPTION>
ADIENCE, INC.
CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1993 CONSOLIDATED
UNAUDITED ADIENCE ELIMIN ADIENCE, INC.
CANADA DR(CR) CONSOLIDATED
-----------------------------------------------------
<S> <C> <C> <C>
Liabilities and shareholders'
equity (deficit)
Liabilities not subject to compromise:
Current liabilities:
Revolving lines of credit $ 2,184 $ 6,658
Current portion of long term
obligations 834
Accounts payable $ 837 10,802
Salaries, wages and withholdings 98 975
Payable to principal shareholder 553
Accrued expenses 370 3,465
Billings in excess of costs
and estimated earnings on
uncompleted contracts 351 1,298
Accrued workers' compensation 6,437
Accrued interest 2,924
Income tax payable 1,549
Deferred income taxes 51 51
-----------------------------------------------------
Total current liabilities 1,707 2,184 35,546
Payable to principal shareholder 3,291
Long term obligations 1,631
Environmental liability 1,024
Deferred income taxes 14 2,479
Liabilities subject to compromise
Old Senior Subordinated Reset Notes 0
Accrued interest 0
New Senior Secured Notes 44,579
Minority interest in subsidiary 3,345 3,345
Shareholders' equity (deficit):
Old common stock, $.015 par value;
authorized 20,000,000 shares;
issued 13,400,000 shares 10 (23) 0
New common stock, $.01 par value;
authorized 20,000,000 shares;
issued and outstanding
10,000,000 shares 100
Additional paid in capital (7,451) 23,900
Retained (deficit) earnings 5,467 (14,945) 0
Foreign currency translation (44) 40
-----------------------------------------------------
5,477 (22,463) 24,040
Less:
3,400,000 shares of common stock in
treasury, at cost 0
Prepaid contribution to employee stock
ownership plan (ESOP) 0
-----------------------------------------------------
Total shareholders' equity (deficit) 5,477 (22,463) 24,040
-----------------------------------------------------
Total liabilities and shareholders'
equity (deficit) $ 7,198 $(16,934) $115,935
=====================================================
</TABLE>
40
<PAGE>
The following entries record the provisions of the Plan and the adoption of
fresh start reporting:
<TABLE>
<CAPTION>
DEBIT CREDIT
----- ------
<S> <C> <C>
(1) Record debt discharge:
Accrued expenses 450
Liabilities subject to compromise:
Old Senior Subordinated Reset Notes 65,975
Accrued interest 11,758
Discount on New Senior Secured Notes 4,500
New Senior Secured Notes 49,079
Accrued interest 2,924
New common stock 55
Additional paid-in capital 13,145
Gain on debt discharge 17,480
(2) Record exchange of stock for stock:
Old common stock 300
Additional paid-in capital 141
New common stock 45
Treasury stock 396
(3) Record assets and liabilities at fair
value under fresh start reporting and
eliminate retained deficit:
Inventories 1,287
Deferred income taxes 1,359
Property, plant and equipment 19,448
Reorganization value in excess of
amounts allocable to identifiable
assets 18,329
Prepaid expenses, deposits and other 80
Other assets 2,952
Deferred income taxes 2,467
Retained deficit 23,165
Additional paid-in capital 10,896
Prepaid ESOP contribution 863
</TABLE>
41
<PAGE>
2. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of Adience, Adience
Canada and IDT. All material intercompany accounts and transactions have been
eliminated from the consolidated financial statements.
Cash Flow Reporting
Cash and cash equivalents include all highly liquid investments with a maturity
of three months or less.
Inventories
Inventories are stated at the lower of cost or market with cost determined on
the first-in, first-out (FIFO) basis. Inventories consist primarily of raw
materials of $7,512 and $9,264, work-in-process of $2,374 and $3,311 and
finished goods of $8,764 and $6,993 at December 31, 1993 and 1992, respectively.
Revenue Recognition
Approximately 59% of the six months ended December 31, 1993, 49% of the six
months ended June 30, 1993, 55% of 1992 and 26% of 1991 revenues were 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. Provisions for losses on uncompleted contracts are made if it is
determined that a contract will ultimately result in a loss.
Substantially all remaining revenue is comprised of direct product shipments to
customers and short duration refractory material sales, installation and
maintenance work, which are recorded as revenue when shipped and/or installed.
Property, Plant and Equipment
Property, plant and equipment was stated at cost. In conjunction with the
adoption of fresh start reporting, all property, plant and equipment was
adjusted to reflect reorganization value, which approximates fair value in
continued use, based on an independent appraisal. Improvements to existing
equipment that materially extend the life of properties are capitalized as
incurred.
Expenditures for normal maintenance and repairs are charged to expense as
incurred and amounted to $2,469 for the six months ended December 31, 1993,
$2,167 for the six months ended June 30, 1993, $4,401 in 1992 and $4,033 in
1991. Depreciation expense is computed using both accelerated and straight-line
methods based upon the estimated useful lives of the respective assets.
Amortization of assets under capital leases is included in depreciation expense.
Goodwill
Goodwill resulting from acquisitions accounted for on the purchase method of
accounting, was being amortized over 15 to 40 years on the straight-line method.
Goodwill relating to domestic acquisitions was written off in conjunction with
fresh start reporting. Remaining goodwill will be amortized over 15 years.
42
<PAGE>
Reorganization Value in Excess of Amounts Allocable to Identifiable Assets
Reorganization value in excess of amounts allocable to identifiable assets is
amortized on a straight-line basis over its estimated useful life (see Note 1).
Income Taxes
Deferred income taxes are recorded to reflect certain items of income and
expense recognized in different periods for financial reporting and tax
purposes. Adience accounts for income taxes in accordance with the liability
method.
In 1992 Adience adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS No. 109), which requires an asset and
liability approach in accounting for income taxes. Prior to 1992, Adience
applied the provisions of SFAS No. 96. There was no cumulative effect for this
change in accounting principle as of January 1, 1992. However, as of December
31, 1993 and 1992, a deferred asset was recognized and an offsetting valuation
reserve has been established for carryforwards not meeting the "more likely than
not" criterion under SFAS No. 109.
Reclassifications
Certain items in the December 31, 1992 and 1991 financial statements have been
reclassified and restated to conform with changes in classification adopted and
required in 1993.
Earnings Per Common Share
Earnings per common share is computed by dividing income or loss by the weighted
average number of shares outstanding. Earnings per share for pre-emergence
periods is not presented since such information is not comparable with post-
emergence earnings per share.
3. Pro Forma Results of Operations (Unaudited)
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:
43
<PAGE>
ADIENCE, INC.
CONSOLIDATING PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
ADIENCE
Pro Forma
Income
ADIENCE Pro Forma Adjustments Statement
12/31/93 Debit Credit 12/31/93
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $85,833 $ 85,833
Cost and expenses:
Cost of revenues 73,720 $ 571 (1) 74,291
Selling, general and administrative 17,184 $ 145 (1) 17,039
Amortization of intangible asset 9,011 9,011
--------------------------------------------------------------------------------
99,915 571 145 100,341
================================================================================
Operating (loss) profit (14,082) (14,508)
Other income (expense):
Interest and other income 770 770
Interest expense (6,051) 1,297 (2) (7,348)
--------------------------------------------------------------------------------
(5,281) 1,297 0 (6,578)
================================================================================
(Loss) income from continuing operations
before reorganization items, income taxes
and minority interest in subsidiary (19,363) (21,086)
Reorganization items:
Professional fees (848) 848 (3) 0
Write-off of unamortized debt discount (455) 455 (3) 0
Write-off of unamortized loan fees (2,065) 2,065 (3) 0
Adjust accounts to fair value 23,165 23,165 (3) 0
--------------------------------------------------------------------------------
19,797 23,165 3,368 0
================================================================================
Income (loss) from continuing operations before
income taxes and minority interest in
subsidiary 434 (21,086)
Income taxes (benefit) (926) (926)
--------------------------------------------------------------------------------
Income (loss) from continuing operations
before minority interest in subsidiary 1,360 (20,160)
Minority interest in subsidiary 84 84
--------------------------------------------------------------------------------
Income (loss) from continuing operations $ 1,276 $ 25,033 $ 3,513 $(20,244)
================================================================================
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
ADIENCE ADIENCE, INC.
IDT CANADA CONSOLIDATED
12/31/93 12/31/93 12/31/93
---------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues $48,047 $13,170 $147,050
Cost and expenses:
Cost of revenues 39,355 9,987 123,633
Selling, general and administrative 7,908 2,628 27,575
Amortization of intangible asset 9,011
---------------------------------------------------------------------
47,263 12,615 160,219
=====================================================================
Operating (loss) profit 784 555 (13,169)
Other income (expense):
Interest and other income 50 90 910
Interest expense (120) (1) (7,469)
---------------------------------------------------------------------
(70) 89 (6,559)
=====================================================================
(Loss) income from continuing operations
before reorganization items, income taxes
and minority interest in subsidiary 714 644 (19,728)
Reorganization items:
Professional fees 0
Write-off of unamortized debt discount 0
Write-off of unamortized loan fees 0
Adjust accounts to fair value 0
---------------------------------------------------------------------
0 0 0
=====================================================================
Income (loss) from continuing operations before
income taxes and minority interest in
subsidiary 714 644 (19,728)
Income taxes (benefit) 287 378 (261)
---------------------------------------------------------------------
Income (loss) from continuing operations
before minority interest in subsidiary 427 266 (19,467)
Minority interest in subsidiary 84
---------------------------------------------------------------------
Income (loss) from continuing operations $ 427 $ 266 $(19,551)
=====================================================================
</TABLE>
44
<PAGE>
(1) Reflects a six month impact of additional depreciation expense resulting
from the write-up of property, plant and equipment and the reduction of
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.
4. Contracts In Progress
The status of contract costs on uncompleted construction contracts was as
follows:
<TABLE>
<CAPTION>
Costs And Estimated Billings In Excess
Earnings In Excess Of Costs And
Of Billings Estimated Earnings Total
<S> <C> <C> <C>
December 31, 1993:
Costs and estimated earnings of $1,649 $ 20,113 $6,218 $26,331
Billings 18,189 6,837 25,026
-------- ------ -------
$ 1,924 $ 619 $ 1,305
======== ====== =======
________________________________________________________________________________________________
December 31, 1992:
Costs and estimated earnings of $2,170 $12,658 $4,522 $17,180
Billings 10,227 5,206 15,433
-------- ------ -------
$ 2,431 $ 684 $1,747
======== ====== =======
</TABLE>
Accounts receivable at December 31, 1993 and 1992 include amounts billed but not
yet paid by customers under retainage provisions of approximately $2,989 and
$3,338, respectively. Such amounts are generally due within one year.
5. Other Assets
Included in other assets are the following:
<TABLE>
<CAPTION>
December 31
------------------------
1993 1992
------------------------
<S> <C> <C>
Notes receivable from principal shareholder (Note 10) $ 669 $ 1,116
Notes receivable from sale of discountinued operations and other (Note 9) 214 1,416
Goodwill and organization costs 609 2,971
Loan origination fees 705 2,804
Investments 376 367
Pension asset 780 605
Deferred computer costs 903 670
Deposit 250 --
Cash surrender value of life insurance policies 15 192
Other 199 --
------------------------
$ 4,720 $10,141
========================
</TABLE>
45
<PAGE>
6. Lines of Credit
On the consummation date of the plan of reorganization, June 30, 1993, Adience
entered into a financing agreement with Congress, through the twelve month
period ending June 30, 1994. Under this agreement, Adience may request loan
advances not to exceed the lesser of $12 million or available collateral (80% 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, 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 8.5% at December
31, 1993). At December 31, 1993, Adience had borrowed $8,007 under the credit
facility.
In addition, IDT entered into a financing agreement with Congress, which was
also subsequently renewed through June 30, 1994. Under this agreement, IDT may
request loan advances not to exceed the lesser of $3 million or available
collateral (80% 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
December 31, 1993, there were no borrowings outstanding under this agreement.
Both Adience and IDT pay commitment fees on the unused portion of their credit
facility of 0.5%. 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 certain
additional indebtedness, pay cash dividends, make certain investments, advances
or loans and limits annual capital expenditures. As of December 31, 1993,
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
could affect Adience's access to further borrowings or require it to secure
additional capital by other means.
Both companies anticipate the financing agreements with Congress will be renewed
at June 30, 1994 or, alternatively, both companies will be able to secure
financing from other sources. However, no commitment letters have been
requested or received.
46
<PAGE>
7. Long-Term Obligations and Liabilities Subject to Compromise
Long-term obligations consisted of the following:
<TABLE>
<CAPTION>
December 31
------------------------
1993 1992
------------------------
<S> <C> <C>
New Senior Secured Notes due 2002, interest at 11% $49,079 $ --
Capital lease obligations 745 1,105
Notes payable with monthly installments of
principal and interest of $22 through
December 1997, interest at 10% 836 913
Other (interest ranges from 10% to 13%) 560 862
------------------------
51,220 2,880
Less: current portion 759 980
------------------------
50,461 1,900
Discount on New Senior Secured Notes 4,250 --
------------------------
$46,211 $ 1,900
========================
Liabilities subject to compromise of the followng:
Senior Subordinated Reset Notes due in 1999, interest at 15% $ -- $65,975
Discount on Reset Notes $ -- 501
------------------------
$ -- $65,474
========================
</TABLE>
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 Secured Notes are redeemable at
the option of Adience after December 15, 1997. The New Secured Notes are not
guaranteed by the subsidiaries of Adience. The New Secured 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 additional indebtedness, limitations on asset sales and restrictions on the
payment of dividends.
Principal maturities of long-term obligations are as follows:
<TABLE>
<S> <C>
1994.......... $ 759
1995.......... 528
1996.......... 429
1997.......... 356
1998.......... 69
Thereafter.... 49,079
-------
$51,220
=======
</TABLE>
Property, plant and equipment at December 31, 1993 and 1992 includes equipment,
automobiles and trucks under capital leases with a net book value of $1,642 and
$1,387, respectively. During the six months ended December 31 and June 30 1993,
and the years ended 1992 and 1991 Adience incurred capital lease obligations of
$309, $119, $565 and $1,241, respectively.
47
<PAGE>
8. Operating Leases
Adience leases certain buildings, machinery, and equipment under both short- and
long-term lease arrangements. Future minimum lease commitments under non-
cancelable operating leases are not significant. Rental expense relating to
such leases was approximately $1.2 million for the six months ended December 31,
1993, $1.0 million for the six months ended June 30, 1993, $2.0 million in 1992
and $4.8 million in 1991.
9. Discontinued Operations
During 1992, the Company's Geotec operation was sold for approximately $1.1
million in cash and $1.2 million in notes receivable, after concluding that
Geotec's operations no longer fit Adience's long-term growth plans. In
addition, the Company's Hotworks division, which provided preheating services to
refractory maintenance companies, was sold during 1992 for $1.2 million in cash.
During the six months ended December 31, 1993 and June 30, 1993, adjustments to
the previously reported loss were made on these sales of approximately $84 and
$400, respectively, which has been reflected as an additional loss on the
disposal of discontinued operations in the consolidated statements of
operations.
In November 1991, Adience sold its wholly owned subsidiary, Energy Technology,
Inc. (Entec), for approximately $6.5 million. In addition, during 1991, Adience
sold certain assets and all of the businesses of its Texas operations (Texops),
Chemsteel, Inc., and Ward Duct Connectors, Inc. During 1992, an adjustment to
the previously reported gain was made on these sales of approximately $1.1
million, which has been reflected as an additional loss on disposal of
discontinued operations in the consolidated statement of operations.
The operating results of the discontinued operations are shown separately in the
accompanying consolidated statements of operations. Prior year's statements of
operations and related footnotes have been restated for comparative purposes.
Net revenues of discontinued operations were $13,180 and $65,232 in 1992 and
1991, respectively.
10. Related Party Transactions
Note receivable from the principal shareholder of Adience (current portion
included in "Prepaid expenses, deposits and other"; 1993--$515; long-term
portion included in "Other assets"; 1993--$669 and 1992--$1,116) is payable in
semi-annual installments of principal and interest based on an amortization
period of five years, with all remaining amounts outstanding due and payable on
December 31, 1997.
In connection with the plan of reorganization, Adience entered into a new multi-
year agreement, to be effective as of October 1, 1992, with the principal
shareholder and a severance compensation agreement with his son for a period of
seven and five years, respectively. The present value of these payments has
been reflected in "Reorganization items-other" and total approximately $4.8
million for the year ended December 31, 1992.
11. Research and Development Expense
Adience incurred research and development expense of $541, $541, $1,191 and
$1,660 for the six months ended December 31 and June 30, 1993 and years ended
December 31, 1992 and 1991, respectively, which amounts have been included in
cost of revenues.
48
<PAGE>
12. Income Taxes
(Loss) income from continuing operations before income taxes, minority interest
in subsidiary and extraordinary item consisted of:
<TABLE>
<CAPTION>
Post-emergence Pre-emergence
-------------------------------------------------------------------------
Six months ended Six months ended Years ended December 31,
December 31, 1993 June 30, 1993 1992 1991
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic $(14,720) $15,868 $(25,800) $(12,066)
Canadian (2) 646 599 1,281
-------------------------------------------------------------------------
$(14,722) $16,514 $(25,201) $(10,785)
==========================================================================
</TABLE>
Federal, foreign, and state income taxes (benefits) from continuing operations
consisted of the following:
<TABLE>
<CAPTION>
Post-emergence Pre-emergence
-------------------------------------------------------------------------
Six months ended Six months ended Years ended December 31,
December 31, 1993 June 30, 1993 1992 1991
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
Federal $ -- $ -- $ (3,063) $ (389)
Foreign 113 261 338 898
State 150 -- 211 816
-------------------------------------------------------------------------
Total current 263 261 (2,514) 1,325
-------------------------------------------------------------------------
Deferred:
Federal (530) 4,340 (5,725) (2,971)
Foreign 38 -- 23 (113)
State (93) 536 (849) (513)
Reorganization valuation
adjustment -- (1,108) -- --
Change in valuation
allowance (200) (3,768) 8,339 --
-------------------------------------------------------------------------
Total deferred (785) -- 1,788 (3,597)
-------------------------------------------------------------------------
Total income tax
provision (benefit) $ (522) $ 261 $ (726) $ (2,272)
========================================================================
</TABLE>
49
<PAGE>
The effective income tax rate from continuing operations varied from the
statutory federal income tax (benefit) rate as follows:
<TABLE>
<CAPTION>
Post-emergence Pre-emergence
-------------------------------------------------------------------------
Six months ended Six months ended Years ended December 31,
December 31, 1993 June 30, 1993 1992 1991
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Statutory federal income tax rate (35.0)% 35.0% (34.0)% (34.0)%
Increases:
State income taxes,
net federal tax benefit -- 1.6 (2.8) 5.1
Effect on Canadian income taxes 1.0 0.1 0.6 0.2
Change in valuation allowance (1.3) (11.2) 33.1 --
Amortization of reorganization value 21.4 -- -- --
Other reorganization adjustments 9.9 (4.4) -- --
Provision recorded to
reorganization value -- (3.3) -- --
Asset write-up for books -- (3.1) -- --
Non taxable debt discharge -- (17.7) -- --
Reduction in NOL carryforward -- 3.1 -- --
Other items 0.5 0.7 0.2 7.6
-------------------------------------------------------------------------
(3.5)% 0.8% (2.9)% (21.1)%
=========================================================================
</TABLE>
Deferred tax liabilities (assets) are comprised of the following at December 31:
<TABLE>
<CAPTION>
1993 1992
-----------------------------
<S> <C> <C>
Property, plant and equipment $ 7,089 $ 54
Pension accrual 287 270
Accounting method change from LIFO 618 927
-----------------------------
Gross deferred tax liabilities 7,994 1,251
-----------------------------
Inventory reserves (275) (260)
Accrued commissions and labor costs (4,475) (4,273)
Bad debt reserve (537) (795)
State income & sales/use tax liability (29) (340)
Environmental liability (623) (721)
IRS interest accrual (400) (400)
Contract settlement reserve 0 (380)
Inventory Section 263A costs (214) (238)
NOL carryforwards (5,274) (2,088)
Foreign tax credits (543) (525)
Minimum tax credits (402) (402)
Other (235) (134)
-----------------------------
Gross deferred tax assets (13,007) (10,556)
Valuation allowance 5,400 9,368
-----------------------------
Net deferred tax liability $ 387 $ 63
=============================
</TABLE>
50
<PAGE>
SFAS 109 requires a valuation allowance when it is "more likely than not that
some portion or all of the deferred tax assets will not be realized." It
further states that "forming a conclusion that a valuation allowance is not
needed is difficult when there is negative evidence such as cumulative losses in
recent years." The ultimate realization of this deferred income tax asset
depends on the Company's ability to generate sufficient taxable income in the
future. While the Company believes that the deferred income tax asset will be
fully or partially realized by future operating results, losses in recent years
and a desire to be conservative make it appropriate to record a valuation
allowance.
As of December 31, 1993, Adience has a net operating loss carryforward for
domestic federal income tax purposes of approximately $13,000 which will expire
in 2007 and 2008. Minimum tax and foreign tax credits of $945 are also
available to offset federal income tax liabilities to the extent that regular
tax exceeds tentative minimum tax in subsequent years. Upon consummation of the
plan of reorganization, Adience had an ownership change, as defined by Section
382 of the Internal Revenue Code, which may limit Adience's ability to utilize
the pre-ownership change portion of its net operating loss and/or credit. In
addition under the provisions of SOP 90-7, subsequent utilization of net
operating loss carryforwards will be reflected as an adjustment to
reorganization value in excess of amounts allocable to identifiable assets or
paid-in capital. An examination of Adience's consolidated U.S. income tax
returns for 1988 through 1990 is currently underway. Any resulting adjustments
for those years will impact Adience's net operating loss carryforwards.
13. Employee Benefits
Employee Stock Ownership Plan
During 1989, Adience established an Employee Stock Ownership Plan (ESOP) for
most salaried and certain hourly U.S. employees who meet minimum age and service
requirements. To fund the ESOP, Adience borrowed $2.5 million repayable over
five years in equal quarterly payments plus interest. Proceeds of this
borrowing were loaned to the ESOP on the same terms and used by the ESOP, along
with cash contributions from Adience, to purchase 646,875 shares of Adience's
common stock from its principal shareholder during 1990 and 1989. Effective
June 30, 1993 all shares held by the ESOP were allocated to the ESOP
participants' accounts. On July 1, 1993, the Company suspended any future
recognition of expense related to the ESOP. Accordingly, the Company has no
intention at this time to issue more shares of its common stock to the ESOP.
Contributions to the ESOP charged to expense for the six months ended December
31 and June 30, 1993 and the years ended 1992 and 1991 amounted to $0, $470,
$863 and $918, respectively.
Contributions by Adience to the ESOP were used to make loan interest and
principal payments. With each principal and interest payment, a portion of the
common stock was allocated to participating employees. During 1991, Adience
repaid the outstanding balance on the ESOP note. Interest expense on the ESOP
borrowings amounted to approximately $81 for 1991.
Other Employee Benefit Plans
During 1992, Adience initiated a 401(k) Savings Plan. This plan covers
substantially all non-bargaining employees, including those employed by IDT, who
meet minimum age and service requirements. The Company matches employee
contributions of up to 8 percent of compensation at a rate of 25 percent.
Amounts charged against income totaled $79 for the six months ended December 31,
1993, $84 for the six months ended June 30, 1993 and $105 for the year ended
December 31, 1992.
51
<PAGE>
Adience and subsidiaries maintain various defined benefit pension plans covering
substantially all hourly employees. The plans provide pension benefits based on
the employee's years of service or the average salary for a specific number of
years of service. Adience's funding policy is to make annual contributions to
the extent deductible for federal income tax purposes.
Plan assets and projected benefit obligations for service to date for Adience's
defined benefit pension plans aggregated approximately $7,466 and $6,220,
respectively, at December 31, 1993. The comparable amounts at December 31, 1992
were $6,980 (assets) and $5,573 (obligations). The components of net periodic
pension cost for the six months ended December 31 and June 30, 1993 and the
years ended December 31, 1992 and 1991 are not material to the consolidated
financial statements.
Certain union employees of Adience and subsidiaries are covered by multi-
employer defined benefit retirement plans. Expense relating to these plans
amounted to $828, $632, $1,037 and $1,421 for the six months ended December 31,
1993 and June 30, 1993 and the years ended December 31, 1992 and 1991,
respectively.
In December 1990, the Financial Accounting Standards Board issued SFAS No. 106
"Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS
No. 106), that requires that the projected future cost of providing
postretirement benefits, such as health care and life insurance, be recognized
as an expense as employees render service instead of when the benefits are paid.
The Company currently provides only life insurance benefits to certain of its
hourly and salaried employees on a fully insured basis. Adoption of SFAS No.
106 did not have a material impact on the Company's consolidated financial
statements. In November 1992, the Financial Accounting Standards Board issued
new rules that require that the projected future cost of providing
postemployment benefits be recognized as an expense as employees render service
instead of when the benefits are paid. The Company believes its accrual for
postemployment benefits (workers' compensation) is adequate.
14. Commitments and Contingencies
At December 31, 1993, Adience had $1,700 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 a period of one year or the
duration of the contract. The letters of credit reduce Adience'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 $1,106 accrued at December 31,
1992 for the clean up of this site.
52
<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 December
31, 1993, environmental accruals amounted to $783 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 $341 (excluding the civil penalty) for the environmental clean-up
related to the Alliance facility.
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 $196;
if Adience is financially unable to honor its remaining obligation, such costs
would be borne by IDT.
Adience is also 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.
53
<PAGE>
15. Industry Segment Data
Adience operates in two principal industries-heat technology and through IDT's
information display products. All operations in a third industry, the
industrial services and products division, were divested by the end of 1992.
The heat technology division is engaged in the production, installation, and
maintenance of specialty refractory products, principally for the ferrous and
nonferrous metal industries, throughout the United States and Canada. The
information display segment manufactures and installs writing and projection
surfaces, custom cabinets, and external architectural building panels. The
information display segment's primary markets are educational facilities and
healthcare institutions.
The 1991 income statement related data has been restated to reflect continuing
operations. See Note 9.
<TABLE>
<CAPTION>
Post-emergence Pre-emergence
-------------------------------------------------------------------------
Six months ended Six months ended Years ended December 31,
December 31, 1993 June 30, 1993 1992 1991
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues:
Heat technology $ 54,572 $ 44,431 $ 97,276 $106,314
Information display 24,307 23,740 48,319 59,205
-------------------------------------------------------------------------
78,879 68,171 145,595 165,519
Operating (loss) profit:
Heat technology (1,264) 2,377 2,980 5,810
Information display 704 80 709 2,936
Corporate expense (10,256) (4,384) (9,795) (7,030)
-------------------------------------------------------------------------
Total operating (loss) profit (10,816) (1,927) (6,106) 1,716
Interest and other income 652 258 148 896
Interest expense (3,812) (2,360) (13,445) (12,360)
Other expense -- -- -- (1,037)
-------------------------------------------------------------------------
Loss from continuing operations
before reorganization items,
income taxes, minority interest
in subsidiary and extraordinary
item $(13,976) $ (4,029) $ (19,403) $ (10,785)
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31,
1993 1992 1991
-------------------------------------------------------
<S> <C> <C> <C>
Identifiable assets:
Heat technology $ 60,997 $42,858 $ 58,894
Information display 22,742 24,093 28,159
Industrial services and products 163 1,138 9,418
Corporate 18,485 14,348 14,993
-------------------------------------------------------
Total assets $102,387 $82,437 $111,464
=======================================================
</TABLE>
54
<PAGE>
Substantially all revenues (91% in 1993) are recorded by domestic operations
with the balance by Canadian operations.
<TABLE>
<CAPTION>
Post-emergence Pre-emergence
-------------------------------------------------------------------------
Six months ended Six months ended Years ended December 31,
December 31, 1993 June 30, 1993 1992 1991
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depreciation and amortization expense:
Heat technology $1,752 $1,161 $3,676 $2,943
Information display 189 321 591 697
Corporate 9,490 518 1,529 1,574
Capital expenditures:
Heat technology 877 585 1,888 3,349
Information display 66 61 278 168
Corporate 16 51 10 138
</TABLE>
Intersegment revenues are accounted for at prices comparable to unaffiliated
customer sales. Operating (loss) profit is total revenues less operating
expenses, excluding interest. Adience performs certain management and
administrative services for IDT. The fee paid by IDT for these services has
been charged at the rate of $300 per annum in 1993 and $135 per annum in 1992
and 1991. Corporate assets consist primarily of notes receivable, property,
plant and equipment and reorganization value in excess of amounts allocable to
identifiable assets.
Adience's products are sold and revenues are derived from companies in
diversified industries. Credit is extended to customers based upon an
evaluation of the customers' financial condition and generally collateral is not
required. At December 31, 1993 and 1992, accounts receivable from customers in
the steel and steel-related industries total approximately $9,548 and $9,521,
respectively. Credit losses relating to customers in the steel and steel-
related industries have been within management's expectations.
55
<PAGE>
Note 16 - Quarterly Data and Fourth Quarter Adjustments (Unaudited)
The following table sets forth selected highlights for each of the fiscal
quarters during the six months ended June 30 and December 31, 1993 and the year
ended December 31, 1992:
<TABLE>
<CAPTION>
Pre-emergence Post-emergence
---------------------------------------------------------------
Quarter ended 1993 March 31 June 30 September 30 December 31
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $32,563 $35,608 $40,348 $ 38,531
Cost of revenues 25,836 29,638 33,672 33,916
Operating loss (70) (1,857) (52) (10,764)
Income (loss) before extraordinary item (1,930) 17,782 (2,265) (12,102)
Net income (loss) (1,930) 35,262 (2,265) (12,102)
Earnings (loss) per common share
before extraordinary item * * $ (0.23) $ (1.21)
Net earnings (loss) per common share * * $ (0.23) $ (1.21)
Average common shares outstanding * * 10,000 10,000
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Pre-emergence
---------------------------------------------------------------
Quarter ended 1993 March 31 June 30 September 30 December 31
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $35,090 $38,593 $39,516 $32,396
Cost of revenues 28,425 30,995 31,497 30,265
Operating profit (loss) 105 428 996 (7,635)
Loss before extraordinary item (1,981) (1,556) (4,147) (22,173)
Net loss (1,981) (1,556) (4,147) (22,173)
Earnings (loss) per common share
before extraordinary item * * * *
Net earnings (loss) per common share * * * *
Average common shares outstanding * * * *
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net earnings (loss) per common share for the fourth quarter of 1993 included a
special charge of $8 million for write-down of the Company's reorganization
value in excess of amounts allocable to identifiable assets and a $314 loss on
the sale of two divisions. Excluding these adjustments, net earnings (loss) per
common share for the fourth quarter was $(0.38).
Net loss for the fourth quarter of 1992 included a charge of $5.8 million
related to the Company's impending restructuring under the Prepackaged Plan and
a $2.3 million charge for insurance expense related to the Company's self-
insurance programs for workers' compensation and general liability coverage.
Additionally, fourth quarter results were reduced by a pre-tax charge for
business divestitures of $2.4 million, a $1.2 million write-down in the value of
property, plant and equipment and a $1.1 million charge for the environmental
issue at one of the Company's facilities. Excluding these special items, the
net loss for the fourth quarter and the year was $9.4 million and $17.1 million,
respectively.
* Earnings per common share are not meaningful prior to June 30, 1993 due to
the reorganization - see Note 1.
56
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning the directors and executive officers of the Company
required by this item is incorporated by reference to the material appearing
under the heading "Election of Directors" in the Company's Proxy Statement for
the 1994 Annual Meeting of its Shareholders.
Item 11. Executive Compensation
Information required by this item is incorporated by reference to the
material appearing under the heading "Executive Compensation" in the Company's
Proxy Statement for the 1994 Annual Meeting of its Shareholders, except for
Compensation Committee Report and Performance Graph set forth therein, which are
not deemed incorporated herein and shall not be deemed filed for purposes of
this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this item is incorporated by reference to the
material appearing under the heading "Principal Shareholders" in the Company's
Proxy Statement for the 1994 Annual Meeting of its Shareholders.
Item 13. Certain Relationships and Related Transactions
Information required by this item is incorporated by reference to the
material appearing under the heading "Certain Transactions" in the Company's
Proxy Statement for the 1994 Annual Meeting of its Shareholders.
57
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The financial statements, financial statement schedules and exhibits listed
below are filed as part of this annual report:
(a)(1) Financial Statements:
The consolidated financial statements of the Company and its subsidiaries,
including a list of such financial statements, are contained in Item 8 of this
annual report, and the index thereto is hereby incorporated by reference.
(a)(2) Financial Statement Schedules:
<TABLE>
<CAPTION>
Page in this
Schedules and Related Report Annual Report
<S> <C>
Schedule II - Amounts Receivable from Related Parties and Underwriters,
and Employees other than Related Parties 68
Schedule IV - Indebtedness of and to Related Parties--Not Current 70
Schedule V - Property, Plant and Equipment 71
Schedule VI - Accumulated Depreciation, Depletion and Amortization of
Property, Plant and Equipment 72
Schedule VIII - Valuation and Qualifying Accounts 73
Schedule IX - Short-Term Borrowings 74
</TABLE>
All other Financial Statement Schedules are omitted either because they are not
applicable or are not material, or the information required therein is contained
in the consolidated financial statements or notes thereto set forth in Item 8
hereto.
(a)(3) Exhibits:
Exhibit No. Description
2.1 Plan of Reorganization, as Further Modified, dated May 4, 1993
filed as Exhibit 2.1 to Registration Statement No. 33-72024 (the
Registration Statement) and incorporated by reference.
3.1 Restated Certificate of Incorporation of Adience, Inc. filed as
Exhibit 3.1 to the Registration Statement and incorporated by reference.
58
<PAGE>
3.2 By-laws of Adience, Inc., filed as Exhibit 3.2 to the Registration
Statement incorporated by reference.
4.1 Specimen Common Stock Certificate, filed as Exhibit 4.1 to the
Registration Statement incorporated by reference.
4.2 Indenture, dated as of June 30, 1993, between Adience, Inc. and
IBJ Schroder Bank & Trust Company, filed as Exhibit 4.2 to the
Registration Statement incorporated by reference.
4.3 Specimen Form of Senior Secured Note, filed as Exhibit 4.3 to the
Registration Statement incorporated by reference.
10.1 Accounts Financing Agreement [Security Agreement], dated
June 30, 1993, between Congress Financial Corporation and Adience, Inc.
filed as Exhibit 10.1 to the Registration Statement incorporated by
reference.
10.2 Covenant Supplement to Accounts Financing Agreement [Security
Agreement], dated June 30, 1993, between Adience, Inc. and Congress
Financial Corporation, filed as Exhibit 10.2 to the Registration
Statement incorporated by reference.
10.3 Restatement and Acknowledgment, dated June 30, 1993, among
Adience, Inc., Information Display Technology, Inc. and Congress
Financial Corporation, filed as Exhibit 10.3 to the Registration
Statement incorporated by reference.
10.4 Inventory and Equipment Security Agreement Supplement to Accounts
Financing Agreement [Security Agreement], dated June 30, 1993, between
Adience, Inc. and Congress Financial Corporation, filed as Exhibit 10.4
to the Registration Statement incorporated by reference.
10.5 Trade Financing Agreement Supplement to Accounts Financing
Agreement [Security Agreement], dated June 30, 1003, between Adience,
Inc. and Congress Financial Corporation, filed as Exhibit 10.5 to the
Registration Statement incorporated by reference.
10.6 Amendment to Trademark Collateral Assignment and Security
Agreement, dated as of June 30, 1993, between Adience, Inc. and Congress
Financial Corporation, filed as Exhibit 10.6 to the Registration
Statement incorporated by reference.
10.7 Amendment to Patent Collateral Assignment and Security Agreement,
dated as of June 30, 1993, between Adience, Inc. and Congress Financial
Corporation, filed as Exhibit 10.7 to the Registration Statement
incorporated by reference.
10.8 Pledge and Security Agreement, dated June 30, 1993, between
Adience, Inc. and Congress Financial Corporation, filed as Exhibit 10.8
to the Registration Statement incorporated by reference.
59
<PAGE>
10.9 Guarantee and Waiver, dated June 30, 1993, by Information Display
Technology, Inc. to Congress Financial Corporation, filed as Exhibit
10.9 to the Registration Statement incorporated by reference.
10.10 Accounts Financing Agreement [Security Agreement], dated
June 30, 1993, between Congress Financial Corporation and Information
Display Technology, Inc., filed as Exhibit 10.9 to the Registration
Statement incorporated by reference.
10.11 Covenant Supplement to Accounts Financing Agreement [Security
Agreement], dated June 30, 1993, between Information Display Technology,
Inc. and Congress Financial Corporation, filed as Exhibit 10.11 to the
Registration Statement incorporated by reference.
10.12 Restatement and Acknowledgment, dated June 30, 1993, among
Information Display Technology, Inc., Adience, Inc. and Congress
Financial Corporation, filed as Exhibit 10.12 to the Registration
Statement incorporated by reference.
10.13 Inventory and Equipment Security Agreement Supplement to Accounts
Financing Agreement [Security Agreement], dated June 30, 1993, between
Information Display Technology, Inc. and Congress Financial Corporation,
filed as Exhibit 10.13 to the Registration Statement incorporated by
reference.
10.14 Trade Financing Agreement Supplement to Accounts Financing
Agreement [Security Agreement], dated June 30, 1993, between Information
Display Technology, Inc. and Congress Financial Corporation, filed as
Exhibit 10.14 to the Registration Statement incorporated by reference.
10.15 Amendment to Trademark Collateral Assignment and Security
Agreement, dated June 30, 1993, between Information Display Technology,
Inc. and Congress Financial Corporation, filed as Exhibit 10.15 to the
Registration Statement incorporated by reference.
10.16 Guarantee and Waiver, dated June 30, 1993, by Adience, Inc. to
Congress Financial Corporation, filed as Exhibit 10.16 to the
Registration Statement incorporated by reference.
10.17 Amendment to Open-End Mortgage and Security Agreement,
dated as of June 30, 1993, between Congress Financial Corporation and
Adience, Inc., filed as Exhibit 10.17 to the Registration Statement
incorporated by reference.
10.18 Security Agreement, dated June 30, 1993, between Congress
Financial Corporation and Adience Canada, Inc., filed as Exhibit 10.18
to the Registration Statement incorporated by reference.
60
<PAGE>
10.19 Guarantee, dated June 30, 1993, by Adience Canada, Inc. to Congress
Financial Corporation, filed as Exhibit 10.19 to the Registration
Statement incorporated by reference.
10.20 Security Agreement, dated as of June 30, 1993, between Adience, Inc.
and IBJ Schroder Bank & Trust Company, as trustee, filed as Exhibit
10.20 to the Registration Statement incorporated by reference.
10.21 Trademark Collateral Assignment and Security Agreement, dated
June 30, 1993, between Adience, Inc. and IBJ Schroder Bank & Trust
Company, as trustee, filed as Exhibit 10.21 to the Registration
Statement incorporated by reference.
10.22 Patent Collateral Assignment and Security Agreement, dated
June 30, 1993, between Adience, Inc. and IBJ Schroder Bank & Trust
Company, as trustee, filed as Exhibit 10.22 to the Registration
Statement incorporated by reference.
10.23 Pledge and Security Agreement, dated as of June 30, 1993, between
Adience, Inc. and IBJ Schroder Bank & Trust Company, as trustee, filed
as Exhibit 10.23 to the Registration Statement incorporated by
reference.
10.24 Employment Agreement, dated as of February 25, 1992, between
Willard M. Bellows and Adience, Inc., filed as Exhibit 10.24 to the
Registration Statement incorporated by reference.
10.25 Employment Agreement, dated as of February 25, 1992, between
Stephen M. Grimshaw and Adience, Inc., filed as Exhibit 10.25 to the
Registration Statement incorporated by reference.
10.26 Employment Agreement, dated as of February 25, 1992, between
Charles C. Torie and Adience, Inc., filed as Exhibit 10.26 to the
Registration Statement incorporated by reference.
10.27 Profit Sharing Plan of Adience, Inc., filed as Exhibit 10.27 to the
Registration Statement incorporated by reference.
10.28 Employees Stock Ownership Plan of Adience, Inc., filed as Exhibit 10.28
to the Registration Statement incorporated by reference.
24.1 Consent of Ernst & Young.
The Company agrees to furnish to the Commission upon request copies of all
instruments defining the rights of holders of long-term debt of the Company and
its subsidiaries which are not filed as a part of this annual report.
(b) Reports on Form 8-K: None
61
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ADIENCE, INC.
By: /s/ Fletcher L. Byrom
--------------------------
Fletcher L. Byrom
Chairman of the Board of
Directors and Chief
Executive Officer
Date: March 29, 1994
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 Company
in the capacities indicated as of March 29, 1994:
/s/ Harry Holiday, Jr.
- ------------------------------ ------------------------------
Harry Holiday, Jr. Herbert T. Kerr
Director Director
/s/ James B. Upchurch
- ------------------------------ ------------------------------
James B. Upchurch James H. McConomy
Director Director
/s/ A. Stanley West
- ------------------------------ ------------------------------
A. Stanley West Gregory D. Curtis
Director Director
/s/ Stephen M. Grimshaw /s/ Fletcher L. Byrom
- ------------------------------ ------------------------------
Stephen M. Grimshaw Fletcher L. Byrom
Vice President-Finance and Treasurer Director
(Principal Financial Officer (Principal Executive Officer)
and Principal Accounting Officer)
62
<PAGE>
EXHIBITS TO FORM 10-K
ADIENCE, INC.
63
<PAGE>
ADIENCE, INC.
FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1991
EXHIBIT LIST
The following exhibits are required to be filed with this annual report on
Form 10-K. Exhibits are incorporated herein by reference to other documents
pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, as amended,
as indicated in the list. Exhibits not incorporated herein by reference follow
the list. The page numbers where each such exhibit may be found under the
Commission's sequential numbering system are also indicated.
Exhibit No. Description
- ----------- -----------
2.1 Plan of Reorganization, as Further Modified, dated May 4, 1993
filed as Exhibit 2.1 to Registration Statement No. 33-72024 (the
Registration Statement) and incorporated by reference.
3.1 Restated Certificate of Incorporation of Adience, Inc. filed as
Exhibit 3.1 to the Registration Statement and incorporated by
reference.
3.2 By-laws of Adience, Inc., filed as Exhibit 3.2 to the Registration
Statement incorporated by reference.
4.1 Specimen Common Stock Certificate, filed as Exhibit 4.1 to the
Registration Statement incorporated by reference.
4.2 Indenture, dated as of June 30, 1993, between Adience, Inc. and
IBJ Schroder Bank & Trust Company, filed as Exhibit 4.2 to the
Registration Statement incorporated by reference.
4.3 Specimen Form of Senior Secured Note, filed as Exhibit 4.3 to the
Registration Statement incorporated by reference.
10.1 Accounts Financing Agreement [Security Agreement], dated
June 30, 1993, between Congress Financial Corporation and Adience,
Inc. filed as Exhibit 10.1 to the Registration Statement
incorporated by reference.
10.2 Covenant Supplement to Accounts Financing Agreement [Security
Agreement], dated June 30, 1993, between Adience, Inc. and
Congress Financial Corporation, filed as Exhibit 10.2 to the
Registration Statement incorporated by reference.
10.3 Restatement and Acknowledgment, dated June 30, 1993, among
Adience, Inc., Information Display Technology, Inc. and Congress
Financial Corporation, filed as Exhibit 10.3 to the Registration
Statement incorporated by reference.
64
<PAGE>
10.4 Inventory and Equipment Security Agreement Supplement to Accounts
Financing Agreement [Security Agreement], dated June 30, 1993,
between Adience, Inc. and Congress Financial Corporation, filed as
Exhibit 10.4 to the Registration Statement incorporated by
reference.
10.5 Trade Financing Agreement Supplement to Accounts Financing
Agreement [Security Agreement], dated June 30, 1993, between
Adience, Inc. and Congress Financial Corporation, filed as Exhibit
10.5 to the Registration Statement incorporated by reference.
10.6 Amendment to Trademark Collateral Assignment and Security
Agreement, dated as of June 30, 1993, between Adience, Inc. and
Congress Financial Corporation, filed as Exhibit 10.6 to the
Registration Statement incorporated by reference.
10.7 Amendment to Patent Collateral Assignment and Security Agreement,
dated as of June 30, 1993, between Adience, Inc. and Congress
Financial Corporation, filed as Exhibit 10.7 to the Registration
Statement incorporated by reference.
10.8 Pledge and Security Agreement, dated June 30, 1993, between
Adience, Inc. and Congress Financial Corporation, filed as Exhibit
10.8 to the Registration Statement incorporated by reference.
10.9 Guarantee and Waiver, dated June 30, 1993, by Information Display
Technology, Inc. to Congress Financial Corporation, filed as
Exhibit 10.9 to the Registration Statement incorporated by
reference.
10.10 Accounts Financing Agreement [Security Agreement], dated
June 30, 1993, between Congress Financial Corporation and
Information Display Technology, Inc., filed as Exhibit 10.9 to the
Registration Statement incorporated by reference.
10.11 Covenant Supplement to Accounts Financing Agreement [Security
Agreement], dated June 30, 1993, between Information Display
Technology, Inc. and Congress Financial Corporation, filed as
Exhibit 10.11 to the Registration Statement incorporated by
reference.
10.12 Restatement and Acknowledgment, dated June 30, 1993, among
Information Display Technology, Inc., Adience, Inc. and Congress
Financial Corporation, filed as Exhibit 10.12 to the Registration
Statement incorporated by reference.
10.13 Inventory and Equipment Security Agreement Supplement to Accounts
Financing Agreement [Security Agreement], dated June 30, 1993,
between Information Display Technology, Inc. and Congress
Financial Corporation, filed as Exhibit 10.13 to the Registration
Statement incorporated by reference.
65
<PAGE>
10.14 Trade Financing Agreement Supplement to Accounts Financing
Agreement [Security Agreement], dated June 30, 1993, between
Information Display Technology, Inc. and Congress Financial
Corporation, filed as Exhibit 10.14 to the Registration Statement
incorporated by reference.
10.15 Amendment to Trademark Collateral Assignment and Security
Agreement, dated June 30, 1993, between Information Display
Technology, Inc. and Congress Financial Corporation, filed as
Exhibit 10.15 to the Registration Statement incorporated by
reference.
10.16 Guarantee and Waiver, dated June 30, 1993, by Adience, Inc. to
Congress Financial Corporation, filed as Exhibit 10.16 to the
Registration Statement incorporated by reference.
10.17 Amendment to Open-End Mortgage and Security Agreement,
dated as of June 30, 1993, between Congress Financial Corporation
and Adience, Inc., filed as Exhibit 10.17 to the Registration
Statement incorporated by reference.
10.18 Security Agreement, dated June 30, 1993, between Congress
Financial Corporation and Adience Canada, Inc., filed as Exhibit
10.18 to the Registration Statement incorporated by reference.
10.19 Guarantee, dated June 30, 1993, by Adience Canada, Inc. to
Congress Financial Corporation, filed as Exhibit 10.19 to the
Registration Statement incorporated by reference.
10.20 Security Agreement, dated as of June 30, 1993, between Adience,
Inc. and IBJ Schroder Bank & Trust Company, as trustee, filed as
Exhibit 10.20 to the Registration Statement incorporated by
reference.
10.21 Trademark Collateral Assignment and Security Agreement, dated
June 30, 1993, between Adience, Inc. and IBJ Schroder Bank & Trust
Company, as trustee, filed as Exhibit 10.21 to the Registration
Statement incorporated by reference.
10.22 Patent Collateral Assignment and Security Agreement, dated
June 30, 1993, between Adience, Inc. and IBJ Schroder Bank & Trust
Company, as trustee, filed as Exhibit 10.22 to the Registration
Statement incorporated by reference.
10.23 Pledge and Security Agreement, dated as of June 30, 1993, between
Adience, Inc. and IBJ Schroder Bank & Trust Company, as trustee,
filed as Exhibit 10.23 to the Registration Statement incorporated
by reference.
66
<PAGE>
10.24 Employment Agreement, dated as of February 25, 1992, between
Willard M. Bellows and Adience, Inc., filed as Exhibit 10.24 to
the Registration Statement incorporated by reference.
10.25 Employment Agreement, dated as of February 25, 1992, between
Stephen M. Grimshaw and Adience, Inc., filed as Exhibit 10.25 to
the Registration Statement incorporated by reference.
10.26 Employment Agreement, dated as of February 25, 1992, between
Charles C. Torie and Adience, Inc., filed as Exhibit 10.26 to the
Registration Statement incorporated by reference.
10.27 Profit Sharing Plan of Adience, Inc., filed as Exhibit 10.27 to
the Registration Statement incorporated by reference.
10.28 Employees Stock Ownership Plan of Adience, Inc., filed as Exhibit
10.28 to the Registration Statement incorporated by reference.
24.1 Consent of Ernst & Young.
67
<PAGE>
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
AND EMPLOYEES OTHER THAN RELATED PARTIES
ADIENCE, INC.
(THOUSANDS OF DOLLARS, EXCEPT IN NOTES)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------
Balance at Deductions Balance at
Beginning of Amounts Amounts End of Period
Name of Debtor Period Additions Collected Written off Current Not Current
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Post-emergence:
Six months ended December 31, 1993:
- -----------------------------------
Herbert T. Kerr (1) $ 1,150 $ 34 $ 515 $ 669
Ron Allen (4)(5) $ 101 $ 101
Pre-emergence:
Six months ended June 30, 1993:
- -------------------------------
Herbert T. Kerr(1) $ 1,116 $ 34 $ 368 $ 782
Ron Allen (4)(5) $ 101 $ 101
Year ended December 31, 1992:
- ------------------------------
Herbert T. Kerr
11% Demand Note $ 316 $ 22 $ 338
Demand Note-Prime 393 18 411
Demand Note-Prime 127 6 133
Demand Note-Prime 220 14 234
------ ---- ------
$1,056 $ 60 $1,116
Ed Suddarth -
Five Year
Term Note (2)(4) $ 71 $ 71 $ 0
Ron Allen (4)(5) $ 108 $ 71 $ 101
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------
Balance at Deductions Balance at
Beginning of Amounts Amounts End of Period
Name of Debtor Period Additions Collected Written off Current Not Current
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31. 1991:
- -------------------------------
Herbert T. Kerr
11% Demand Note $ 294 $ 22 $ 316
Demand Note-Prime 367 26 393
Demand Note-Prime 119 8 127
Demand Note-Prime 220 220
------ ---- ------
$ 780 $276 $1,056
Ed Suddarth -
Five Year $ 141 $ 70 $ 71
Term Note (2)(4)
Louis Ward -
Demand Note (3)(4) $ 180 $ 180 $ 0
Edward Burns -
Demand Note (4) $ 107 $ 107 $ 0
Ron allen (4)(5) $ 128 $ 20 $ 108
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As part of the Prepackaged Plan of Reorganization, Adience agreed to enter
into a new multi-year agreement, to be effective as of October 1, 1992,
with Herbert T. Kerr in substitution for Mr. Kerr's existing employment
agreements with Adience and IDT. The Kerr agreement, which is still being
negotiated, calls for semi-annual payments of principal and interest at
the annual prime rate on loans previously made to Mr. Kerr by Adience in
the aggregate principal amount of approximately $880,000. Interest on the
principal amount of such loans that accrued from the date of the making of
these loans through December 31, 1992 has been added to the principal of
such loans. Mr. Kerr's payment obligations were to begin on June 30, 1993.
Beginning with January 15, 1994, payments due have been offset against
Adience's obligation under Mr. Kerr's new multi-year agreement, pending
the completion of the Kerr agreement. See Schedule IV for details
regarding Adience's indebtedness to Mr. Kerr.
(2) Up to $34,000 of this note was payable annually on or before April 30 of
each year if certain conditions in Mr. Suddarth's employment agreement
were met. Mr. Suddarth's employment agreement was terminated during
October 1992, and any amounts due Mr. Suddarth under his employment
agreement were offset against the Note.
(3) Note was written off in accordance with the settlement reached for
the termination of Mr. Ward's employment agreement during 1991.
(4) Note does not bear interest.
(5) Note is collateralized by accounts receivable of the debtor. The payment
terms of the note have been renegotiated so that monthly payments of
$25,211 are to be made beginning with February 1, 1994.
69
<PAGE>
SCHEDULE IV - INDEBTEDNESS OF AND TO RELATED PARTIES - NOT CURRENT
ADIENCE, INC.
(THOUSANDS OF DOLLARS, EXCEPT IN NOTES)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F COL. G COL. H COL. I
-----------------------------------------------------------------------------------------------------------------------------------
-Indebtedness of- -Indebtedness to-
----------------------------------------------- ----------------------------------------------
Balance at Balance Balance at Balance
Name of Person/Entity Beginning Additions Deductions at End Beginning Additions Deductions at End
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Post-emergence:
Six months ended December 31, 1993
Herbert T. Kerr (1) $0 $0 $0 $0 $3,477 $0 $ 288 $3,189
=================================================================================================
Pre-emergence:
Six months ended June 30,1993
Herbert T. Kerr (1) $0 $0 $0 $0 $3,758 $0 $ 281 $3,477
=================================================================================================
Year ended December 31, 1992
Herbert T. Kerr (1) $0 $0 $0 $0 $0 $3,758 $0 $3,758
=================================================================================================
Year ended December 31, 1991 $0 $0 $0 $0 $0 $0 $0 $0
=================================================================================================
</TABLE>
(1) As part of the Prepackaged Plan of Reorganization, Adience agreed to enter
into a new multi-year agreement, to be effective as of October 1, 1992,
with Herbert T. Kerr in substitution for Mr. Kerr's existing employment
agreements with Adience and IDT. The Kerr agreement, which is still being
negotiated, is to provide for annual compensation of $750,000 plus certain
other items of non-cash compensation, and for certain rights upon
termination.
70
<PAGE>
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
ADIENCE, INC.
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ---------------------------------------------------------------------------------------------------------------
Other
Balance at Charges-- Balance at
Beginning of Additions at Add (Deduct) End of Period
Classification Period Cost Retirements -- Describe
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Post-emergence:
Six months ended December 31, 1993:
Land $ 2,730 $ 33 $ 0 $ 0 $ 2,763
Buildings 12,532 0 0 (204)(4) 12,328
Machinery and equipment 24,251 926 504 204 (4) 24 877
- ---------------------------------------------------------------------------------------------------------------
Totals $39.513 $ 959 $ 504 $ 0 $39 968
===============================================================================================================
Pre-emergence:
Six months ended June 30, 1993:
Land $ 1,000 $ 0 $ 0 $ 1,730 (1) $ 2,730
Buildings 9,501 301 0 2,730 (1) 12,532
Machinery and equipment 14,232 396 459 10,082 (1) 24,251
- ---------------------------------------------------------------------------------------------------------------
Totals $24.733 $ 697 $ 459 $ 14,542 $39,513
===============================================================================================================
Year ended December 31, 1992:
Land $ 1,038 $ 0 $ 38 $ 0 $ 1,000
Buildings 9,227 395 0 (121)(2) 9,501
Machinery and equipment 23,992 1,781 10,528 (1,013)(2) 14,232
- ---------------------------------------------------------------------------------------------------------------
Totals $34,257 $ 2,176 $10,566 $ (1,134) $24,733
===============================================================================================================
Year ended December 31, 1991:
Land $ 1,258 $ 20 $ 240 $ 1,038
Buildings 11,382 360 2,515 9,227
Machinery and equipment 28,965 3,736 8,709 23,992
- ---------------------------------------------------------------------------------------------------------------
Totals $41,605 $ 4,116 $11,464 $34,257
===============================================================================================================
</TABLE>
(1) As discussed in Note 1 to the consolidated financial statements, in
conjunction with the adoption of fresh start reporting, all property, plant
and equipment was adjusted to fair value on a continued use basis, based on
an independent appraisal.
(2) Adjustment to book basis for write-down of buildings and machinery and
equipment for a facility which was anticipated to close during 1993.
(3) Depreciation expense is computed using both accelerated and straight-line
methods based upon the estimated useful lives of the respective assets.
Amortization of assets under capital leases is included in depreciation
expense.
(4) Reclassification.
71
<PAGE>
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
ADIENCE, INC.
(THOUSANDS OF DOLLARS, EXCEPT IN NOTES)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ---------------------------------------------------------------------------------------------------------------
Additions Other
Balance at Charged to Charges-- Balance at
Beginning of Costs and Add (Deduct) End of Period
Description Period Expenses Retirements -- Describe
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Post-emergence:
Six months ended December 31,1993:
Buildings $ 1,116 $ 244 $ 0 $ 0 $ 1,360
Machinery and equipment 4,289 1,700 198 0 5,791
- ---------------------------------------------------------------------------------------------------------------
Totals $ 5405 $ 1,944 $ 198 $ 0 $ 7,151
===============================================================================================================
Pre-emergence:
Six months ended June 30, 1993:
Buildings $ 3,225 $ 244 $ 0 $ (2,353)(1) $ 1,116
Machinery and equipment 5,840 1,333 331 (2,553)(1) 4,289
- ---------------------------------------------------------------------------------------------------------------
Totals $ 9 065 $ 1 577 $ 331 $ (4,906) $ 5,405
===============================================================================================================
Year ended December 31,1992:
Buildings $ 2,719 $ 627 $ 0 $ (121)(2) $ 3,225
Machinery and equipment 9,186 4,047 6,380 (1,013)(2) 5,840
- ---------------------------------------------------------------------------------------------------------------
Totals $11,905 $ 4,674 $6,380 $ (1,134) $ 9,065
===============================================================================================================
Year ended December 31,1991:
Buildings $ 3,019 $ 831 $ 1,131 $ 2,719
Machinery and equipment 8,552 4,711 4,077 9,186
- ---------------------------------------------------------------------------------------------------------------
Totals $11,571 $ 5,542 $ 5,208 $11,905
===============================================================================================================
</TABLE>
(1) As discussed in Note 1 to the consolidated financial statements, in
conjunction with the adoption of fresh start reporting, all property, plant
and equipment was adjusted to fair value on a continued use basis, based on
an independent appraisal.
(2) Adjustment to book basis for write-down of buildings and machinery and
equipment for a facility which was anticipated to close during 1993.
(3) Depreciation expense is computed using both accelerated and straight-line
methods based upon the estimated useful lives of the respective assets.
Amortization of assets under capital leases is included in depreciation
expense.
72
<PAGE>
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
ADIENCE, INC.
(THOUSANDS OF DOLLARS, EXCEPT IN NOTES)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
COL A COL. B COL. C COL. D COL. E
- -------------------------------------------------------------------------------------------------------------------------
Additions
Charged to Charged to
Balance at Costs and Other Accounts Deductions Balance at
Description Beginning of Period Expenses -Describe -Describe End of Period
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Post-emergence:
Six months ended December 31, 1993
Deducted from asset accounts:
Allowance for doubtful accounts $1,963 $ 311 $ 987 (1) $1,287
Inventory obsolescence reserve 532 117 649
------ ------ ------ ------
TOTALS $2,495 $ 428 $ 987 $1,936
====== ====== ====== ======
Environmental liability $1,024 $ 0 $ 241 (2) $ 783
====== ====== ====== ======
Pre-emergence:
Six months ended December 31, 1993
Deducted from asset accounts:
Allowance for doubtful accounts $1,556 $ 407 $ $1,963
Inventory obsolescence reserve 532 532
------ ------ ------ ------
TOTALS $2,088 $ 407 $ $ $2,495
====== ====== ====== ======
Environmental liability $1,106 $ $ 82 (2) $1,024
====== ====== ====== ======
Year ended December 31, 1992
Deducted from asset accounts:
Allowance for doubtful accounts $1,992 $2,030 $2,466 (1) $1,556
Inventory obsolescence reserve 425 107 532
------ ------ ------ ------
TOTALS $2,417 $2,137 $2,466 $2,088
====== ====== ====== ======
Environmental liability $ 260 $1,042 $ 196 $1,106
====== ====== ====== ======
Year ended December 31, 1991
Deducted from asset accounts:
Allowance for doubtful accounts $ 711 $2,157 $ 876 (1) $1,992
Inventory obsolescence reserve 425 425
------ ------ ------ ------
TOTALS $1,136 $2,157 $ 876 $2,417
====== ====== ====== ======
Environmental liability $ 0 $ 260 $ 0 $ 260
====== ====== ====== ======
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Payments made related to the Ohio EPA Consent Order (see Note 14 to the
Consolidated Financial Statements).
73
<PAGE>
SCHEDULE IX - SHORT-TERM BORROWINGS
ADIENCE, INC.
(THOUSANDS OF DOLLARS, EXCEPT IN NOTES)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ---------------------------------------------------------------------------------------------------------------------------
Maximum Average Weighted
Category of Amount Amount Average
Aggregate Weighed Outstanding Outstanding Interest Rate
Short-term Balance at Average During the During the During the
Borrowings End of Period Interest Rate Period Period (2) Period (3)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Post-emergence:
Six months ended December 31, 1993:
REVOLVING
CREDIT (1)(4) $ 8,007 8.50% $10,489 $10,133 8.50%
FACILITY
Pre-emergence:
Six months ended June 30,
1993:
REVOLVING
CREDIT (1)(4) $ 4,474 8.50% $ 8,819 $ 8,658 8.50%
FACILITY
Year ended December 31, 1992:
REVOLVING
CREDIT (1)(4) $ 7,169 8.75% $14,568 $ 9,517 12.00%
FACILITY
Year ended December 31, 1991:
REVOLVING
CREDIT (1) $14,568 10.10% $14,568 $ 9,022 9.70%
FACILITY
</TABLE>
(1) Under the Company's current revolving credit agreement, it can
borrow up to a maximum of $15,000,000. Any borrowings are collateralized by
fixed assets, accounts receivable and inventory. The present credit facility
has a June 30,1994 termination dale. The former revolving credit agreement
had a maximum limit of $25,000,000 and was secured by accounts receivable
and inventory. It was terminated December 19, 1991.
(2) The average amount outstanding during the period was computed by dividing
the total month-end outstanding principal balances by 12 or 6.
(3) The weighted average interest rate during the period was computed by
dividing the actual interest expense for short-term borrowings by the
average short-term debt outstanding.
(4) At December 31 and June 30,1993 and December 31, 1992 outstanding checks of
approximately $1,178,000, $2,184,000 and $1,338,000, respectively, were
reclassed to the balance sheet caption "Revolving lines of credit".
74
<PAGE>
EXHIBIT 24.1
ERNST & YOUNG
ONE OXFORD CENTRE
PITTSBURGH, PA 15219
412-644-7800
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our reports dated April 9, 1992 with respect to the
consolidated financial statements and schedules for year 1991 included in the
Annual Report on Form 10-K of Adience, Inc. for the year ended December 31,
1993.
We also consent to the incorporation by reference in the Registration Statement
(Form S-1 No. 33-72024) pertaining to the registration of 10,000,000 shares of
Adience, Inc. common stock of our reports dated April 9, 1992, with respect to
the 1991 consolidated financial statements and schedules of Adience, Inc. for
the year ended December 31, 1993.
ERNST & YOUNG
Pittsburgh, Pennsylvania
March 25, 1994
