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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 year ended December 31, 1994 Commission File No. 33-72024
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:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months 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 .
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The registrant estimates that as of March 29, 1995 the aggregate market
value of the shares of its Common Stock held by non-affiliates of the
registrant was approximately $1.5 million.
As of March 29, 1995, 10,100,000 shares of Common Stock of the registrant
were outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 of Information Display Technology, Inc. are incorporated by
reference into Part I of this Form 10-K.
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TABLE OF CONTENTS
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Page
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<S> <C> <C> <C>
PART I Item 1. Business 4
Item 2. Properties 12
Item 3. Legal Proceedings 14
Item 4. Submission of Matters
to a Vote of Security Holders 15
PART II Item 5. Market for Registrant's Common
Equity and Related Stockholder
Matters 16
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 20
Item 8. Financial Statements and
Supplementary Data 30
Item 9. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure 63
PART III Item 10. Directors and Executive Officers
of the Registrant 63
Item 11. Executive Compensation 64
Item 12. Security Ownership of Certain
Beneficial Owners and Management 67
Item 13. Certain Relationships and Related
Transactions 68
PART IV Item 14. Exhibits, Financial Statement Schedule
and Reports on Form 8-K 69
Signatures 73
Schedule II Valuations and Qualifying Accounts 79
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PART I
Item 1. Business
On December 21, 1994, The Alpine Group, Inc. ("Alpine") acquired
substantially all of the outstanding capital stock of Adience, Inc.
("Adience"). As a result of this and related transactions, Adience is no
longer subject to the continuing reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), since it does not have
a class of securities registered pursuant to Section 12(b) or 12(g) or subject
to Section 15(d) of the Exchange Act. On February 6, 1995, Adience filed its
Certification and Notice of Termination of Registration on Form 15, terminating
its duty to file reports under Section 13 and 15(d) of the Exchange Act.
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 bauxites 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; custom
cabinetry, work station and conference center casework; and architectural
composite panels for building exteriors. See "Operations of Information
Display Technology" below.
On December 21, 1994, Alpine acquired approximately 82% of the outstanding
common stock, par value $.01 per share ("Adience Common Stock"), of Adience
(which, together with the approximately 4.9% previously owned by Alpine,
increased its ownership to approximately 86.9% of the outstanding Adience
Common Stock) from certain stockholders of Adience (the "Adience Selling
Stockholders"). Alpine entered into a stock purchase agreement, dated as of
October 11, 1994, as amended (the "Stock Purchase Agreement"), with the
Adience Selling Stockholders pursuant to which the Adience Selling Stockholders
received in consideration for their shares of Adience Common Stock: (i)
approximately 82,267 shares of a new issue of 8% Cumulative Convertible
Preferred Stock, par value $1.00 per share, of Alpine ("Alpine 8% Preferred
Stock"), which is convertible into approximately 530,755 shares of common
stock, par value $.10 per share, of Alpine ("Alpine Common Stock"), and (ii)
an aggregate of approximately 2,752,900 shares of IDT Common Stock or, if the
IDT Merger (as defined below) has not been consummated prior to May 31, 1995,
an aggregate of 123,396 additional shares of Alpine 8% Preferred Stock. It is
anticipated that the holders of the remaining 13% of Adience Common Stock, in
consideration for their shares, will be paid by Alpine an aggregate of
approximately $1.6 million in cash.
Alpine and IDT entered into an Agreement and Plan of Merger, dated as of
December 21, 1994 (the "IDT Merger Agreement"), which provides for the merger
of two of Alpine s subsidiaries, Alpine/PolyVision, Inc. ("APV") and
Posterloid Corporation ("Posterloid"), with and into two separate
wholly-owned subsidiaries of IDT formed for the purpose of acquiring APV and
Posterloid (the "IDT Merger"). See "Background of IDT" below.
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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
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 Hotwork 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.
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
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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 "Management s Discussion and Analysis of Financial Condition and Results
of Operations -- 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.
The Prepackaged Plan adjusted, but did not fundamentally restructure
Adience s operations or capital structure in a manner sufficient to assure long
term profitability. Adience, was still burdened with excessive debt, excess
production capacity, multiple facilities and excess selling, general and
administrative expenses. In late 1993 Alpine acquired an equity interest in
Adience and in April 1994 the Chairman of the Board of Alpine and another
director of Alpine were elected to the Board of Directors of Adience. During
this period, Alpine formulated the outline of a strategic plan for Adience
which included the search for, and hiring of, a new president and chief
operating officer. In April 1994 a new management team was put into place in
order to improve profitability at Adience. A new strategic business plan was
developed, with the following elements:
Streamline Manufacturing Operations -- In order to eliminate excess
capacity, management intends to close and sell the Wheelersburg, Ohio
manufacturing plant and convert the Crown Point, Indiana plant to
capitalize on opportunities in pre-cast refractory production. Management
is also evaluating the potential use of robotics in repairing industrial
ovens, which has the potential of reducing Adience's labor costs while
shortening required downtimes at customers' steel plants from approximately
18 days to approximately 2 days.
Eliminate Duplicative Costs -- To reduce costs further, management intends
to consolidate Adience's corporate headquarters facility with offices
located outside Pittsburgh. As a result of the Adience Acquisition,
duplicative overhead costs of Alpine and Adience, such as public company
costs, management and administrative staffing, human resource, risk
management and accounting expenses will be eliminated.
Discontinue Unprofitable Product Lines -- As a result of a thorough
financial review of each of Adience's four business segments, management
has identified, and intends to discontinue, unprofitable product lines.
Improve Marketing Efforts -- Management intends to penetrate broader end-
user markets with existing product lines, including opportunities outside
the iron-making part of the steel industry. A marketing effort is also
underway to expand sales geographically outside its traditional areas. In
addition, management will implement a retraining of its sales force and is
contemplating closer alignment in the future between sales forces at BMI
and J.H. France.
Develop and Introduce New Products -- Management is developing products for
bottom-pour, pre-cast and slide gate refractory applications. Bottom-pour
and slide-gate applications allow the discharge of molten metal from the
bottom of a furnace rather than from the sides, resulting in reduced iron
and steel impurities. Pre-cast refractories are large shapes which are
custom-designed to line specialized shapes of furnaces. In addition,
management is introducing new equipment for the installation of monolithic
refractories via shotcreting technology in steel ladles.
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As part of Alpine's acquisition of Adience, Alpine also entered into a debt
exchange agreement, dated as of October 11, 1994, as amended (the "Debt Exchange
Agreement"), with the holders of approximately 90% in principal amount of
Adience's 11% Senior Secured Notes due 2002 (the "Adience Senior Notes"),
pursuant to which such holders will exchange their Adience Senior Notes, in the
principal amount of approximately $44,000,000, plus all accrued interest, for an
aggregate of: (i) approximately $35,271,314 million in cash, (ii) 44,916 shares
of Alpine 8% Preferred Stock, which is convertible into approximately 289,780
shares of Alpine Common Stock, and (iii) approximately 1,002,031 shares of IDT
Common Stock upon the consummation of the IDT Merger or, if the IDT Merger has
not been consummated prior to May 31, 1995, an aggregate of 44,916 additional
shares of Alpine 8% Preferred Stock.
Alpine has agreed with the Adience Selling Stockholders and the holders of
Adience Senior Notes that if the average market value of the IDT Common Stock is
less than $2.24 per share (subject to adjustment for certain events) during the
20-trading day period preceding November 1, 1995, then Alpine will deliver to
such holder additional consideration, payable (in accordance with the Debt
Exchange Agreement) in shares of Alpine 8% Preferred Stock, or additional shares
of IDT Common Stock in an amount per share equal to the difference between $2.24
and the greater of such market value and $.75.
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.
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
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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 eight 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,
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
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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 year ended December 31,
1994, the six month periods ended December 31 and June 30, 1993 and the year
ended December 31, 1992, direct sales to the iron and steel industry accounted
for approximately 66%, 52%, 58% and 54%, respectively, of Heat Technology
Division's net 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 33%, 25%, 29% and 26% of the Heat Technology Division's revenues
for the year ended December 31, 1994, the six month periods ended December 31
and June 30, 1993 and the year ended December 31, 1992, respectively. USX Corp.
alone accounted for approximately 14% of the Division's revenues for the year
ended December 31, 1994 and 10% for the six month periods ended December 31 and
June 30, 1993 and the year ended December 31, 1992.
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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 $1,102,000, $541,000, $541,000 and $1,191,000 for
the year ended December 31, 1994, the six month periods ended December 31 and
June 30, 1993 and the 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 $5.2 million and $2.3 million in
backlog at December 31, 1994 and 1993, 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.
Information Display Technology
The information set forth under the caption "Business" of the Annual
Report on Form 10-K for the fiscal year ended December 31, 1994 of IDT (the
"IDT Form 10- K") is incorporated herein by reference.
Employees
Adience currently employs approximately 685 people in the Heat Technology
Division (including Adience Canada) and 31 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 31 persons)
are members of the United Steelworkers Union. Some employees at the
Smithville, Ontario plant (approximately 12
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persons) are members of the Aluminum, Brick and Glassworkers Union. Employees
at the Canon City, Colorado plant (approximately 9 persons) are members of the
Oil, Chemical and Atomic Workers Union. The current labor contracts at these
plants expire in July 1995, July 1997 and October 1995, respectively. All
three plants are operated by the Heat Technology Division.
Approximately 93 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. Approximately 15 employees at the
J.H. France plant in Altoona, Pennsylvania are represented by the Aluminum,
Brick and Glassworkers Union under a contract that expires in June 1997.
Approximately 45 employees at the J.H. France plant in Johnstown, Pennsylvania
are represented by the Aluminum, Brick and Glassworkers Union under a contract
that expires in March 1997.
The majority (approximately 42 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 1997.
Of the remaining full-time employees at Adience (approximately 469
persons), approximately 174 are union members who are not covered by collective
bargaining agreements. The remaining employees of Adience (approximately 295
persons) are not unionized.
Management considers relations with employees at Adience, IDT and Adience
Canada to be good.
Patents and Trademarks
The Company holds a number of patents and trademarks covering various
products and processes relating to its Heat Technology Division, none of which
are 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.
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 (holding waste on-site beyond the legal time
limit) and illegal disposal of hazardous waste on the site of its Alliance, Ohio
manufacturing facility.
In December 1993, IDT and Adience signed a consent order with the Ohio EPA
and the 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) and to remediate the site in accordance with specified
cleanup goals. 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. In
October 1994, IDT and Adience filed a proposed amendment to the consent order
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which would allow IDT and Adience to establish risk-based cleanup goals, an
approach which has been approved by the Ohio EPA for other contaminated sites.
If the Ohio EPA approves this proposed amendment, use of this approach is
expected to reduce the extent and cost of remediation required at this site.
The Ohio EPA has not yet responded to this proposed amendment. As of December
31, 1994, environmental accruals amounted to $750,000, which represents
management's 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, IDT and Adience have
together paid $693,000 (excluding the civil penalty) for the environmental
cleanup related to the Alliance facility. If the Ohio EPA does not accept the
proposed amendment to the consent order, the cost of the remediation may exceed
the amounts currently accrued.
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 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. As
of December 31, 1994, Adience had reimbursed IDT $643,000.
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.
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 17 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.
12
<PAGE>
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
Altoona, PA.................. 47,160 J.H. France
Smithville, Ontario, Canada.. 46,900 Adience Canada
Canon City, Colorado......... 35,626 BMI
South Rockwood, Michigan..... 28,776 BMI
Johnstown, PA................ 27,000 J.H. France
Wheelersburg, Ohio........... 8,370 BMI
</TABLE>
The plants located in both Farber, Missouri and South Rockwood,
Michigan have been idled. Those two plants and the plant at Wheelersburg, Ohio
are being held for sale by the Company. Adience's lost production capacity has
been replaced by its other manufacturing plants.
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
Gate City Industrial Park, Indiana.. Leased 28,873 Month to month BMI
Louisville, Kentucky................ Leased 15,000 February 1998 BMI
Gary, Indiana....................... Owned 12,500 BMI
Lorain, Ohio........................ Owned 11,140 BMI
Birmingham, Alabama................. Leased 11,000 November 1997 BMI
Philadelphia, Pennsylvania.......... Leased 8,320 June 1996 J.H. France
Johnstown, Pennsylvania............. Leased 5,500 August 1999 J.H. France
Long Island City, New York.......... Owned 5,000 J.H. France
Riverview, Michigan................. Owned 4,744 BMI
Eden, New York...................... Leased 4,000 February 1997 Furnco
</TABLE>
IDT
The information set forth under the caption "Properties" of the IDT
Form 10-K is incorporated herein by reference.
13
<PAGE>
Item 3. 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 (holding waste on-site beyond the
legal time limit) and illegal disposal of hazardous waste on the site of its
Alliance, Ohio manufacturing facility.
In December 1993, IDT and Adience signed a consent order with the Ohio
EPA and the 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) and to remediate the site in accordance with specified
cleanup goals. 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. In
October 1994, IDT and Adience filed a proposed amendment to the consent order
which would allow IDT and Adience to establish risk-based cleanup goals, an
approach which has been approved by the Ohio EPA for other contaminated sites.
If the Ohio EPA approves this proposed amendment, use of this approach is
expected to reduce the extent and cost of remediation required at this site.
The Ohio EPA has not yet responded to this proposed amendment. As of December
31, 1994, environmental accruals amounted to $750,000, which represents
management's 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, IDT and Adience have
together paid $693,000 (excluding the civil penalty) for the environmental
cleanup related to the Alliance facility. If the Ohio EPA does not accept the
proposed amendment to the consent order, the cost of the remediation may exceed
the amounts currently accrued.
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 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. As
of December 31, 1994, Adience had reimbursed IDT $643,000.
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.
14
<PAGE>
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 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."
The information set forth under the caption "Legal Proceedings" of the
IDT Form 10-K is incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of security holders of Adience during
the fourth quarter of the fiscal year ended December 31, 1994.
15
<PAGE>
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.
On February 6, 1995, the Company filed its Certification and Notice of
Termination of Registration on Form 15, terminating its duty to file reports
under Section 13 and 15(d) of the Securities Exchange Act of 1934.
Adience has not filed any application to list the Common Stock on any stock
market or exchange.
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 Senior 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 24, 1995, the Company had 43 holders of record of its Common
Stock (excluding beneficial owners of shares held of record by nominees).
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 three 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, (iii) pro forma consolidated
income statement data for the fiscal year ended December 31, 1993, and (iv)
historical consolidated financial data of the Company (post-emergence) for the
fiscal year ended December 31, 1994.
16
<PAGE>
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
two 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, includes a
description of uncertainties that might have led to the Company's inability to
continue as a going concern. The post-emergence consolidated financial
statements of Adience as of and for the six months ended December 31, 1993, and
the pre-emergence consolidated financial statements of Adience for the six
months ended June 30, 1993 and the year ended December 31, 1992 included in this
filing have been audited by Price Waterhouse LLP, independent public
accountants, as set forth in their reports thereon appearing herein. The report
on the post-emergence consolidated financial statements includes an explanatory
paragraph regarding substantial doubt about Adience's ability to continue as a
going concern. Both reports of Price Waterhouse LLP on the post- and pre-
emergence periods include an informative paragraph regarding consummation of
Adience's Plan of Reorganization and adoption of the American Institute of
Certified Public Accountants' Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization under the Bankruptcy Code". The historical
consolidated financial data for the fiscal year ended December 31, 1994 have
been derived from the Company's Consolidated Financial Statements, which were
audited by Arthur Andersen LLP, independent accountants. The data should be
read in conjunction with the consolidated financial statements, related notes
and other financial data included elsewhere herein.
17
<PAGE>
<TABLE>
<CAPTION>
Post-emergence Pro Forma Post-emergence Pre-emergence
-------------- ----------- ------------ -------------------------------------------
Fiscal Year Six Months Six Months
Year ended Ended Ended Ended Fiscal Years Ended December 31,
December 31, December 31, December 31, June 30, -------------------------------
1994 1993 1993 1993 1992 1991 1990
------------ ------------ ------------ ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share amounts)
Statement of Operations Data:
Net revenues $ 96,273 $ 99,003 $ 54,572 $ 44,431 $ 97,276 $106,314 $133,457
Cost of revenues 84,468 84,278 47,779 35,928 81,262 87,921 99,803
----------- ---------- ---------- ---------- -------- -------- --------
Gross profit 11,805 14,725 6,793 8,503 16,014 18,393 33,654
Selling, general and
administrative expense 18,180 19,667 9,302 10,510 22,829 19,613 16,685
Amortization of intangible asset 1,053 9,011 9,011 -- -- -- --
----------- ---------- ---------- ------- -------- -------- --------
Operating profit (loss) (7,428) (13,953) (11,520) (2,007) (6,815) (1,220) 16,969
Other income (expense):
Interest and other income (expense) 574 860 615 245 (17) 769 1,106
Interest expense (7,653) (7,349) (3,781) (2,271) (13,302) (12,268) (12,583)
Other expense -- -- -- -- -- (1,037) --
----------- ---------- ---------- ---------- -------- -------- --------
(Loss) income from continuing operations
before reorganization items, income
taxes, and extraordinary item (14,507) (20,442) (14,686) (4,033) (20,134) (13,756) 5,492
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 and extraordinary
item (14,507) (20,442) (15,432) 16,510 (25,932) (13,756) 5,492
Income taxes (benefit) 319 (548) (808) 260 (1,031) (3,531) 2,693
----------- ---------- ---------- ---------- -------- -------- --------
(Loss) income from continuing operations
before extraordinary item (14,826) (19,894) (14,624) 16,250 (24,901) (10,225) 2,799
(Loss) income from discontinued
operations (5,949) (141) 257 (398) (4,956) (1,950) (240)
----------- ---------- ---------- ---------- -------- -------- --------
(Loss) income before extraordinary item (20,775) $ (20,035) (14,367) 15,852 (29,857) (12,175) 2,559
==========
Extraordinary gain (loss) on early
extinguishment of debt -- -- 17,480 -- -- 276
----------- ---------- ---------- -------- -------- --------
Net (loss) income (historical periods
only) $ (20,775) $ (14,367) $ 33,332 $(29,857) $(12,175) $ 2,835
=========== ========== ========== ======== ======== ========
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Post-emergence Pro Forma Post-emergence Pre-emergence
-------------- ----------- -------------- -------------------------------------------
Fiscal Year Six Months Six Months
Year ended Ended Ended Ended Fiscal Years Ended December 31,
December 31, December 31, December 31, June 30, -------------------------------
1994 1993 1993 1993 1992 1991 1990
------------ ------------ ------------ ---------- -------- ------- -------
<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 $ (1.48) $ (1.99) $ (1.46)
(Loss) income from discontinued ========
operations (0.59) 0.02
Extraordinary item -- --
Earnings per common share $ (2.07) $ (1.44)
========= =======
Balance Sheet Data (at end of
period) (2):
Working capital $ (2,834) $ 5,430 $ 8,255 $ 10,982 $20,349 $ 28,793
Total assets 81,954 94,772 103,818 71,981 96,600 116,324
Long-term obligations 46,450 46,211 46,210 77,703 68,429 70,165
Shareholders' equity (deficit) (3) (11,483) 9,509 24,040 (34,677) (5,138) 6,357
- -----------------------------------------------------------------------------------------------------------------------------------
</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 Adience'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.
19
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
Reorganization and Fresh-Start Reporting
On February 22, 1993, Adience and the Unofficial Committee of Noteholders
of Adience filed a prepackaged plan of reorganization (the "Prepackaged Plan")
under Chapter 11 of the United States Bankruptcy Code (the "Reorganization").
The Prepackaged Plan was confirmed by the United States Bankruptcy Court for the
Western District of Pennsylvania on May 4, 1993 and consummated on June 30,
1993.
The filing was precipitated by a combination of an overall decline in the
demand for refractory products and services during 1991 and 1992 caused by a
decrease in the production of refractory-using industries in the United States,
particularly steel, and losses from discontinued operations. The primary
purposes of the Prepackaged Plan were to reduce Adience's debt service
requirements and overall indebtedness, to realign its capital structure and to
provide Adience with greater liquidity. Neither IDT nor Adience Canada, Inc.
filed a plan of reorganization.
The Prepackaged Plan provided for a restructuring of Adience's capital
structure and allowed the holders of $66 million aggregate principal amount of
Adience's Senior Subordinated Reset Notes ("Old Subordinated Notes") to exchange
them for $49 million aggregate principal amount of new 11% Senior Secured Notes
("New Senior Notes") due June 15, 2002, plus common stock representing 55% of
the outstanding common stock of Adience. The Prepackaged Plan also included
forgiveness of outstanding interest totaling approximately $8.8 million. The
value of the cash and securities distributed was $17.5 million less than the
allowed claims; the resultant gain was recorded as an extraordinary gain.
In connection with the Reorganization described above, Adience applied the
provisions of the American Institute of Certified Public Accountants' Statement
of Position No. 90-7, "Financial Reporting by Entities in Reorganization under
the Bankruptcy Code" ("SOP 90-7") as of June 30, 1993. The Company's basis of
accounting for financial reporting purposes changed as a result of applying
SOP 90-7. Specifically, SOP 90-7 required the adjustment of the Company's
assets and liabilities to reflect a reorganization value generally approximating
the fair value of the Company as a going concern on an unleveraged basis, the
elimination of its accumulated deficit, and adjustments to its capital structure
to reflect consummation of the Prepackaged Plan. Accordingly, the results of
operations after June 30, 1993 are not comparable to the results of operations
prior to such date.
Alpine Acquisition
On December 21, 1994, The Alpine Group, Inc. ("Alpine") acquired
approximately 82% of the outstanding common stock, par value $.01 per share
("Adience Common Stock"), of Adience from certain stockholders of Adience.
Together with the approximately 4.9% of such shares already owned by Alpine,
Alpine increased its ownership to approximately 86.9% of the outstanding shares
of Adience Common Stock.
As of December 21, 1994 Alpine and IDT entered into an Agreement and Plan
of Merger, which provides for the merger of Alpine's information display group
(a business segment of Alpine), comprised of Alpine/PolyVision, Inc. ("APV") and
Posterloid Corporation ("Posterloid"), with and into two separate wholly-owned
subsidiaries of IDT formed for the purpose of acquiring APV and Posterloid.
Subsequent to the merger, Alpine intends to distribute a majority of the
information display group, consisting of IDT, APV and Posterloid to its
stockholders. The distribution is expected to be
20
<PAGE>
completed in the next six months. As a result of the planned distribution,
Adience's consolidated financial statements and notes thereto have been
reclassified to reflect the operations of IDT as discontinued. The investment in
IDT has been reflected as "Net assets of discontinued operations." The results
of operations for IDT are presented in the Consolidated Statements of Operations
under the caption "Loss from discontinued operations."
The consolidated financial statements of Adience as of December 31, 1994 do
not reflect any adjustments related to the allocation of the Alpine purchase
price to assets and liabilities based upon their estimated fair values as of the
date of acquisition.
Restructuring
Adience has experienced continued losses from continuing operations (before
reorganization items) both pre- and post-emergence under Chapter 11. 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.
The Prepackaged Plan adjusted, but did not fundamentally restructure
Adience's operations or capital structure in a manner sufficient to assure long
term profitability. The Company was still burdened with excessive debt, excess
production capacity, multiple facilities and excess selling, general and
administrative expenses. In late 1993 Alpine acquired an equity interest in
Adience and in April 1994 the Chairman of the Board of Alpine and another
director of Alpine were elected to the Board of Directors of Adience. During
this period, Alpine formulated the outline of a strategic plan for Adience which
included the search for, and hiring of, a new president and chief operating
officer. In April 1994 a new management team was put into place in order to
improve profitability at Adience. A new strategic business plan was developed,
with the following elements:
Streamline Manufacturing Operations -- In order to eliminate
excess capacity, management intends to close and sell the Wheelersburg,
Ohio manufacturing plant and convert the Crown Point, Indiana plant to
capitalize on opportunities in pre-cast refractory production. Management
is also evaluating the potential use of robotics in repairing industrial
ovens, which has the potential of reducing Adience's labor costs while
shortening required downtimes at customers' steel plants from approximately
18 days to approximately 2 days.
Eliminate Duplicative Costs -- To reduce costs further,
management intends to consolidate Adience's corporate headquarters facility
with offices located outside Pittsburgh. As a result of the Adience
Acquisition, duplicative overhead costs of Alpine and Adience, such as
public company costs, management and administrative staffing, human
resource, risk management and accounting expenses will be eliminated.
Discontinue Unprofitable Product Lines -- As a result of a
thorough financial review of each of Adience's four business segments,
management has identified, and intends to discontinue, unprofitable product
lines.
Improve Marketing Efforts -- Management intends to penetrate
broader end-user markets with existing product lines, including
opportunities outside the iron-making part of the steel industry. A
marketing effort is also underway to expand sales geographically outside
its traditional areas. In addition, management will implement a retraining
of its sales force and is contemplating closer alignment in the future
between sales forces at BMI and J.H. France, (divisions of Adience).
21
<PAGE>
Develop and Introduce New Products -- Management is developing
products for bottom-pour, pre-cast and slide gate refractory applications.
The Company has expanded its research and development programs through the
hiring of seven new ceramic engineers during 1993. Bottom-pour and slide-
gate applications allow the discharge of molten metal from the bottom of a
furnace rather than from the sides, resulting in reduced iron and steel
impurities. Pre-cast refractories are large shapes which are custom-
designed to line specialized shapes of furnaces. In addition,
management is introducing new equipment for the installation of monolithic
refractories via shotcreting technology in steel ladles.
It is anticipated that upon the completion of such restructuring, Adience
will generate sufficient cash flow from operations to service its debt and meet
its other ongoing commitments. In addition, in conjunction with the acquisition
of Adience by Alpine, Alpine has committed to provide Adience up to $3 million
for the twelve months ended December 31, 1995, to achieve its strategic plan.
There can be no assurance however, that such activities will achieve the
intended improvement in results of operations or financial position.
Results of Operations
Fiscal Year Ended December 31, 1994 Compared to Pro Forma Fiscal Year Ended
December 31, 1993
The following table summarizes the Company's consolidated results of
operations for the historical year ended December 31, 1994 and the pro forma
year ended December 31, 1993 and provides a consistent basis for further
discussion and analysis of those results.
<TABLE>
<CAPTION>
Year ended December 31,
Historical Pro forma
(In Thousands) 1994 1993
- ----------------------------------------------------------------
<S> <C> <C>
Net revenues $ 96,273 $ 99,003
Costs and expenses:
Cost of revenues 84,468 84,278
Selling, general and administrative 18,180 19,667
Amortization of intangible asset 1,053 9,011
- ----------------------------------------------------------------
103,701 112,956
================================================================
Operating loss (7,428) (13,953)
Other income (expense):
Interest and other income 574 860
Interest expense (7,653) (7,349)
- ----------------------------------------------------------------
(7,079) (6,489)
================================================================
Loss from continuing operations
before reorganization items and
income taxes $ (14,507) $ (20,442)
================================================================
</TABLE>
The loss from continuing operations before reorganization items and
income taxes decreased by $5.9 million as a result of the reduction in the
amortization expense of intangible assets of $8.0 million, offset partially by a
non-cash charge of $2.8 million related to asset write-downs at Adience.
Certain assets of Adience were evaluated for disposition, and the net book value
of these assets was adjusted to estimated fair market value. The impact of
these asset write-downs on the December 31, 1994 loss was $0.28 per common
share. These write-downs resulted from the Company's business improvement
22
<PAGE>
program which includes selling non-strategic assets and reassessing the net
realizable value of certain inventory product lines in light of the current
economic environment and the related impact on estimated revenue levels for
those product lines. Included in amortization expense for 1993 was 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 upon
management's comparison of actual cash flows through December 31, 1993 with the
projected cash flows used to arrive at the reorganization value at June 30,
1993. This charge increased the 1993 loss by $8 million or $0.80 per common
share. No further reduction to the reorganization value in excess of amounts
allocable to identifiable assets was deemed necessary during 1994.
Net revenues decreased by 2.7% from $99,003,000 in 1993 to $96,273,000
in 1994. The J.H. France division, which primarily manufactures formed shapes
for the integrated steel industry had a revenue decrease of $1.4 million and the
Findlay Refractories division which manufactures formed shapes for the glass
manufacturing industry had a decrease of $1.0 million over the comparable
period. The decrease in revenues for the J.H. France division is attributable
to management's efforts to discontinue unprofitable product lines, thereby
streamlining manufacturing operations and eliminating working capital
requirements for inventory. The decrease in Findlay revenues is a reflection of
the life cycle of refractory products in the glass industry. Typically, these
products last between five to ten years. There has been an increase in activity
during the fourth quarter of 1994, as evidenced by the increase in Findlay's
backlog from $2.3 million at December 31, 1993 to $5.2 million at December 31,
1994. The remaining units which manufacture unformed refractories and provide
maintenance and construction services to the integrated steel industry had 1994
revenues comparable to 1993.
Cost of revenues amounted to 88% of net revenues for 1994 as compared
to 85% for the pro forma year ended December 31, 1993. Included in cost of
revenues for the year ended December 31, 1994 is a $1.8 million non-cash charge
to write-down inventory values for discontinued, unprofitable product lines.
The net realizable value of these inventories was calculated as a result of a
thorough review of Adience's four business segments. The Company believes that
based on its current assessment of these product lines, the write-down is
adequate.
Selling, general and administrative expenses decreased during the year
ended December 31, 1994, primarily as a result of increases to reserves related
to Adience's self insurance coverage for workers' compensation and general
liability, which were recorded during the pro forma year ended December 31,
1993. Included in selling, general and administrative expenses for the year
ended December 31, 1994 is approximately $600,000 of professional fees and other
costs associated with the Alpine acquisition of Adience.
Interest expense increased 4% for 1994 to $7.7 million from $7.3
million for the pro forma year 1993. The increase is attributable to increased
borrowings on Adience's line of credit agreement with Congress Financial
Corporation ("Congress"). The interest rate on borrowings is 2.5% over the
prime rate which increased 2.5 percent during 1994. The effective rates were
11% and 8.5% at December 31, 1994 and December 31, 1993, respectively.
The Company did not incur any U.S. Federal income tax expense
(benefit) during the year ended December 31, 1994 due to existing net operating
loss carryforwards for the year ended December 31, 1994. Recorded income tax
expense is for Adience's Canadian subsidiary.
Discontinued Operations
As described in Note 9 to the Consolidated Financial Statements,
Alpine and IDT entered into an Agreement and Plan of Merger, which provides for
the merger of Alpine's information display group
23
<PAGE>
with IDT. Subsequent to the merger, Alpine plans to distribute a substantial
majority of its investment in the merged company to its stockholders. As a
result of the merger and the planned distribution, the operations of IDT have
been reported as discontinued operations in the Consolidated Financial
Statements.
For the year ended December 31, 1994 and 1993, (loss) income from
discontinued operations was ($2.6) million and $343,000, respectively. Included
in the loss from discontinued operations for the year ended December 31, 1994
are charges related to Alpine's review of IDT's business resulting in changes of
estimates required to determine the realizability of certain assets. In this
regard, IDT recorded $702,000 of bad debt expense and a $250,000 provision for
future contract losses. In addition, in connection with the proposed merger of
IDT as previously discussed, professional fees of $587,000 have been incurred
and expensed.
As more fully described in Note 9 to the Consolidated Financial
Statements, during the fourth quarter of 1994 Adience recorded a $3.3 million
non-cash charge to write-down the investment in IDT to estimated fair market
value based on a preliminary allocation of Alpine's purchase price. This amount
has been reflected as a loss on the disposal of discontinued operations in the
December 31, 1994 Consolidated Financial Statements.
Outlook
Shipments of steel mill products by U.S. mills during 1994 were up 7.1
percent over 1993 and at their highest level since 1979, according to the
American Iron and Steel Institute. Although management expects continued growth
in the business base, market conditions will be challenged by the economic and
competitive pressures that affected 1994. However, additional efficiencies will
be a positive factor in 1995. For the year ended December 31, 1994, direct
sales to the iron and steel industry accounted for approximately 66% of net
revenues.
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
24
<PAGE>
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 $4.0 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 for 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
Net Revenues 1993 1992 % Change
- --------------------- -------- -------- --------------
(In thousands)
<S> <C> <C> <C>
$97,276 Not meaningful
Pre-emergence $44,431
Post-emergence 54,572
</TABLE>
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 were addressed by the new Board and executive management. As a result, new
incentive plans were implemented for the sales force and a realignment of duties
was 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 Company increased by 23% for the six month period
ended December 31, 1993 compared to the six month period ended June 30, 1993.
<TABLE>
<CAPTION>
Cost of Revenues 1993 1992 % Change
- --------------------- ------- -------- --------------
(In thousands)
<S> <C> <C> <C>
$81,262 Not meaningful
Pre-emergence $35,928
Post-emergence 47,779
</TABLE>
25
<PAGE>
Adience'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 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 which caused these negative variances was 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.
<TABLE>
<CAPTION>
Selling, General and Administrative Expenses 1993 1992 % Change
- ---------------------------------------------- ------- ------- --------------
(In thousands)
<S> <C> <C> <C>
$22,829 Not meaningful
Pre-emergence $10,510
Post-emergence 9,302
</TABLE>
For the pre and post-emergence periods in 1993, selling, general and
administrative expenses of the Company amounted to 23.7% and 17.0% of net
revenues respectively, compared with 23.5% for the year ended December 31, 1992.
The increase in selling, general and administrative expenses during the pre-
emergence period was 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 was
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 of
$265,000. Also included in other income (expense) for the post-emergence period
in 1993 is the $220,000 loss on the sale of Adience's Los Angeles operations.
This sale was recorded during December 1993.
Liquidity and Sources of Capital
The Company's principal sources of liquidity are cash from operations, cash
on hand and certain credit facilities available to the Company. Liquidity is
dependent upon the Company's ability to operate profitably and generate cash
flow. Both internal and external factors are material to the Company's
liquidity. External factors include general economic conditions and the
performance of the steel industry. Liquidity is also dependent upon the
Company's ability to control costs during periods
26
<PAGE>
of low demand so as to sustain positive cash flow from operations. The Company,
even after Reorganization, continues to operate with a significant amount of
interest-bearing debt. Adience has experienced continued losses from operations
both pre- and post-emergence under Chapter 11. In late 1993 Alpine acquired an
equity interest in Adience and in April 1994 the Chairman of the Board of Alpine
and another director of Alpine were elected to the Board of Directors of
Adience. During this period, Alpine formulated the outline of a strategic plan
for Adience which included the search for, and hiring of, a new president and
chief operating officer. In April 1994 a new management team was put in place in
order to improve profitability at Adience. A new business plan was developed,
with the following objectives: streamline manufacturing operations, eliminate
duplicative costs, discontinue unprofitable product lines, improve marketing
efforts and develop and introduce new products. Although management believes
that these plans will enable the Company to continue as a going concern for a
reasonable period, there can be no assurance that this will be the case. In the
event that these plans are not implemented within the time frame anticipated or
do not produce the results expected, management will need to develop other
alternatives to meet its cash requirements over the next twelve months. The cost
of the restructuring is expected to approximate $3 million with such funds being
supplied from Adience's existing cash and credit availability and from Alpine's
cash resources, to the extent of any shortfall. Part of the business improvement
program includes selling non-strategic assets. These assets were classified as
net assets held for sale as of December 31, 1994. Such sales are expected to
generate $750,000 in funds during 1995. In addition, in conjunction with the
acquisition of Adience by Alpine, Alpine has committed to provide Adience up to
$3 million for the twelve months ended December 31, 1995, to achieve its
strategic plan.
Net cash flows provided by operating activities totaled $2.5 million for
the year ended December 31, 1994. The decrease in working capital of $8.3
million during 1994 relates primarily to lower inventory levels and an increase
in short-term borrowings.
Capital expenditures used approximately $2.3 million of funds through
December 31, 1994. The 49% increase in capital spending over the comparable
period in 1993 is due to the purchase of a new plant facility to expand current
production of a specific product line. The total cost of this facility and the
necessary capital expenditures for machinery and equipment will be partially
financed through the Pennsylvania Industrial Development Authority. As of
December 31, 1994 the Company had no material commitments for capital spending.
It is anticipated that necessary capital expenditures in future years will not
exceed depreciation expense but will represent a material use of operating
funds. Future capital needs of the Company are expected to be provided by
future operations, existing cash balances and additional borrowings when
necessary.
Adience had $2.3 million in available credit as of December 31, 1994 under
its short-term borrowing arrangement with Congress.
On the consummation date of the plan of reorganization, June 30, 1993,
Adience entered into a financing agreement with Congress that had a renewal date
of June 30, 1994 (the "Renewal Date"). Certain revisions were made to the terms
of the agreement during 1994 and 1995, including the extension of the Renewal
Date to June 30, 1996. The facility remains in effect from year to year
thereafter, unless terminated upon sixty days written notice by either party on
the anniversary of the Renewal Date in any year. Under the revised agreement,
Adience may request loan advances not to exceed the lesser of $14 million or
available collateral (85% of eligible accounts receivable less than 90 days, 50%
of eligible bagged inventory plus 30% of eligible raw material and finished
goods inventory which does not constitute bagged inventory). The loan is
collateralized by accounts receivable, inventory, fixed assets, intangible
assets and Adience's shares of IDT. In addition, IDT guaranteed the Adience
line of credit and has pledged its own accounts receivable, inventory and
equipment. The interest rate on the loan is 2.5% over the prime rate (effective
rate of 11% at December 31, 1994). At December 31, 1994, Adience had borrowed
$12,468,000 under the credit facility including checks in
27
<PAGE>
transit of $1,689,000. Letters of credit issued under the facility totaled
$200,000 at December 31, 1994, which reduced the availability under the
financing arrangement in a like amount.
IDT entered into a financing agreement with Congress that expires June 30,
1995. The facility remains in effect year to year thereafter, unless terminated
upon sixty days written notice by either party on the anniversary date of the
Renewal Date in any year. If the Congress facility is not renewed or if
alternate financing is not obtained, management believes that IDT will be able
to generate sufficient cash flow from operations to meet its working capital
needs. Certain revisions were also made to the terms of the agreement during
1994. Under the revised agreement, IDT may request loan advances not to exceed
the lesser of $5 million or available collateral (85% of eligible accounts
receivable less than 90 days plus 30% of raw material and finished goods
inventory). The loan is collateralized by accounts receivable, inventory and
fixed assets. Adience has guaranteed IDT's debt to Congress. The interest rate
on the loan is 2.5% over the prime rate. At December 31, 1994, IDT had borrowed
$800,000 under the credit facility. Letters of credit issued under the facility
totaled $700,000 at December 31, 1994, which reduced the availability under the
financing arrangement in a like amount.
Adience pays commitment fees on the unused portion of its credit facility.
Under the terms of the revised financing agreement, Adience is required to
maintain minimum levels of net worth of negative $1.5 million and working
capital of $6 million. The agreement additionally contains other restrictive
covenants applicable to Adience and its subsidiaries which, among other things,
limit (i) the incurrence of additional indebtedness, (ii) the granting of liens,
(iii) the making of loans, investments and guaranties, (iv) transactions with
affiliates, (v) the payment of dividends and other distributions, (vi) the
amount of annual capital expenditures, and (vii) the disposition of real
property.
As of December 31, 1994, Adience and IDT were in compliance with the
covenants of their respective agreements. Adience's ability to continue to
comply with such conditions is dependent upon Adience's ability to achieve
specified levels of sales, profitable operations and borrowing availability.
Waivers or amendments may be required in the future to ensure compliance.
Inability to achieve compliance in the future could affect Adience's access to
further borrowings or require it to secure additional capital by other means.
As part of Alpine's acquisition of Adience, Alpine entered into a debt
exchange agreement, dated as of October 11, 1994, as amended (the "Debt Exchange
Agreement"), with the holders of approximately 90% in principal amount of
Adience's New Secured Notes, pursuant to which Alpine has the option to cause
such holders to exchange their New Secured Notes, in the principal amount of $44
million plus accrued interest, for a combination of approximately $35.3 million
in cash and other non-cash consideration. If the exchange does not occur prior
to June 30, 1995, the Debt Exchange Agreement may be terminated by either Alpine
or the New Secured Note holders. The Debt Exchange Agreement also allows
Adience to defer the December 15, 1994 and June 15, 1995 interest payments due
to such holders of the Adience New Secured Notes until the date the debt
exchange occurs, or if such debt exchange does not occur, then all accrued
interest will be due on December 15, 1995.
Alpine intends to pursue a long-term financing in 1995 to provide for the
redemption at a discount of Adience's New Secured Notes, as well as for other
purposes as deemed appropriate.
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 (holding waste on-site beyond the legal limit)
and illegal disposal of hazardous waste on the site of its Alliance, Ohio
manufacturing facility. IDT had $783,000 accrued at December 31, 1993 for the
clean up of this site. This amount is included under the caption "Net assets of
discontinued operations" in the accompanying balance sheet.
28
<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 $200,000 (of which IDT paid $175,000 and Adience paid
$25,000) and to remediate the site in accordance with specified cleanup goals.
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. In October 1994, IDT and
Adience filed a proposed amendment to the consent order which would allow IDT
and Adience to establish risk-based cleanup goals, an approach which has been
approved by the Ohio EPA for other contaminated sites. If the Ohio EPA approves
this proposed amendment, use of this approach is expected to reduce the extent
and cost of remediation required at this site. The Ohio EPA has not yet
responded to this proposed amendment. At December 31, 1994, environmental
accruals amounted to $750,000, 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. This amount is included under the caption "Net assets of
discontinued operations" in the accompanying balance sheet. Since 1991, Adience
and IDT have together paid $693,000 (excluding the civil penalty) for the
environmental clean-up related to the Alliance facility. If the Ohio EPA does
not accept the proposed amendment to the consent order, the cost of the
remediation may exceed the amounts currently accrued.
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 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.
Since 1991, Adience has reimbursed IDT $643,000; if Adience is financially
unable to honor its remaining obligation, such costs would be borne by IDT.
29
<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>
Reports of Independent Accountants 31
Consolidated Balance Sheets as of
December 31, 1994 and 1993 35
Consolidated Statements of Operations for the
Post-emergence year ended December 31, 1994
Post-emergence six months ended December 31, 1993,
Pre-emergence six months ended June 30, 1993 and the
Pre-emergence year ended December 31, 1992 37
Consolidated Statements of Cash Flows for the
Post-emergence year ended December 31, 1994
Post-emergence six months ended December 31, 1993,
Pre-emergence six months ended June 30, 1993 and the
Pre-emergence year ended December 31, 1992 38
Consolidated Statements of Shareholders' Equity (Deficit) for the
Post-emergence year ended December 31, 1994
Post-emergence six months ended December 31, 1993,
Pre-emergence six months ended June 30, 1993 and the
Pre-emergence year ended December 31, 1992 39
Notes to Consolidated Financial Statements 40
Supplementary Data
- ------------------
Quarterly Data and Fourth Quarter Adjustments - Unaudited 61
</TABLE>
30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Adience, Inc.:
We have audited the accompanying consolidated balance sheet of Adience, Inc. (a
Delaware corporation) as of December 31, 1994, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year then
ended. We did not audit the financial statements of Information Display
Technology, Inc., which is reflected in the accompanying financial statements as
net assets of discontinued operations. The net assets of discontinued
operations represent 13.3% of total assets and the loss from discontinued
operations represents 15.0% of net loss prior to the write-down of this asset as
discussed in Note 1. The financial statements of Information Display
Technology, Inc. were audited by other auditors whose report has been furnished
to us and our opinion, insofar as it relates to the amounts included for
Information Display Technology, Inc., is based solely on the report of the other
auditors. The financial statements of Adience, Inc. for the six months ended
December 31, 1993, were audited by other auditors whose report, dated March 28,
1994, except for certain items which are as of October 12, 1994, on those
statements included an explanatory paragraph stating that those financial
statements were prepared assuming that the Company will continue as a going
concern. The financial statements of Adience, Inc. for the six months ended
June 30, 1993, and year ended December 31, 1992, were audited by other auditors
whose report dated March 28, 1994, expressed an unqualified opinion on those
statements. The opinion of such auditors, however, does not cover the
restatement of those statements for the deconsolidation of Information Display
Technology, Inc. as discussed in Note 1. We have audited the adjustments
described in Note 1 that were applied to restate the December 31, 1993, June 30,
1993, and December 31, 1992, financial statements for the deconsolidation of
Information Display Technology, Inc. In our opinion, such adjustments are
appropriate and have been properly applied.
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, based on our audit and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Adience, Inc. as of December 31, 1994, and the results
of its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
31
<PAGE>
- 2-
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule on page 79 of this Form 10-K is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The 1994
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole. The previously
filed related schedule of Adience, Inc. for the six months ended December 31,
1993, six months ended June 30, 1993, and year ended December 31, 1992, was
audited by other auditors whose report thereon dated March 28, 1994, expressed
an unqualified opinion on that schedule. The opinion of such auditors, however,
does not cover the restatement of that schedule for the deconsolidation of
Information Display Technology, Inc. We have audited the adjustments that were
applied to restate that schedule for the periods ended December 31, 1993, June
30, 1993, and December 31, 1992, for the deconsolidation of Information Display
Technology, Inc. In our opinion, such adjustments are appropriate and have been
properly applied.
Pittsburgh, Pennsylvania Arthur Andersen LLP
March 28, 1995
32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS - POST-EMERGENCE
CONSOLIDATED FINANCIAL STATEMENTS
To the Board of Directors and Shareholders of
Adience, Inc.
In our opinion, the consolidated balance sheet and the related consolidated
statements of operations, of cash flows, and of shareholders' equity (deficit)
as of and for the 6 months ended December 31, 1993, prior to restatement (not
presented separately herein), present fairly, in all material respects, the
financial position, results of operations and cash flows of Adience, Inc., and
its subsidiaries (Adience) as of and for the 6 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. We have not
audited the consolidated financial statements of Adience for any period
subsequent to December 31, 1993, nor have we examined any adjustments applied to
the 1993 financial statements.
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 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.
The accompanying consolidated financial statements have been prepared assuming
Adience will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, Adience has experienced continuing losses
from operations, has not met operating and financial plans for the 9 months
ended September 30, 1994, and has significant indebtedness that raise
substantial doubt about Adience's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
As described in Note 7, The Alpine Group, Inc., has reached agreements to
acquire a majority of the outstanding common stock and a majority of the
outstanding 11 percent Senior Secured Notes of Adience.
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
March 28, 1994, except for
Notes 1, 6 and 7, which are
as of October 12, 1994
33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS - PRE-EMERGENCE
CONSOLIDATED FINANCIAL STATEMENTS
To the Board of Directors and Shareholders of
Adience, Inc.
In our opinion, the consolidated statements of operations, of cash flows, and of
shareholders' equity (deficit) for the 6 months ended June 30, 1993, and for the
year ended December 31, 1992, prior to restatement (not presented separately
herein), present fairly, in all material respects, the results of operations and
cash flows of Adience, Inc., and its subsidiaries (Adience) for the 6 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. We have not
examined any adjustments applied to the 1993 and 1992 financial statements.
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.
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
March 28, 1994
34
<PAGE>
<TABLE>
<CAPTION>
ADIENCE, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except Share Data)
December 31, December 31,
1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,226 $ 554
Accounts receivable, less allowance
(1994 - $835; 1993 - $1,015) 15,462 15,593
Inventories 9,817 15,212
Costs and estimated earnings in excess
of billings on uncompleted contracts 443 328
Prepaid expenses, deposits and other 1,074 1,741
Deferred income taxes 3,508 2,918
Net assets held for sale 665 --
- --------------------------------------------------------------------------------------------------------
Total current assets 34,195 36,346
- --------------------------------------------------------------------------------------------------------
Net assets of discontinued operations 8,030 13,982
Property, plant and equipment
Land 2,517 2,641
Buildings 10,458 10,265
Machinery and equipment 21,377 21,703
- --------------------------------------------------------------------------------------------------------
34,352 34,609
Less allowances for depreciation 6,619 3,530
- --------------------------------------------------------------------------------------------------------
27,733 31,079
Other assets 3,866 4,175
Reorganization value in excess of
amounts allocable to identifiable assets, net 8,130 9,190
- --------------------------------------------------------------------------------------------------------
Total assets $ 81,954 $ 94,772
========================================================================================================
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
December 31, December 31,
1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and shareholders' equity (deficit)
Current liabilities:
Revolving line of credit $ 12,468 $ 9,185
Current portion of long-term obligations 662 759
Accounts payable 9,162 8,887
Salaries, wages and withholdings 1,096 770
Payable to former shareholder 494 569
Accrued expenses 3,766 2,756
Accrued interest 2,515 225
Billings in excess of costs and estimated
earnings on uncompleted contracts 66 150
Accrued workers' compensation 5,199 5,980
Accrued income taxes 1,578 1,569
Deferred income taxes 23 66
- --------------------------------------------------------------------------------------------------------
Total current liabilities 37,029 30,916
- --------------------------------------------------------------------------------------------------------
Payable to affiliate 3,683 861
Payable to former shareholder 1,562 3,189
Long-term obligations 46,450 46,211
Deferred income taxes 4,713 4,086
Shareholders' equity (deficit):
Common stock, $.01 par value;
authorized 20,000,000 shares;
issued and outstanding 10,100,000 shares in 1994;
10,000,000 shares in 1993 101 100
Additional paid-in capital 23,974 23,900
Retained deficit (35,142) (14,367)
Foreign currency translation (416) (124)
- --------------------------------------------------------------------------------------------------------
Total shareholders' equity (deficit) (11,483) 9,509
- --------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity (deficit) $ 81,954 $ 94,772
========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
36
<PAGE>
ADIENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of Dollars, Except Per Share Data)
<TABLE>
<CAPTION>
Post-emergence Pre-emergence
-------------------------------------------------------------
Year Ended Six Months Ended Six Months Ended Year Ended
December 31, December 31, June 30, December 31,
1994 1993 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 96,273 $ 54,572 $ 44,431 $ 97,276
Costs and expenses:
Cost of revenues 84,468 47,779 35,928 81,262
Selling, general and administrative 18,180 9,302 10,510 22,829
Amortization of intangible asset 1,053 9,011 -- --
- --------------------------------------------------------------------------------------------------------------------------
103,701 66,092 46,438 104,091
- --------------------------------------------------------------------------------------------------------------------------
Operating loss (7,428) (11,520) (2,007) (6,815)
Other income (expense):
Interest and other income (expense) 574 615 245 (17)
Interest expense (7,653) (3,781) (2,271) (13,302)
- --------------------------------------------------------------------------------------------------------------------------
(7,079) (3,166) (2,026) (13,319)
- --------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations
before reorganization items, income taxes
and extraordinary item (14,507) (14,686) (4,033) (20,134)
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 --
Other -- -- -- (4,848)
- --------------------------------------------------------------------------------------------------------------------------
-- (746) 20,543 (5,798)
- --------------------------------------------------------------------------------------------------------------------------
(Loss) income from continuing operations before
income taxes and extraordinary item (14,507) (15,432) 16,510 (25,932)
Income taxes (benefit) 319 (808) 260 (1,031)
- --------------------------------------------------------------------------------------------------------------------------
(Loss) income from continuing operations
before extraordinary item (14,826) (14,624) 16,250 (24,901)
Discontinued operations:
(Loss) income from discontinued operations (net of
taxes (benefits) of $900, $286, $1 and $(40)) (2,610) 341 2 (983)
Loss on disposal of discontinued operations
(net of taxes (benefits) of $0, $0, $0 and $(791)) (3,339) (84) (400) (3,973)
- --------------------------------------------------------------------------------------------------------------------------
(5,949) 257 (398) (4,956)
- --------------------------------------------------------------------------------------------------------------------------
(Loss) income before extraordinary item (20,775) (14,367) 15,852 (29,857)
Extraordinary item - gain on discharge of debt -- -- 17,480 --
- --------------------------------------------------------------------------------------------------------------------------
Net (loss) income $ (20,775) $ (14,367) $ 33,332 $ (29,857)
==========================================================================================================================
Earnings per common share:
Loss from continuing operations $ (1.48) $ (1.46) * *
(Loss) income from discontinued operations (0.59) 0.02 * *
Extraordinary item -- -- * *
- --------------------------------------------------------------------------------------------------------------------------
Net loss per common share $ (2.07) $ (1.44) * *
==========================================================================================================================
Average common shares outstanding 10,054 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 consolidated financial
statements
37
<PAGE>
ADIENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Post-emergence Pre-emergence
-----------------------------------------------------------
Year Ended Six Months Ended Six Months Ended Year Ended
December 31, December 31, June 30, December 31,
1994 1993 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flow from operating activities
Net (loss) income $ (20,775) $ (14,367) $ 33,332 $ (29,857)
Non-cash expenses and revenues included in net (loss) income:
Depreciation and amortization 6,050 11,242 1,675 5,660
Deferred income taxes (6) (1,078) -- (2,040)
Provision for doubtful accounts 271 360 413 1,880
Loss (income) from discontinued operations 2,610 (341) 2 (345)
Loss on disposal of discontinued operations 3,339 84 400 4,764
Loss on sale of divisions -- 220 -- --
(Gain) loss on disposal of property, plant and equipment (46) (170) 23 254
Net assets held for sale write-down 1,009 -- -- --
Inventory write-down 1,788 -- -- --
Changes in operating assets and liabilities excluding effects from disposals:
Short-term investments -- 258 (4) 2,037
Accounts receivable 311 1,749 (2,099) 6,526
Inventories 3,607 451 515 376
Costs and estimated earnings in excess
of billings on uncompleted contracts (115) 1,032 (829) 1,333
Income tax receivable -- 288 2,742 (282)
Prepaid expenses, deposits and other 667 244 213 608
Accounts payable, salaries, wages and withholdings,
accrued expenses, workers' compensation and
payable to former shareholder 1,418 (1,554) 3,299 7,090
Billings in excess of costs and estimated
earnings on uncompleted contracts (84) (522) 601 (575)
Accrued income taxes 9 20 1,549 --
Payable to affiliate 2,822 (947) 414 3,916
Other (387) -- 514 (1,074)
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) --
Other -- -- -- 5,798
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 2,488 (3,031) 4,635 6,069
Cash flow from investing activities
Purchase of property, plant and equipment (2,278) (894) (635) (1,898)
Proceeds from sale of property, plant and equipment -- 237 -- --
Proceeds from sale of divisions -- 244 -- 2,406
Deferred computer costs (476) (765) (256) (554)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (2,754) (1,178) (891) (46)
Cash flow from financing activities
Net borrowings (payments) on revolving line of credit 3,283 5,087 (4,409) (6,061)
Principal payments on long-term obligations (345) (324) (369) (867)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 2,938 4,763 (4,778) (6,928)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,672 554 (1,034) (905)
Cash and cash equivalents at beginning of period 554 0 1,034 1,939
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 3,226 $ 554 $ 0 $ 1,034
==================================================================================================================================
Supplemental cash flow information:
Cash paid for interest $ 4,564 $ 2,977 $ 585 $ 2,973
Cash paid for income taxes $ 327 $ 211 $ 14 $ 831
</TABLE>
See Note 1 for significant non-cash transactions not reflected above.
The accompanying notes are an integral part of these consolidated financial
statements.
38
<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, 1992 $ 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)
Net loss -- -- (20,775) -- -- -- (20,775)
Issuance of common stock 1 74 -- -- -- -- 75
Foreign currency translation adjustment -- -- -- (292) -- -- (292)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $ 101 $23,974 $(35,142) $(416) $ -- $ -- $(11,483)
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
39
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(Dollar Amounts in Thousands, Except Share Data, Unless Otherwise Noted)
1. Basis of Presentation and Company Reorganization
On December 21, 1994, The Alpine Group, Inc. ("Alpine") acquired approximately
82% of the outstanding common stock, par value $.01 per share ("Adience Common
Stock"), of Adience, Inc. ("Adience" or "Company") from certain stockholders of
Adience. Together with the approximately 4.9% of such shares already owned by
Alpine, Alpine increased its ownership to approximately 86.9% of the outstanding
shares of Adience Common Stock.
As of December 21, 1994 Alpine and Information Display Technology, Inc. ("IDT"),
a majority-owned subsidiary of Adience, entered into an Agreement and Plan of
Merger, which provides for the merger of Alpine's information display group (a
business segment of Alpine), comprised of Alpine/PolyVision, Inc. ("APV") and
Posterloid Corporation ("Posterloid"), with and into two separate wholly-owned
subsidiaries of IDT formed for the purpose of acquiring APV and Posterloid.
Subsequent to the merger, Alpine intends to distribute a majority of its
ownership in the information display group, consisting of IDT, APV and
Posterloid to its stockholders. The distribution is expected to be completed in
the next six months. As a result of the planned distribution, Adience's
consolidated financial statements and notes thereto have been reclassified to
reflect the operations of IDT as discontinued for the fiscal year ended December
31, 1994, the six months ended December 31 and June 30, 1993 and the fiscal year
ended December 31, 1992. The investment in IDT has been reflected as "Net
assets of discontinued operations." The results of operations for IDT are
presented in the Consolidated Statements of Operations under the caption "Loss
from discontinued operations" (see Note 9).
The accompanying consolidated financial statements of Adience do not reflect any
adjustments related to the allocation of the Alpine purchase price to assets and
liabilities based upon their estimated fair values as of the date of
acquisition, except for the writedown of the investment in IDT.
Adience has experienced continued losses from continuing operations (before
reorganization items) both pre- and post-emergence under Chapter 11. 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
formulated the outline of a strategic plan with the following objectives:
streamline manufacturing operations, eliminate duplicative costs, discontinue
unprofitable product lines, improve marketing efforts and develop and introduce
new products. Management believes that the successful implementation of this
plan will enable the Company to continue as a going concern for a reasonable
period. In addition, in conjunction with the acquisition of Adience by Alpine,
Alpine has committed to provide Adience up to $3 million for the twelve months
ended December 31, 1995, to achieve its strategic plan. There can be no
assurance however, that such activities will achieve the intended improvement in
results of operations or financial position.
40
<PAGE>
Note 1 - Continued
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 accrued
interest totaling approximately $8.8 million. The value of the cash and
securities distributed was $17.5 million less than the allowed claims with the
resultant gain 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.
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 was not adopted by Adience Canada or IDT.
Adience 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. 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.
41
<PAGE>
Note 1 - Continued
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 course 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; an increase in selling, general and
administrative expenses, after adjustment for non-recurring items, in line with
the rate of sales growth; operating profit margins for each of the five years
being approximately equal to one half of the average annual operating profit
margins achieved during the most recent profitable period of 1988-1990; and
effective tax rates of 33%.
At June 30, 1993, the adjustment to record confirmation of the plan of $23
million was allocated to assets and liabilities as follows:
<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 evaluates
the recoverability of the unamortized portion of the reorganization value in
excess of amounts allocable to identifiable assets by comparing actual cash
flows with the projected cash flows used to arrive at the reorganization value.
When and if a material difference exists, management will reevaluate 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 is immediately
recognized.
42
<PAGE>
Note 1 - Continued
In the fourth quarter of 1993, the Company recorded a charge of $8 million to
reduce the recorded reorganization value in excess of amounts allocable to
identifiable assets based on management's comparison of actual cash flows post-
emergence through December 31, 1993, with the projected cash
flows used to arrive at the reorganization value. This comparison resulted in
the preparation of new cash flow projections, which in turn led the Company to
the conclusion that permanent impairment of the reorganization value had
occurred and that an immediate reduction of approximately 50% of the remaining
unamortized value should be recognized. This special charge increased the net
loss for the six months ended December 31, 1993 by $8 million or $.80 per share.
No further reduction to the reorganization value in excess of amounts allocable
to identifiable assets was deemed necessary during 1994. At December 31, 1994
and 1993, accumulated amortization was approximately $10,064 and $9,011,
respectively.
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:
43
<PAGE>
ADIENCE, INC.
CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1993
UNAUDITED
<TABLE>
<CAPTION>
Adjustments to record
ADIENCE, INC. confirmation of the plan ADIENCE, INC.
(Debtor-in-possession) DR(CR) Reorganized CONSOLIDATED
Pre-confirmation Debt Exchange Fresh Balance ADIENCE ELIMIN ADIENCE, INC.
Balance Sheet Discharge of Stock Start Sheet CANADA DR(CR) CONSOLIDATED
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ (2,219) $ (2,219) 35 $ 2,184 $ 0
Short-term investments
(certificate of deposit) 258 258 258
Accounts receivable, less
allowance (1993-$1,592) 14,111 14,111 $2,949 17,060
Intercompany accounts
receivable (payable) (2,631) (2,631) 827 1,804 0
Inventories 13,879 $ 1,287 (3) 15,166 932 16,098
Costs and estimated earnings
in excess of billings on
uncompleted contracts 1,101 1,101 259 1,360
Income tax receivable 0 0 223 223
Prepaid expenses, deposits
and other 1,038 (80)(3) 958 411 4 1,373
Deferred income taxes (921) 1,359 (3) 438 0 438
-----------------------------------------------------------------------------------------------------
Total current assets 24,616 2,566 27,182 5,636 3,992 36,810
-----------------------------------------------------------------------------------------------------
Net assets held for
disposition 11,833 11,833
Deferred income taxes (222) (222) 2 220 0
Investment in subsidiaries 19,118 19,118 (19,118) 0
Property, plant and equipment
Land 823 1,730 2,553 55 2,608
Buildings 7,120 2,730 9,850 629 10,479
Machinery and equipment 8,954 10,082 19,036 1,931 20,967
-----------------------------------------------------------------------------------------------------
16,897 14,542 31,439 2,615 34,054
Less allowances for
depreciation 4,906 4,906 0 1,775 1,775
-----------------------------------------------------------------------------------------------------
11,991 19,448 (3) 31,439 840 32,279
Other assets 7,020 (2,952)(3) 4,068 720 4,788
Reorganization value in
excess of amounts allocable
to identifiable assets 0 18,329 (3) 18,329 18,329
-----------------------------------------------------------------------------------------------------
Total assets $ 62,523 $37,391 $99,914 $7,198 $ (3,073) $104,039
=====================================================================================================
</TABLE>
44
<PAGE>
ADIENCE, INC.
CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1993
UNAUDITED
<TABLE>
<CAPTION>
Adjustments to record
ADIENCE, INC. confirmation of the plan ADIENCE, INC.
(Debtor-in-possession) DR(CR) Reorganized CONSOLIDATED
Pre-confirmation Debt Exchange Fresh Balance ADIENCE ELIMIN ADIENCE, INC.
Balance Sheet Discharge of Stock Start Sheet CANADA DR(CR) CONSOLIDATED
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <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 $ $(2,184) $ 4,098
Current portion of long term
obligations 834 834 834
Accounts payable 6,759 6,759 837 7,596
Salaries, wages and
withholdings 583 583 98 681
Payable to former
shareholder 553 553 553
Accrued expenses 2,945 $ 450 (1) 2,495 370 2,865
Billings in excess of costs
and estimated earnings on
uncompleted contracts 321 321 351 672
Accrued workers' compensation 6,076 6,076 6,076
Accrued interest 0 (2,924)(1) 2,924 2,924
Income tax payable 1,549 1,549 1,549
Deferred income taxes 0 0 51 51
---------------------------------------------------------------------------------------------------
Total current liabilities 21,534 (2,474) 24,008 1,707 (2,184) 27,899
Payable to former shareholder 3,291 3,291 3,291
Long term obligations 1,531 1,531 1,531
Deferred income taxes (2) $ (2,467)(3) 2,465 14 (220) 2,699
Liabilities subject to compromise:
Old Senior Subordinated
Reset Notes 65,975 65,975 (1) 0 0
Accrued interest 11,758 11,758 (1) 0 0
New Senior Secured Notes 0 (44,579)(1) 44,579 44,579
Shareholders' equity (deficit):
Old common stock, $.015
par value; authorized
20,000,000 shares; issued
13,400,000 shares 300 $ 300 (2) 0 10 10 0
New common stock, $.01
par value; authorized
20,000,000 shares; issued
and outstanding 10,000,000
shares 0 (55)(1) (45)(2) 100 100
Additional paid in capital 0 (13,145)(1) 141 (2) (10,896)(3) 23,900 23,900
Retained (deficit) earnings (40,689) (17,480)(1) (23,165)(3) (44) 5,467 5,423 0
Foreign currency translation 84 84 44 40
----------------------------------------------------------------------------------------------------
(40,305) (30,680) 396 (34,061) 24,040 5,477 5,477 24,040
Less:
3,400,000 shares of common
stock in treasury, at cost (396) (396)(2) 0 0
Prepaid contribution to
employee stock ownership
plan (ESOP) (863) (863)(3) 0 0
----------------------------------------------------------------------------------------------------
Total shareholders' equity
(deficit) (41,564) (30,680) 0 (34,924) 24,040 5,477 5,477 24,040
----------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity
(deficit) $ 62,523 $ 0 $ 0 $(37,391) $99,914 $7,198 $3,073 $104,039
----------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
Note 1 - Continued
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>
46
<PAGE>
2. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of Adience and
Adience Canada. All material intercompany accounts and transactions have been
eliminated from the consolidated financial statements.
The accounts of IDT are included in the consolidated balance sheets under the
caption "Net assets of discontinued operations." The intercompany payable to
IDT is separately disclosed in the accompanying balance sheets since the right
of offset does not exist between the companies (see Note 1).
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) or average cost method. Inventories consist
primarily of raw materials of $3,197 and $4,474, work-in-process of $1,643 and
$2,088 and finished goods of $4,977 and $8,650 at December 31, 1994 and 1993,
respectively.
Revenue Recognition
Approximately 42% of 1994, 51% of the six months ended December 31, 1993, 34% of
the six months ended June 30, 1993 and 48% of 1992 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 $4,139 in 1994, $2,292 for the six months ended
December 31, 1993, $2,010 for the six months ended June 30, 1993 and $4,174 in
1992. Depreciation expense is computed using the straight-line method based
upon the estimated useful lives of the respective assets. Amortization of
assets under capital leases is included in depreciation expense.
47
<PAGE>
Note 2 - Continued
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.
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, 1994 and December 31, 1993, 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.
Financial Instruments
The fair values of financial instruments approximate their recorded values as of
December 31, 1994 and 1993.
Concentrations of Credit Risk
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, 1994 and December 31, 1993, accounts receivable from
customers in the steel and steel-related industries total approximately $9,054
and $9,548, respectively. Credit losses relating to customers in the steel and
steel-related industries have been within management's expectations.
Reclassifications
Certain items in the December 31, 1993, June 30, 1993 and December 31, 1992
financial statements have been reclassified and restated to conform with changes
in classification adopted and required in 1994.
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.
48
<PAGE>
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:
49
<PAGE>
ADIENCE, INC.
CONSOLIDATING PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
ADIENCE
Pro Forma Pro Forma
Income ADIENCE ADIENCE, INC.
ADIENCE Pro Forma Adjustments Statement CANADA CONSOLIDATED
12/31/93 Debit Credit 12/31/93 12/31/93 12/31/93
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 85,833 $ 85,833 $ 13,170 $ 99,003
Costs and expenses:
Cost of revenues 73,720 $ 571 (1) 74,291 9,987 84,278
Selling, general and administrative 17,184 $ 145 (1) 17,039 2,628 19,667
Amortization of intangible asset 9,011 9,011 9,011
-------------------------------------------------------------------------------
99,915 571 145 100,341 12,615 112,956
==============================================================================
Operating (loss) profit (14,082) (14,508) 555 (13,953)
Other income (expense):
Interest and other income 770 770 90 860
Interest expense (6,051) 1,297 (2) (7,348) (1) (7,349)
---------------------------------------------------------------------------------
(5,281) 1,297 0 (6,578) 89 (6,489)
==============================================================================
(Loss) income from continuing operations
before reorganization items and income taxes (19,363) (21,086) 644 (20,442)
Reorganization items:
Professional fees (848) 848 (3) 0 0
Write-off of unamortized debt discount (455) 455 (3) 0 0
Write-off of unamortized loan fees (2,065) 2,065 (3) 0 0
Adjust accounts to fair value 23,165 23,165 (3) 0 0
-------------------------------------------------------------------------------
19,797 23,165 3,368 0 0 0
==============================================================================
Income (loss) from continuing operations
before income taxes 434 (21,086) 644 (20,442)
Income taxes (benefit) (926) (926) 378 (548)
-------------------------------------------------------------------------------
Income (loss) from continuing operations $ 1,360 $25,033 $3,513 $ (20,160) $ 266 $ (19,894)
==============================================================================
</TABLE>
50
<PAGE>
Note 3 - Continued
(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, 1994:
Costs and estimated earnings $460 $102 $562
Billings 17 168 185
- ------------------------------------------------------------------------------------------------------------
$443 $ 66 $377
============================================================================================================
December 31, 1993:
Costs and estimated earnings $352 $138 $490
Billings 24 288 312
- ------------------------------------------------------------------------------------------------------------
$328 $150 $178
============================================================================================================
</TABLE>
5. Other Assets
Included in other assets are the following:
<TABLE>
<CAPTION>
December 31, December 31,
1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Notes receivable from former shareholder (Note 10) $ -- $ 669
Notes receivable from sale of discontinued operations and other (Note 9) -- 155
Goodwill and organization costs 931 609
Loan origination fees 624 705
Investments 397 376
Pension asset 823 780
Deferred computer costs 840 667
Cash surrender value of life insurance policies 15 15
Other 236 199
- --------------------------------------------------------------------------------------------------------------------------
$3,866 $4,175
==========================================================================================================================
</TABLE>
51
<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 Financial Corporation
("Congress") that had a renewal date of June 30, 1994 (the "Renewal Date").
Certain revisions were made to the terms of the agreement during 1994 and 1995,
including the extension of the Renewal Date to June 30, 1996. The facility
remains in effect year to year thereafter, unless terminated upon sixty days
written notice by either party on the anniversary of the Renewal Date in any
year. Under the revised agreement, Adience may request loan advances not to
exceed the lesser of $14 million or available collateral (85% of eligible
accounts receivable less than 90 days, 50% of eligible bagged inventory plus 30%
of eligible raw material and finished goods inventory which does not constitute
bagged inventory). The loan is collateralized by accounts receivable,
inventory, fixed assets, intangible assets and Adience's shares of IDT. In
addition, IDT has guaranteed the Adience line of credit and has pledged as
collateral its own accounts receivable, inventory and equipment. The interest
rate on the loan is 2.5% over the prime rate (effective rate of 11% at December
31, 1994). At December 31, 1994, Adience had borrowed $12,468 under the credit
facility including checks in transit of $1,689.
In addition, IDT entered into a financing agreement with Congress, that expires
June 30, 1995. The facility remains in effect year to year thereafter, unless
terminated upon sixty days written notice by either party on the anniversary of
the Renewal Date in any year. If the Congress facility is not renewed or if
alternate financing is not obtained, management believes that IDT will be able
to generate sufficient cash flow from operations to meet its working capital
needs. Certain revisions were also made to the terms of the agreement during
1994. Under the revised agreement, IDT may request loan advances not to exceed
the lesser of $5 million or available collateral (85% of eligible accounts
receivable less than 90 days plus 30% of eligible 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, 1994, IDT had borrowed
$800 under the credit facility. Letters of credit issued under the facility
totaled $700 at December 31, 1994, which reduced the availability under the
financing arrangement in a like amount.
Alpine intends to pursue a long-term financing in 1995 to refinance the Adience
existing credit line, as well as for other purposes as deemed appropriate (see
Note 7).
Both Adience and IDT pay commitment fees on the unused portion of their credit
facility of 0.5% per annum. Under the terms of the financing agreements, both
companies are required to maintain certain financial ratios and meet other
financial conditions. The agreements do not allow the companies to incur
additional indebtedness, pay cash dividends, make certain investments, advances
or loans and limits annual capital expenditures. As of December 31, 1994,
Adience and IDT were in compliance with the covenants of their respective
agreements. Adience's ability to continue to comply with such conditions is
dependent upon Adience's ability to achieve specified levels of sales,
profitable operations and borrowing availability. Waivers or amendments may be
required in the future to ensure compliance. Inability to achieve compliance in
the future could affect Adience's access to further borrowings or require it to
secure additional capital by other means.
52
<PAGE>
7. Long-Term Obligations
Long-term obligations consisted of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C>
New Senior Secured Notes due 2002, interest at 11% $49,079 $49,079
Capital lease obligations 587 745
Notes payable with monthly installments of principal
interest of $22 through December 1997, interest at 10% 653 836
Other (interest ranges from 10% to 13%) 556 560
- ----------------------------------------------------------------------------------------
50,875 51,220
Less: current portion 662 759
- ----------------------------------------------------------------------------------------
50,213 50,461
Discount on New Senior Secured Notes 3,763 4,250
- ----------------------------------------------------------------------------------------
$46,450 $46,211
========================================================================================
</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 customary for such financings including, among other things,
limitations on additional indebtedness, limitations on asset sales and
restrictions on the payment of dividends.
As part of Alpine's acquisition of Adience, Alpine entered into a debt exchange
agreement, dated as of October 11, 1994, as amended (the "Debt Exchange
Agreement"), with the holders of approximately 90% in principal amount of
Adience's New Secured Notes, pursuant to which Alpine has the option to cause
such holders to exchange their New Secured Notes, in the principal amount of $44
million plus accrued interest, for a combination of approximately $35.3 million
in cash and other non-cash consideration. If the exchange does not occur prior
to June 30, 1995, the Debt Exchange Agreement may be terminated by either Alpine
or the New Secured Note holders. The Debt Exchange Agreement also allows
Adience to defer the December 15, 1994 and June 15, 1995 interest payments due
to such holders of the Adience New Secured Notes until the date the debt
exchange occurs, or if such debt exchange does not occur, then all accrued
interest will be due on December 15, 1995.
Alpine intends to pursue a long-term financing in 1995 to provide for the
redemption at a discount of Adience's New Secured Notes.
Principal maturities of long-term obligations are as follows:
<TABLE>
<S> <C>
1995........ $ 662
1996........ 540
1997........ 428
1998........ 122
1999........ 44
Thereafter.. 49,079
-------
$50,875
=======
</TABLE>
53
<PAGE>
Note 7 - Continued
Property, plant and equipment at December 31, 1994 and 1993 includes equipment,
automobiles and trucks under capital leases with a net book value of $1,370 and
$1,497, respectively. During the year ended 1994, the six months ended December
31 and June 30 1993, and the year ended 1992 Adience incurred capital lease
obligations of $265, $309, $90 and $524, respectively.
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 $1,900 in 1994, $1,000 for the six months ended
December 31, 1993, $800 for the six months ended June 30, 1993 and $1,600 in
1992.
9. Discontinued Operations
Alpine and IDT entered into an Agreement and Plan of Merger, dated as of
December 21, 1994, which provides for the merger of two of Alpine's
subsidiaries, APV and Posterloid, with and into two separate wholly-owned
subsidiaries of IDT formed for the purpose of acquiring APV and Posterloid (the
"IDT Merger") (see Note 1). After the IDT Merger, Alpine intends to distribute
to its stockholders, or otherwise dispose of a substantial portion of IDT common
stock owned by Alpine.
In connection with the IDT Merger and Distribution, Adience's consolidated
financial statements and notes thereto have been reclassified to reflect the
operations of IDT as discontinued. In conjunction with this treatment, the
Company recorded a non-cash charge of $3,339 to write-down the investment in IDT
to estimated fair market value. The impact of the write-down on 1994 earnings
was $0.33 per share.
Net assets of discontinued operations consist primarily of accounts receivable
of $9,258 and $11,453, inventories of $3,812 and $3,438 and property, plant and
equipment of $1,506 and $1,738 at December 31, 1994 and 1993, respectively.
Accounts payable and accrued expenses include $5,885 and $5,204 at December 31,
1994 and 1993, respectively, related to IDT's 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 strategic plans. In
addition, the Company's Hotwork 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 statements of operations.
54
<PAGE>
Note 9 - Continued
The operating results of the discontinued operations are shown separately in the
accompanying consolidated statements of operations. Net revenues of
discontinued operations were $32,365, $24,307, $23,740 and $61,499 for the year
ended December 31, 1994, the six months ended December 31, and June 30, 1993 and
the year ended December 31, 1992, respectively.
10. Related Party Transactions
In connection with the plan of reorganization, Adience entered into a new multi-
year agreement signed in 1994, to be effective as of October 1, 1992, with the
former principal shareholder, Chairman of the Board and Chief Executive Officer
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.
Note receivable from the former principal shareholder of Adience (current
portion included in "Prepaid expenses, deposits and other"; 1993--$515; long-
term portion included in "Other assets"; 1993--$669) has been netted against
amounts payable to the former principal shareholder in the accompanying December
31, 1994 consolidated balance sheet.
Steib & Company, a New York general partnership, was granted options to purchase
1,275,000 shares of Company common stock as partial compensation for services to
be performed under an advisory agreement with the Company. Steven S. Elbaum, a
member of the Company's Board of Directors, is a general partner of Steib &
Company. Total amounts paid during 1994 related to the advisory agreement
amounted to $188.
In connection with Alpine's acquisition of substantially all of Adience's common
stock, Alpine purchased 5.8% of Adience's common stock from Steib & Company
("Steib"). Alpine reimbursed Steib & Company for costs incurred by Steib in
connection with Steib's investment in the Adience common stock. In connection
with these transactions, a three year advisory agreement between Adience and
Steib was canceled, as was Steib's option to purchase 1,275,000 shares of
Adience common stock.
11. Research and Development Expense
Adience incurred research and development expense of $1,102, $541, $541 and
$1,191 for the year ended December 31, 1994, the six months ended December 31
and June 30, 1993 and year ended December 31, 1992, respectively.
55
<PAGE>
12. Income Taxes
(Loss) income from continuing operations before income taxes, and extraordinary
item consisted of:
<TABLE>
<CAPTION>
Post-emergence Pre-emergence
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Six months ended Six months ended Year ended
December 31, 1994 December 31, 1993 June 30, 1993 December 31, 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic $(15,191) $(15,430) $15,864 $(26,531)
Canadian 684 (2) 646 599
- ------------------------------------------------------------------------------------------------------------------------------------
$(14,507) $(15,432) $16,510 $(25,932)
====================================================================================================================================
</TABLE>
Federal, foreign, and state income taxes (benefits) from continuing
operations consisted of the following:
<TABLE>
<CAPTION>
Post-emergence Pre-emergence
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Six months ended Six months ended Year ended
December 31, 1994 December 31, 1993 June 30, 1993 December 31, 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
Federal $ (4,297) $ -- $ -- $ (3,105)
Foreign 345) 113 261 338
State -- 149 -- 200
- ------------------------------------------------------------------------------------------------------------------------------------
Total current (3,952) 262 261 (2,567)
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred:
Federal (668) (627) 4,215 (5,924)
Foreign (26) 38 -- 23
State -- (125) 504 (902)
Reorganization valuation
adjustment -- -- (1,108) --
Change in valuation
allowance 4,965 (356) (3,612) 8,339
- ------------------------------------------------------------------------------------------------------------------------------------
Total deferred 4,271 (1,070) (1) 1,536
- ------------------------------------------------------------------------------------------------------------------------------------
Total income tax
provision
(benefit) $ 319 $ (808) $ 260 $ (1,031)
====================================================================================================================================
</TABLE>
56
<PAGE>
Note 12 - Continued
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 Six months
Year ended ended ended Year ended
December 31, December 31, June 30, December 31.
1994 1993 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Statutory federal income tax rate (35.0)% (35.0)% 35.0 % (34.0)%
Increases (decreases):
State income taxes,
net federal tax benefit -- -- 1.5 (3.6)
Effect on Canadian income taxes 2.2 1.0 0.1 0.6
Change in valuation allowance 31.2 (1.3) (11.2) 33.1
Amortization of
reorganization value 2.5 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 1.3 (1.2) 1.6 (0.1)
- ----------------------------------------------------------------------------------------------------------------------------------
2.2 (5.2) 1.6 (4.0)
===================================================================================================================================
</TABLE>
Deferred tax liabilities (assets) are comprised of the following at
December 31, 1994 and December 31, 1993:
<TABLE>
<CAPTION>
1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Property, plant and equipment $ 6,263 $ 7,245
Pension accrual 287 287
Accounting method change from LIFO 309 618
- ----------------------------------------------------------------------------------------------------------------
Gross deferred tax liabilities 6,859 8,150
- ----------------------------------------------------------------------------------------------------------------
Inventory reserves (853) (225)
Accrued commissions and labor costs (2,829) (4,041)
Bad debt reserve (352) (428)
State income & sales/use tax liability (24) (25)
Environmental liability (707) (620)
IRS interest accrual (400) (400)
Inventory Section 263A costs (214) (214)
NOL carryforwards (9,604) (5,274)
Foreign tax credits (510) (543)
Minimum tax credits (402) (402)
Other (101) (144)
- ----------------------------------------------------------------------------------------------------------------
Gross deferred tax assets (15,996) (12,316)
Valuation allowance 10,365 5,400
- ----------------------------------------------------------------------------------------------------------------
Net deferred tax liability $ 1,228 $ 1,234
================================================================================================================
</TABLE>
57
<PAGE>
Note 12 - Continued
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, 1994, Adience has a net operating loss carryforward for
domestic federal income tax purposes of approximately $24,000 which will expire
in 2007, 2008 and 2009. Minimum tax and foreign tax credits of $912 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. In connection
with the Reorganization, the ESOP shares were reduced by 55% to 291,093 shares.
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 June 30,
1993 and the year ended 1992 amounted to $355 and $625, respectively.
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. In
addition, effective January 1, 1994, the Company declared a discretionary
contribution equal to 3 percent of employees' salaries. Amounts charged against
income totaled $415 for the year ended December 31, 1994, $58 for the six months
ended December 31, 1993, $63 for the six months ended June 30, 1993 and $93 for
the year ended December 31, 1992.
58
<PAGE>
Note 13 - Continued
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 $6,811 and $5,900,
respectively, at December 31, 1994. The comparable amounts at December 31, 1993
were $6,786 (assets) and $5,785 (obligations). The components of net periodic
pension cost for the year ended December 31, 1994, the six months ended December
31 and June 30, 1993 and the year ended December 31, 1992 are not material to
the consolidated financial statements. Plan assets are invested in cash, short-
term investments, equities, and fixed income instruments. The actuarial present
value of the projected benefit obligation at December 31, 1994 and 1993 was
determined using a weighted average discount rate of 7.5%. The expected long-
term rate of return on plan assets was 7.5% at December 31, 1994 and 1993.
Certain union employees of Adience and subsidiaries are covered by multi-
employer defined benefit retirement plans. Expense relating to these plans
amounted to $1,138, $619, $474 and $782 for the year ended December 31, 1994,
the six months ended December 31, 1993 and June 30, 1993 and the year ended
December 31, 1992, 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.
Note 14 - Stock Plans
On May 24, 1994, the Board of Directors of Adience adopted the 1994 Stock Option
Plan ("Stock Option Plan") and 1994 Directors Stock Grant Plan ("Stock Grant
Plan"). Under the Stock Option Plan, 1,250,000 shares have been reserved for
issuance upon the exercise of stock options, which may be granted to employees
by the Compensation Committee of the Company's Board of Directors. Under the
Stock Option Plan, options generally become exercisable six months following the
date of grant or over a period determined by the Board of Directors and expire
ten years from the date of grant. The Stock Option Plan provides for the option
price to be paid in cash, shares of Adience's common stock owned by the option
holder, or a combination of such shares and cash. As of December 31, 1994,
225,000 options have been granted under the Stock Option Plan. Each option
granted entitles the holder to acquire one share of Adience common stock at an
exercise price not to be less that the fair market value of the underlying
shares on the date of grant. There is currently no public market for the common
stock.
59
<PAGE>
Note 14 - Continued
The Stock Grant Plan provides that up to 300,000 shares of common stock may be
granted to the members of the Board of Directors, at no cost to the directors.
The Stock Grant Plan authorized the automatic grant of 10,000 shares of common
stock to each director on June 13, 1994, and 10,000 shares of common stock to
each director on the date of each of the next two successive annual meetings of
shareholders of the Company provided the director is then re-elected to the
board, up to an aggregate of not more than 30,000 shares for each director.
These grants have been made in lieu of a cash retainer which would have been
paid to each director.
The aggregate fair market value of the shares granted under the Stock Grant Plan
is considered unearned compensation at the time of grant and compensation is
earned ratably over the year. The Company recognized $75 in expense for the
year ended December 31, 1994.
15. Commitments and Contingencies
At December 31, 1994, Adience had $200 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 (holding waste on-site beyond the legal limit)
and illegal disposal of hazardous waste on the site of its Alliance, Ohio
manufacturing facility. IDT had $783 accrued at December 31, 1993 for the clean
up of this site. This amount is included under the caption "Net assets of
discontinued operations" in the accompanying balance sheet.
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) and to
remediate the site in accordance with specified cleanup goals. 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. In October 1994, IDT and Adience filed a
proposed amendment to the consent order which would allow IDT and Adience to
establish risk-based cleanup goals, an approach which has been approved by the
Ohio EPA for other contaminated sites. If the Ohio EPA approves this proposed
amendment, use of this approach is expected to reduce the extent and cost of
remediation required at this site. The Ohio EPA has not yet responded to this
proposed amendment. At December 31, 1994, environmental accruals amounted to
$750, 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.
This amount is included under the caption "Net assets of discontinued
operations" in the accompanying balance sheet. Since 1991, Adience and IDT have
together paid $693 (excluding the civil penalty) for the environmental clean-up
related to the Alliance facility. If the Ohio EPA does not accept the proposed
amendment to the consent order, the cost of the remediation may exceed the
amounts currently accrued.
60
<PAGE>
Note 15 - Continued
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 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. Since 1991,
Adience has reimbursed IDT $643; 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.
Note 16 - Quarterly Data and Fourth Quarter Adjustments (Unaudited)
The following table sets forth selected highlights for each of the fiscal
quarters during the year ended December 31, 1994 and the six months ended June
30 and December 31, 1993:
<TABLE>
<CAPTION>
Post-emergence
--------------------------------------------------
Quarter ended 1994 March 31 June 30 September 30 December 31
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $22,126 $23,287 $27,796 $ 23,064
Cost of revenues 19,255 19,523 22,777 22,913
Operating (loss) profit (1,867) (1,186) 647 (5,022)
Loss before extraordinary item (3,885) (2,795) (1,225) (12,870)
Net loss (3,885) (2,795) (1,225) (12,870)
Net loss per common share $ (0.39) $ (0.28) $ (0.12) $ (1.28)
Average common shares outstanding 10,000 10,019 10,100 10,100
Pre-emergence Post-emergence
--------------------------------------------------
Quarter ended 1993 March 31 June 30 September 30 December 31
- -------------------------------------------------------------------------------------
Net revenues $21,881 $22,550 $25,327 $ 29,245
Cost of revenues 17,323 18,605 21,562 26,217
Operating loss (84) (1,923) (959) (10,561)
(Loss) income before
extraordinary item (1,930) 17,782 (2,265) (12,102)
Net (loss) income (1,930) 35,262 (2,265) (12,102)
Loss per common share
before extraordinary item * * $ (0.23) $ (1.21)
Net loss per common share * * $ (0.23) $ (1.21)
Average common shares outstanding * * 10,000 10,000
</TABLE>
61
<PAGE>
Note 16 - Continued
Fourth quarter results for 1994 include a non-cash charge of $2.8 million
related to asset write-downs at Adience. Certain assets of Adience were
evaluated for disposition, and the net book value of these assets was adjusted
to estimated fair market value. The impact of these asset write-downs on fourth
quarter results was $0.28 per common share. These write-downs resulted from the
Company's business improvement program which includes selling non strategic
assets and reassessing the net realizable value of certain inventory product
lines in light of the current economic environment and the related impact on
estimated revenue levels for those product lines.
Additionally, fourth quarter results were reduced by a non-cash charge of $3.3
million to write-down the investment in IDT to estimated fair market value. The
impact of the write-down on the net loss per common share was $0.33. See Note 9
to Consolidated Financial Statements for further detail.
Losses from discontinued operations totaled $2.7 million for the fourth quarter
ending December 31, 1994 or $0.27 per common share.
Net 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 loss per common share for
the fourth quarter was $(0.38).
* Earnings per common share are not meaningful prior to June 30, 1993 due to
the reorganization - see Note 1.
62
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
- --------------------
Applicable information has been previously reported in Adience's Current
Report on Form 8-K, dated February 6, 1995.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The executive officers and directors of Adience, their positions with Adience,
business history and certain other information are set forth below.
The principal occupations for the past five years (and, in some instances, for
prior years) of each of the executive officers and directors of Adience are as
follows:
Stephen M. Johnson, age 46, has been President and Chief Operating Officer of
Adience since April, 1994. He was President and Chief Executive Officer of
Climax Metals Company, a specialty minerals, mining and chemical company and a
subsidiary of Amax, Inc. from 1987 through December 1993. From January 1994 to
April 1994, Mr. Johnson was an independent consultant.
Willard M. Bellows, age 48, has been the President of the Findlay Refractories
Division of Adience since April, 1994. Prior to that, from 1991 until April
1994 he had been President and Chief Operating Officer of Adience. Mr. Bellows
was previously Adience's Vice President and Treasurer from 1985 to 1991. From
June 1989 to February 1993, Mr. Bellows was a director of Adience and, from May
1990 to February 1993, he was a director of IDT.
Charles C. Torie, age 43, has been Vice President, Corporate Counsel and
Secretary of Adience since July, 1990. He was also Vice President, Corporate
Counsel and Secretary of IDT from July, 1990 through December 1994. Prior to
then, and for more than the past five years, Mr. Torie was Vice President and
Corporate Counsel of Federated Investors, Inc., a mutual fund management
company.
Steven S. Elbaum, age 46, has been a director of Adience since April, 1994.
He has been Chief Executive Officer of The Alpine Group, Inc., a diversified
holding company whose common stock is listed on the American Stock Exchange,
since 1984. He is also a director of Brandon Systems, Inc., a computer services
company, and American Drug Company, a marketer of over-the-counter drugs and
generic pharmaceuticals.
Gene E. Lewis, age 66, has been a director of Adience since April, 1994. For
more than the past five years, he has been a consultant to and a member of the
Board of Directors of several health care and venture capital companies. From
1985 to 1989, he served as President and Chief Operating Officer of Baker
Instrument Corporation. From 1977 to 1985, he served as President of various
divisions and President and Chief Operating Officer of American Optical
Corporation.
63
<PAGE>
Item 11. Executive Compensation
- --------------------------------
The following table summarizes, for the fiscal years ended December 31, 1994,
1993 and 1992, all compensation paid to those persons who at December 31, 1994
were Adience's Chief Executive Officer (the "CEO") and the only three executive
officers other than the Chief Executive Officer whose salary and bonus exceeded
$100,000 for the fiscal year ended December 31, 1994 (together with the CEO, the
"Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------
Name and Fiscal Other Annual
Principal Position Year Salary Bonus/(4)/ Compensation/(5)/
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stephen M. Johnson/(1)/ 1994 $152,590 - -
President and Chief 1993 -- - -
Operating Officer 1992 -- - -
Fletcher L. Byrom/(2)/ 1994 139,413 - -
Chairman and Chief 1993 267,459 - -
Executive Officer 1992 -- - -
Willard M. Bellows 1994 162,000 - -
President Findlay 1993 156,000 - -
Refractories Division 1992 150,000 - -
Stephen M. Grimshaw/(3)/ 1994 147,000 - -
Vice President-Finance, 1993 141,000 - -
Chief Financial Officer 1992 135,000 - -
and Treasurer
Charles C. Torie 1994 147,000 - -
Vice President, 1993 141,000 - -
Corporate Counsel 1992 135,000 - -
and Secretary
- --------------------------------------------------------------------------------
</TABLE>
/(1)/ Mr. Johnson joined the Company on April 21, 1994.
/(2)/ Mr. Byrom joined the Company in February 1993 and had been compensated at
the rate of $150.00 per hour. Mr. Byrom left the Company in December
1994.
/(3)/ Mr. Grimshaw resigned as Vice President-Finance and Chief Financial
Officer of Adience on March 3, 1995.
/(4)/ Adience did not award bonuses to its officers for any of the last three
fiscal years.
/(5)/ The value of the benefits under this column did not exceed the lesser of
either $50,000 or 10% of the total annual salary and bonus reported for
the named executive officer.
64
<PAGE>
Stock Plans
On May 24, 1994, the Board of Directors of Adience adopted the 1994 Stock
Option Plan ("Stock Option Plan") and 1994 Directors Stock Grant Plan ("Stock
Grant Plan"). Under the Stock Option Plan, 1,250,000 shares have been reserved
for issuance upon the exercise of stock options, which may be granted to
employees by the Compensation Committee of Adience's Board of Directors. Under
the Stock Option Plan, options generally become exercisable six months following
the date of grant or over a period determined by the Board of Directors and
expire ten years from the date of grant. The Stock Option Plan provides for the
option price to be paid in cash, shares of Adience's common stock owned by the
option holder, or a combination of such shares and cash. As of December 31,
1994, 225,000 options have been granted under the Stock Option Plan. Each
option granted entitles the holder to acquire one share of Adience common stock
at an exercise price not to be less than the fair market value of the underlying
shares on the date of grant. There is currently no public market for the common
stock.
Compensation resulting from stock options is initially measured at the grant
date based on the market value of the common stock, with adjustments to be made
quarterly for market price fluctuations. The Company recognized no Stock Option
Plan compensation expense for the nine months ended December 31, 1994.
The Stock Grant Plan provides that up to 300,000 shares of common stock may be
granted to the members of the Board of Directors, at no cost to the directors.
The Stock Grant Plan authorized the automatic grant of 10,000 shares of common
stock to each director on June 13, 1994, and 10,000 shares of common stock to
each director on the date of each of the next two successive annual meetings of
shareholders of the Company provided the director is then re-elected to the
board, up to an aggregate of not more than 30,000 shares for each director.
These grants have been made in lieu of a cash retainer which would have been
paid to each director.
The aggregate fair market value of the shares granted under the Stock Grant
Plan is considered unearned compensation at the time of grant and compensation
is earned ratably over the year. The Company recognized $74,000 in expense for
the year ended December 31, 1994.
Additionally, Steib & Company, a New York general partnership, was granted
options to purchase 1,275,000 shares of Company common stock at an exercise
price of $1.25 per share as partial compensation for services to be performed
under an advisory agreement with the Company. Steven S. Elbaum, a member of the
Company's Board of Directors, is general partner of Steib & Company. In
connection with Alpine's acquisition of substantially all of Adience's common
stock, Alpine purchased 5.8% of Adience's common stock from Steib & Company.
Alpine reimbursed Steib & Company for costs incurred by Steib & Company in
connection with Steib's investment in the Adience common stock. In connection
with these transactions, Steib agreed to terminate a three year advisory
agreement with Adience and its option to purchase 1,275,000 shares of Adience
common stock was surrendered.
Employment Agreements and Change in Control Arrangements
Effective as of April 21, 1994, the Company entered into a two-year employment
agreement with Stephen M. Johnson to serve as the Company's President and Chief
Operating Officer. Pursuant to the employment agreement, Mr. Johnson will
receive an annual base salary of $220,000, plus a performance bonus based on the
ratio between the Company's "net operating cash flow," which is defined as the
operating profit of the Company, plus depreciation and amortization less capital
expenditures, plus or minus working capital changes, exclusive of any non-
recurring gains or losses, modifications or adjustments to balance sheet
reserves or accruals or consolidation and severance payments, and the level for
which interest on the Company's total indebtedness is actually paid or accrued.
As additional
65
<PAGE>
compensation under the employment agreement, the Company granted Mr. Johnson
stock options under the Company's 1994 Stock Option Plan to purchase 225,000
shares of the Company's Common Stock at an exercise price of $1.25 (the fair
market value on the date of grant as determined by the Compensation Committee),
which options become exercisable with respect to one-third of the shares on
each of April 21, 1995, 1996, and 1997, subject to Mr. Johnson's continued
employment by the Company on such dates. Mr. Johnson's employment agreement
also provides that he will generally receive one year's base salary, and a pro
rata share of his performance bonus to which he would have been entitled, if
his employment is terminated without "cause" (as defined therein). Mr. Johnson
is also entitled to receive three times his annual base salary if his
responsibilities are materially changed or he is required to relocate his
primary residence following a "Change in Control" and he resigns thereafter. A
Change in Control is defined in his employment agreement to include generally
any transaction resulting in the Company's current directors no longer
constituting at least two-thirds of the total directors following such
transaction.
As part of the Company's reorganization in 1993, the Company entered into a
new multi-year agreement, effective as of October 1, 1992, with Herbert T. Kerr,
a former Chairman of the Board, Chief Executive Officer and majority shareholder
of the Company (the "Kerr Agreement"), in substitution for Mr. Kerr's then
existing employment agreements with the Company and IDT. The Kerr Agreement
provides for annual compensation of $750,000, plus certain other items of non-
cash compensation, and for certain rights upon termination. Offset against
these payments made by the Company to Mr. Kerr are scheduled repayments of
principal and interest to be made by Mr. Kerr to the Company on certain loans
aggregating $880,000 previously made by the Company to Mr. Kerr.
In February 1992, the Company entered into five-year employment agreements
with each of Willard M. Bellows, Stephen M. Grimshaw and Charles C. Torie. In
March 1995, Mr. Grimshaw resigned his position with Adience and he and Adience
are currently in dispute over whether he is entitled to any severance payments.
Except for salary and position, the agreements are substantially identical.
Under the terms of the agreements a "change in control" occurred at the time the
Company's plan of reorganization was consummated in June 1993. As a result, the
following provisions of these arrangements became effective. Each executive is
entitled to receive (i) continued salary and benefits for a 24-month period
following termination in the event the Company terminates the employment of the
executive for failure in any respect to adequately perform his duties (unless
the agreement is terminated on account of the executive's dishonesty, indictment
for certain crimes, drunkenness or drug addiction or intentional disregard of
the provisions of his employment agreement or the express directions of the
Board of Directors), or (ii) a lump sum amount equal to the present value
equivalent of five times the executive's current annual salary upon termination
of employment caused by the material relocation of the Company's principal
offices or a material change in the executive's responsibilities.
Compensation Plans
Profit Sharing Plan. Adience maintains a Profit Sharing Plan (the "Profit
Sharing Plan") under which most salaried employees meeting minimum age and
service qualifications are eligible to participate. Under the Profit Sharing
Plan, Adience can make discretionary contributions for the account of
participants based upon Adience's profits. No contributions have been made to
the Profit Sharing Plan since 1987. Contributions are invested in a diversified
portfolio, or as directed by participants, including, if so directed, in Common
Stock of Adience if available for purchase. Participants are entitled to
receive distributions of their account balances in the event of death,
disability, retirement or other termination of employment (subject to graduated
vesting schedule in the case of termination of employment).
66
<PAGE>
Employees Stock Ownership Plan. During 1989, Adience established an Employees
Stock Ownership Plan (the "ESOP") for most salaried United States employees of
Adience who meet minimum age and service requirements. The vested portion of a
participant's account in the ESOP is distributable in the event of the
participant's termination of employment. A participant becomes 100% vested upon
the attainment of age 65, death or the completion of five years of continuous
service.
With respect to shares of Common Stock of Adience which are distributed to a
participant or other person under the ESOP, where such shares are not publicly
traded, the person holding such shares has the right to require the Company to
purchase such shares at their then current market value. Shares held for the
account of participants under the ESOP and shares which have not been allocated
to participants' accounts generally may not be voted by participants, except in
the case of extraordinary corporate transactions. Such shares may be voted only
by the committee administering the ESOP or in the absence of such committee, at
the direction of the Company.
As of December 31, 1994, there were 289,171 shares of Common Stock allocated
to participants, including the following amounts allocated to each of the
following Named Executive Officers: Mr. Bellows: 3,317 shares; and Mr. Torie:
1,902 shares. The foregoing share ownership has not been included in the table
appearing in "Principal Stockholders and Ownership of Management" because all
such shares are held in the ESOP and none of the executives have the right to
vote or dispose of such shares at this time.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The following table sets forth, as of March 24, 1995, the name, address,
number and percentage of outstanding shares of Common Stock owned by (i) each
person known by the company to own beneficially more than 5% of the Common
Stock, (ii) each director who is a stockholder, (iii) each of the Named
Executive Officers who is a stockholder , and (iv) all executive officers and
directors as a group. Under the rules adopted by the Securities and Exchange
Commission, a person is deemed to be the beneficial owner of securities with
respect to which he, directly or indirectly, has or shares voting power or
investment power.
<TABLE>
<CAPTION>
Name and Address of Percentage of
Beneficial Owner Number of Shares/(1)/ Class Outstanding
- --------------------------------------------------------------------
<S> <C> <C>
The Alpine Group, Inc. 8,690,000 86.9%
1790 Broadway
New York, NY 10019
All executive officers 0 0
and directors as a group
- --------------------------------------------------------------------
</TABLE>
67
<PAGE>
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
Effective as of April 21, 1994, the Company entered into an advisory
agreement (the "Advisory Agreement") with Steib & Company ("Steib"), a New
York general partnership in which Steven S. Elbaum, a director of the Company,
is a general partner. Pursuant to the Advisory Agreement, Steib provided
business, financial and strategic advice and planning, and, where necessary,
personnel to implement the same, in connection with, among other things,
mergers and acquisitions, dispositions, financings and refinancings. The
Company paid Steib a fixed monthly fee of $20,000 in consideration for such
services. The nature and type of services performed by Steib under the
Advisory Agreement were subject to the approval and supervision of the Board of
Directors, the Chairman of the Board and the President of the Company. In
addition to the fixed monthly fee, the Company granted to Steib stock options
to purchase an aggregate of 1,275,000 shares of the Company's Common Stock at
an exercise price of $1.25 per share, which options vest and must be exercised
annually in equal amounts over a three- year period beginning on April 21,
1995. The Advisory Agreement was terminated in February 1995 and the options
to purchase 1,275,000 shares were surrendered by Steib. See "Executive
Compensation - Stock Plans."
Adience performs certain management and administrative services for
IDT. These services include the use of Adience's management information system,
the preparation of quarterly and annual SEC filings, the preparation of all
federal and state tax returns, cash management together with daily and monthly
reporting to the companies' primary lender, the administration of insurance and
workers' compensation programs, legal and employee benefit services and the
preparation of salaried payrolls. The fee paid by IDT for these services, as
agreed to by the respective Boards of Adience and IDT, is at the current rate of
$300,000 per year.
From time to time Adience has been indebted to IDT in varying
principal amounts evidenced by a revolving unsecured note. The largest
aggregate amounts of indebtedness outstanding during the year ended December 31,
1994 was $3.4 million and as of February 28, 1995 the amount of indebtedness
outstanding was approximately $2.9 million. The indebtedness bears interest at
an annual rate equal to 2-1/2% in excess of the prime commercial interest rate
(currently 9%) from time to time publicly announced by Philadelphia National
Bank, incorporated as CoreStates Bank N.A., Philadelphia, Pennsylvania.
68
<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:
-----------------------------
Page in this
Schedules and Related Report Annual Report
- ---------------------------- -------------
Schedule II - Valuation and Qualifying Accounts 79
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 on Form S-1 No. 33-
72024 (the Registration Statement) and incorporated herein by
reference.
2.2 Amended and Restated Stock Purchase Agreement, dated as of
October 11, 1994, between The Alpine Group, Inc. and certain
stockholders of Adience, Inc. as listed therein, as amended, filed
as Exhibit 2.1 to the Current Report on Form 8-K, dated December
21, 1994, of Adience, Inc. and incorporated herein by reference.
3.1 Restated Certificate of Incorporation of Adience, Inc. filed as
Exhibit 3.1 to the Registration Statement and incorporated
herein by reference.
3.2 By-laws of Adience, Inc., filed as Exhibit 3.2 to the Registration
Statement incorporated herein by reference.
4.1 Specimen Common Stock Certificate, filed as Exhibit 4.1 to the
Registration Statement incorporated herein by reference.
69
<PAGE>
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 herein 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 herein 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 herein 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 herein 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 herein 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 herein 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 herein 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 herein 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 herein 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.
70
<PAGE>
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 herein 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 herein
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 herein 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 herein 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 herein 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 herein 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 herein 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 herein 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 herein 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 herein by reference.
71
<PAGE>
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 herein
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 herein 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 herein 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
herein 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 herein 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 herein 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 herein by reference.
10.27 Profit Sharing Plan of Adience, Inc., filed as Exhibit 10.27 to the
Registration Statement incorporated herein by reference.
10.28 Employees Stock Ownership Plan of Adience, Inc., filed as Exhibit
10.28 to the Registration Statement incorporated herein by
reference.
28.1 Part I of the Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 of Information Display Technology, Inc.
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:
-------------------
(1) Report on Form 8-K dated December 21, 1994 disclosing the acquisition
of shares of common stock of Adience, Inc. by The Alpine Group, Inc.
(2) Report on Form 8-K dated February 6, 1995 disclosing a change in
Adience, Inc.'s Certifying Accountant.
72
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of he 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/ Stephen M. Johnson
-----------------------
Stephen M. Johnson
President and Chief Operating Officer
Date: April 17, 1995
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 ___________:
Name Capacity Date
- ---- -------- ----
/s/ Steven S. Elbaum Director April 17, 1995
- ---------------------
Steven S. Elbaum
/s/ Gene E. Lewis Director April 17, 1995
- ------------------
Gene E. Lewis
/s/ Stephen M. Johnson President and April 17, 1995
- ----------------------- Chief Operating Officer
Stephen M. Johnson (Principal Executive Officer)
/s/ Frances Stephen Vice President and Controller April 17, 1995
- --------------------
Frances Stephen
73
<PAGE>
EXHIBITS TO FORM 10-K
ADIENCE, INC.
74
<PAGE>
ADIENCE, INC.
FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1994
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 on Form S-1 No. 33-
72024 (the Registration Statement) and incorporated herein by
reference.
2.2 Amended and Restated Stock Purchase Agreement, dated as of
October 11, 1994, between The Alpine Group, Inc. and certain
stockholders of Adience, Inc. as listed therein, as amended, filed
as Exhibit 2.1 to the Current Report on Form 8-K, dated December
21, 1994, of Adience, Inc. and incorporated herein by reference.
3.1 Restated Certificate of Incorporation of Adience, Inc. filed as
Exhibit 3.1 to the Registration Statement and incorporated
herein by reference.
3.2 By-laws of Adience, Inc., filed as Exhibit 3.2 to the Registration
Statement incorporated herein by reference.
4.1 Specimen Common Stock Certificate, filed as Exhibit 4.1 to the
Registration Statement incorporated herein 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 herein 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 herein 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 herein by reference.
75
<PAGE>
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 herein 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 herein 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 herein 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 herein 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 herein 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 herein 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 herein 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 herein
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 herein by reference.
76
<PAGE>
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 herein 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 herein 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 herein 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 herein 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 herein 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 herein 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 herein 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 herein
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 herein 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 herein by reference.
77
<PAGE>
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
herein 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 herein 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 herein 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 herein by reference.
10.27 Profit Sharing Plan of Adience, Inc., filed as Exhibit 10.27 to
the Registration Statement incorporated herein by reference.
10.28 Employees Stock Ownership Plan of Adience, Inc., filed as
Exhibit 10.28 to the Registration Statement incorporated herein
by reference.
28.1 Part I of the Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 of Information Display Technology, Inc.
78
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ADIENCE, INC.
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------
Additions
Balance at Charged to Balance
Beginning Costs and Deductions at End of
Description of Period Expenses Describe Period
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1994
Deducted from asset accounts:
Allowance for doubtful accounts $ 1,015 $ 301 $ 481 (1) 835
Inventory obsolescence reserve 524 -- 524 (2) 0
--------- -------- --------- ---------
TOTALS $ 1,539 $ 301 $ 1,005 $ 835
========= ======== ========= =========
Post-emergence:
Six months ended December 31, 1993
Deducted from asset accounts:
Allowance for doubtful accounts $ 1,668 $ 291 $ 944 (1) 1,015
Inventory obsolescence reserve 407 117 -- 524
--------- -------- --------- ---------
TOTALS $ 2,075 $ 408 $ 944 $ 1,539
========= ======== ========= =========
Pre-emergence:
Six months ended June 30, 1993
Deducted from asset accounts:
Allowance for doubtful accounts $ 1,261 $ 407 $ -- $ 1,668
Inventory obsolescence reserve 407 -- -- 407
--------- -------- --------- ---------
TOTALS $ 1,668 $ 407 $ -- $ 2,075
========= ======== ========= =========
Year ended December 31, 1992
Deducted from asset accounts:
Allowance for doubtful accounts $ 1,792 $ 1,880 $ 2,411 (1) $ 1,261
Inventory obsolescence reserve 300 107 -- 407
--------- -------- --------- ---------
TOTALS $ 2,092 $ 1,987 $ 2,411 $ 1,668
========= ======== ========= =========
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Inventory balances written off.
79
<PAGE>
EXHIBIT 28.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
December 31, 1994 1-10555
INFORMATION DISPLAY TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
New York 13-3482597
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
866 North Main Street Extension
Wallingford, Connecticut 06492
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 949-4747
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value American Stock Exchange
$.001 per share
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes X No
----- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 20, 1995:
$1,465,256
The number of shares outstanding of the registrant's classes of common
stock as of March 20, 1995:
13,317,165 shares
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant intends to file a definitive Proxy Statement (the "IDT
Proxy Statement") pursuant to Regulation 14A within 120 days of the end of the
fiscal year ended December 31, 1994. Certain information required in response
to Items 10, 11, 12 and 13 of Part III of this Form 10-K is hereby
incorporated by reference to the IDT Proxy Statement.
Page 1 of 39 Pages
<PAGE>
INFORMATION DISPLAY TECHNOLOGY, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business. . . . . . . . . .. . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . .. . . . . . . . . . . . . . . . . . . . 8
Item 3. Legal Proceedings . . . . .. . . . . . . . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 9
Optional Item. Executive Officers of the Registrant. . . . . . . . . . . . 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters. . . . . . . . .. . . . . . . . . . . . . . . . . . . . 10
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . .. . . . . . . . . . . . . . . . . . 12
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . . 16
Item 9. Changes in and Disagreements on Accounting and Financial
Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PART III
Item 10. Directors and Executive Officers of the Registrant. . . . . . . . 16
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . 16
Item 12. Security Ownership of Certain Beneficial Owners and Management. . 16
Item 13. Certain Relationships and Related Transactions. . . . . . . . . . 17
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 17
<PAGE>
PART I
Item 1. Business.
Overview
Information Display Technology, Inc., a New York corporation ("IDT"),
manufactures and sells custom-designed and engineered writing, projection and
other visual display surfaces (such as porcelain chalkboards and markerboards),
custom cabinets and work station and conference center casework. IDT has its
own nationwide marketing network that enables it to market its products to
schools, health care facilities, offices and other institutions throughout the
country. IDT's products are marketed 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
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
price, product quality, responsiveness and reliability.
Most of IDT's products 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
sales staff, and are custom-made to specifications. Successful marketing of
these products is dependent upon the maintenance of strong relationships 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.
Recent Developments
The Adience Acquisition
On December 21, 1994, The Alpine Group, Inc., a Delaware corporation
("Alpine"), purchased 82.3% of the outstanding common stock, par value $.01 per
share ("Adience Common Stock"), of Adience, Inc., a Delaware corporation
("Adience"), from certain stockholders of Adience (the "Adience Selling
Stockholders"). Together with 4.9% of such shares already owned by Alplne,
Alpine increased its ownership to 87.2% of the outstanding shares of Adience
Common Stock. Pursuant to a Stock Purchase Agreement, dated as of October 11,
1994, as amended (the "Stock Purchase Agreement" between Alpine and the
Adience Selling Stockholders, the Adience Selling Stockholders received in
consideration for their shares of Adience Common Stock (i) an aggregate of
82,267 shares of a new issue of 8% Cumulative Convertible Preferred Stock, par
value $1.00 per share, of Alpine ("Alpine 8% Preferred Stock"), which is
convertible into approximately 530,755 shares of common stock, par value $.10
per share, of Alpine ("Alpine Common Stock"), and (ii) the right to receive an
aggregate of 2,752,900 shares of common stock, par value $.001 per share ("IDT
Common Stock"), of IDT which is an approximately 80%-owned subsidiary of
Adience, upon the
<PAGE>
consummation of the IDT Merger (as defined below) or, if the IDT Merger has not
been consummated prior to May 31, 1995, an aggregate of 123,396 additional
shares of Alpine 8% Preferred Stock. It is anticipated that the holders of the
remaining 13% of Adience Common Stock, in consideration for their shares of
Adience Common Stock, will be paid by Alpine an aggregate of approximately
$1,500,000 in cash.
Alpine also entered into a Debt Exchange Agreement, dated as of October 11,
1994, as amended (the "Debt Exchange Agreement"), with the holders of
approximately 90% in principal amount of Adience's 11% Senior Secured Notes
due 2002 ("Adience Senior Notes"), pursuant to which such holders have agreed
to exchange their Adience Senior Notes in the aggregate principal amount of
approximately $44,000,000, plus all accrued interest, for (i) an aggregate of
approximately $35,271,314 in cash, (ii) 44,916 shares of Alpine 8% Preferred
Stock, which is convertible into approximately 289,780 shares of Alpine Common
Stock, and (iii) 1,002,031 shares of IDT Common Stock upon the consummation of
the IDT Merger or, if the IDT Merger has not been consummated prior to May 31,
1995, an aggregate of 44,916 additional shares of Alpine 8% Preferred Stock.
The Debt Exchange Agreement is currently being extended through June 30,
1995.
Under the terms of both the Stock Purchase Agreement and the Debt Exchange
Agreement, Alpine agreed with the Adience Selling Stockholders and the holders
of Adience Senior Notes that if the average market value of the IDT Common
Stock received by such holders is less than $2.24 per share (subject to
adjustment for certain events) during the 20-trading day period preceding
November 1, 1995, then Alpine will deliver to such holders additional
consideration, payable in shares of Alpine 8% Preferred Stock or IDT Common
Stock, in an amount per share equal to the difference between $2.24 and the
greater of such market value and $.75.
The Proposed IDT Merger
As of December 21, 1994, Alpine and IDT entered into an Agreement and Plan
of Merger, dated as of December 21, 1994 (the "IDT Merger Agreement"), which
provides for the merger of Alpine's information display group (a business
segment of Alpine), comprised of (i) Alpine PolyVision Inc., a Delaware
corporation and 98%-owned subsidiary of Alpine ("APV"), and (ii) Posterloid
Corporation, a Delaware corporation and wholly-owned subsidiary of Alpine
("Posterloid"), with and into two separate wholly-owned subsidiaries of IDT
formed for the purpose of acquiring APV and Posterloid (the "IDT Merger") with
each IDT subsidiary being the surviving corporation and remaining a
wholly-owned subsidiary of IDT.
The IDT Merger Agreement provides that Alpine will receive upon
consummation of the IDT Merger (i) 111,198,328 newly-issued shares of IDT
Common Stock (the "IDT Merger Shares"), representing 89.3% of the then
outstanding shares of IDT Common Stock, and (ii) in exchange for the series A
preferred stock, par value $1.00 per share, of APV held by Alpine, 1,020,000
shares of a new issue of series A preferred stock, par value $.01 per share, of
IDT ("IDT Series A Preferred Stock"), having an aggregate liquidation
preference of $25,500,000. The terms of the IDT Series A Preferred Stock will
(i) provide that IDT will utilize not less than 30% of the net cash proceeds of
a public offering of its securities to redeem outstanding shares
2
<PAGE>
of IDT Series A Preferred Stock and (ii) prohibit IDT from paying dividends on
all classes of stock junior to such stock (including the IDT Common Stock)
while shares of IDT Series A Preferred Stock remain outstanding. The IDT Merger
is subject to the satisfaction or, where permissible, the waiver, of certain
conditions (in addition to IDT shareholder approval), including the receipt by
IDT and Alpine of legal opinions and the effectiveness of certain filings with
the Securities and Exchange Commission. The IDT Merger is expected to be
completed in May 1995. Although the closing conditions to the IDT Merger are
typical and customary in similar types of merger transactions, there can be no
assurance that all of such conditions will be satisfied or that the IDT Merger
will be consummated. A copy of the IDT Merger Agreement was filed with the
Securities and Exchange Commission as an exhibit to IDT's Current Report on
Form 8-K, dated December 21, 1994.
As of March 15, 1995, Adience owned 87.2% of the outstanding capital stock
of Adience, which in turn owned 80.3% of the outstanding shares of IDT Common
Stock. Alpine intends to cause Adience to vote its shares of IDT Common Stock
in favor of the IDT Merger Agreement and each of the other proposals to be
considered at the IDT Annual Meeting referred to below. Accordingly, approval
of each of the proposals is assured.
APV and Posterloid
APV is engaged in the research, development, licensing and initial
manufacturing and testing of a proprietary technology known as
PolyVision/(TM)/, a materials technology with electrochemical and physical
characteristics that allow it to address applications in a number of product
markets, including flat-panel displays and variable light transmission.
Posterloid manufactures and sells indoor and outdoor menuboard display systems
to the fast food and convenience store industries, and changeable magnetic
signage used primarily by banks to display interest rates, currency exchange
rates and other information.
Certain Effects of the Adience Acquisition; IDT Annual Meeting
On December 21, 1994, three existing directors of IDT, William B. Jackson,
James B. Upchurch and A. Stanley West, pursuant to the request and instruction
of the Adience Board of Directors, resigned as directors and, in accordance
with IDT's By-laws for filling board vacancies, the remaining directors
appointed Steven S. Elbaum, James R. Kanely and Bragi F. Schut, all of whom are
directors and officers of Alpine, to serve as directors of IDT. Following such
resignations and replacements, the IDT Board of Directors approved the IDT
Merger Agreement (and the issuance of the shares contemplated thereby), as well
as the following proposals, subject to IDT shareholder approval, to (i) elect
members to the IDT Board of Directors, (ii) change IDT's name to "PolyVision
Corporation," (iii) amend IDT's Certificate of Incorporation to increase the
number of authorized shares of IDT Common Stock from 50,000,000 shares to
375,000,000 shares and the number of authorized shares of IDT Preferred Stock
from 5,000 shares to 1,500,000 shares and thereafter effect a 1-for-15 reverse
stock split of both the authorized and outstanding shares of IDT Common Stock
(the "Reverse Stock Split"), but not the IDT Series A Preferred Stock, (iv)
amend IDT's Certificate of Incorporation to eliminate, to the fullest extent
permitted by New York law, the personal liability of directors to IDT or its
shareholders for monetary damages for breach of their fiduciary duties as
directors,
3
<PAGE>
(v) amend IDT's Certificate of Incorporation to initially divide the IDT Board
of Directors into two classes of not less than three directors each, with one
class being elected each year, and (vi) approve IDT's 1994 Stock Option Plan.
In addition, on such date, Mr. Elbaum, Alpine's Chairman and Chief Executive
Officer, was appointed to be IDT's Chairman, and Alan J. Nickerson, Alpine's
Senior Vice President and APV's Chief Financial Officer and Secretary, was
appointed to be IDT's Chief Financial Officer and Secretary.
Effective December 21, 1994, the principal executive offices of IDT were
relocated to Wallingford, Connecticut from Pittsburgh, Pennsylvania.
On February 14, 1995, IDT filed with the Securities and Exchange Commission
preliminary proxy materials with respect to an annual meeting of IDT
shareholders (the "IDT Annual Meeting") to approve and adopt the IDT Merger
Agreement and the other proposals described above.
The IDT Distribution
After the IDT Merger, Alpine intends to distribute to its stockholders, or
otherwise dispose of, that number of shares of IDT Common Stock owned by Alpine
so that thereafter Alpine will own approximately 19.9% of the outstanding
shares of IDT Common Stock (the "IDT Distribution"). There can be no assurance
that the IDT Distribution will be consummated. Alpine intends to retain the
shares of IDT Series A Preferred Stock received by it in the IDT Merger.
Products
IDT manufactures custom-made systems incorporating chalkboards,
markerboards, tackboards and bulletin boards. IDT manufactures porcelain
enameled chalkboards and markerboards 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.
IDT's chalkboards, markerboards 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 a sales force operating out of IDT's regional sales offices
and through independent distributors. IDT's writing surface products are
generally priced from $100 to $900 per unit, depending on the surface's core
material, dimension, gauge
4
<PAGE>
and trim, and whether the products are being sold through its own sales staff
or through independent distributors.
In addition to chalkboards, IDT manufactures dry-marker boards, which are
high-gloss porcelain-enameled boards on which the user writes with a dry erase
felt-tip marker. IDT also manufactures a variety of other information display
surfaces for educational and health care facilities, such as tackboards.
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 and installs wood and plastic laminate cabinetry for
schools, hospitals, laboratories and industry. In addition, IDT manufactures
and installs indoor and outdoor display and bulletin board 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 50-year 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 20 persons, most of whom work on a
commission basis. IDT maintains 13 sales offices in a number of states.
Approximately 10% of IDT's sales during the fiscal year ended December 31, 1994
were made through independent distributors. 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 the sale and installation of its own products.
Sales of its own products accounted for approximately 76% and 52% of the
revenues of IDT for the fiscal years ended December 31, 1994 and 1993,
respectively.
For the fiscal year ended December 31, 1994, 31, 1994, sales to educational
institutions and health 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 of visual
display products in the Northeast.
5
<PAGE>
Raw Materials
The glass frit material used by IDT to produce its porcelain writing
surfaces is currently produced to its specifications by a single supplier,
Ferro Corp., so as to maintain consistent color and quality standards; however,
management of IDT believes that alternative sources of supply of this commodity
are readily available. IDT has never experienced any difficulty with the
quantity or quality of product from its glass frit supplier. All other raw
materials are readily available from a variety of sources.
Competition
IDT competes with a variety of companies which manufacture or distribute
chalkboard and institutional cabinetry. IDT is one of only three manufacturers
in the United States of porcelain-enameled steel facings, along with Claridge
Products and Equipment Inc. and Alliance America (which are privately-owned
companies), and is the only company with its own sales force. Claridge Products
and Equipment Inc. sells its products through a network of independent
distributors and Alliance America sells the porcelain facings only to laminators
for further fabrication. As a result, IDT competes only indirectly with such
manufacturers, and more directly with independent distributors and installers
which are typically small, local and regional companies. IDT has attained its
competitive position primarily as a result of design quality and reliability,
both with respect to its products and installation.
Seasonality
IDT's business is seasonal and most of its sales and pre-tax profits occur
in the third quarter of the calendar 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 winter
months.
Backlog
At December 31, 1994, total backlog for IDT was approximately $16,400,000
as compared with approximately $21,300,000 at December 31, 1993. Management
expects that all of the backlog will be filled in its next fiscal year.
Revenues from sales of specific products are recorded when title transfers,
which is typically upon shipment. Revenues from construction of custom
installations under contracts are recorded on the percentage-of-completion
method or accounting, measured on the basis of costs incurred to estimated
total costs, which approximate contract performance to date. See Note 2,
"Revenue Recognition," to the Notes to Financial Statements of IDT included
herein. IDT believes that its order backlog represents only a portion of the net
sales revenue anticipated by IDT in any given fiscal year.
Employees
IDT currently employs approximately 340 people. Approximately 125 employees
at IDT's Dixonville, Pennsylvania plant are members of the Carpenters Union,
with the current
6
<PAGE>
labor contract expiring in February 1996. Of IDT's remaining employees,
approximately 50 persons are union members not covered by collective
bargaining agreements.
IDT considers relations with its employees to be good.
Patents and Trademarks
IDT holds a number of patents and trademarks covering various products and
processes relating to its business. IDT believes that its "Greensteel"
trademark is important to IDT as it is highly recognized by customers, general
contractors and architects in the education and health care markets as being
quality products used in construction projects. IDT periodically monitors for
infringing uses of this mark and has never encountered any such infringement.
None of IDT's patents or other trademarks are considered to be material to
IDT's ongoing business.
Insurance
IDT 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 IDT is engaged. IDT believes that the amount and form of
its insurance coverage are adequate at the present time.
Environmental Matters
IDT's manufacturing operations are subject to numerous federal, state and
local laws and regulations relating to the storage, handling, emission,
transportation and discharge of hazardous materials and waste products.
Compliance with these laws, as a result of the Adience indemnification
described below, has not been a material cost to IDT and has not had a material
effect upon its capital expenditures, earnings or competitive position.
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 (holding waste on-site beyond the
legal time limit) and illegal disposal of hazardous waste on the site of its
Alliance, Ohio manufacturing facility.
In December 1993, IDT and Adience signed a consent order with the Ohio EPA
and the 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) and to remediate the site in accordance with specified
cleanup goals. 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.
In October 1994, IDT and Adience filed a proposed amendment to the consent
order which would allow IDT and Adience to establish risk-based cleanup goals,
an approach which has been approved by the Ohio EPA for other contaminated
sites. If the Ohio EPA approves this proposed amendment, use of this approach is
expected to reduce the extent and cost of remediation required at this site.
The Ohio EPA has not yet responded to this proposed amendment. As of December
31, 1994, environmental accruals amounted to $750,000, which represents
management's estimate of the
7
<PAGE>
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, IDT and Adience have together paid $693,000
(excluding the civil penalty) for the environmental cleanup related to the
Alliance facility. If the Ohio EPA does not accept the proposed amendment to
the consent order, the cost of the remediation may exceed the amounts currently
accrued.
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 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.
As of December 31, 1994, Adience had reimbursed IDT $643,000.
Item 2. Properties.
IDT owns three of its facilities. Real estate owned by IDT is not subject
to mortgages. IDT 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.
Certain information concerning the principal facilities of IDT is set forth
below:
<TABLE>
<CAPTION>
Approximate
Owned or Floor Area Lease
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 --
Corona, California.......... Leased 26,000 December 1997
Portland, Oregon............ Leased 12,800 September 1995
</TABLE>
Item 3. Legal Proceedings.
In October 1994, three district sales managers of IDT filed a lawsuit in
the United States District Court for the Western District of Pennsylvania
against IDT. The lawsuit alleges that IDT has taken unlawful and
discriminatory employment actions in an effort to induce the three employees,
because of their ages, to leave the employment of IDT, and demands compensatory
damages in excess of $25,000 (the statutory minimum) for each employee. The
lawsuit also alleges breach by IDT of each of their employment contracts. In
January 1995, IDT filed an Answer denying all such allegations. While the case
is currently in the early stages of discovery, management of IDT believes
that, based upon its investigation to date, the claims
8
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interposed against IDT have no factual merit or bases and intends to vigorously
defend the lawsuit.
See "Environmental Matters" above for a discussion of the Ohio
environmental consent proceeding.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1994.
Optional Item. Executive Officers of the Registrant.
The names and ages of the executive officers of IDT, and their positions
with IDT, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Steven S. Elbaum...... 46 Chairman of the Board
N. Roy Anderson....... 54 President and Chief Operating Officer
Alan J. Nickerson..... 45 Chief Financial Officer and Secretary
</TABLE>
STEVEN S. ELBAUM was appointed Chairman of the Board and elected a director
of IDT on December 21, 1994. Mr. Elbaum has been a director of Alpine since
1980 and has served as its Chairman of the Board and Chief Executive Officer
since June 1984. Mr. Elbaum is also a director of Brandon Systems, Inc., a
computer services company, and American Drug Company, a marketer of
over-the-counter drugs and generic pharmaceuticals.
N. ROY ANDERSON was elected a director of IDT in April 1994. Mr. Anderson
has served as the President and Chief Operating Officer of IDT since October
1990. Mr. Anderson was the Vice President of the Laboratory Furniture and
Appliance Division of Fisher Scientific Company, a manufacturer of scientific
equipment and supplies, from October 1988 to October 1990.
ALAN J. NICKERSON was elected to IDT's Board of Directors in April 1994.
Since December 21, 1994, he has served as Chief Financial Officer and
Secretary of IDT. Since 1983, Mr. Nickerson has been an officer of Alpine
and/or one or more of its subsidiaries and, most recently, since September
1993, he has served as Senior Vice President of Alpine and Chief Financial
Officer and Secretary of APV. Mr. Nickerson had been the Chief Financial
Officer of Alpine from March 1990 to November 1993.
9
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
IDT Common Stock is traded on the American Stock Exchange (the "AMEX")
under the symbol IDT. On March 15, 1995, there were approximately 214 holders
of record of IDT Common Stock.
The following table sets forth, for the fiscal periods shown, the high and
low sales prices for IDT Common Stock as reported on the AMEX. The amounts set
forth below have not been adjusted to reflect the proposed l-for-15 Reverse
Stock Split.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 1992
First Quarter...... $2-7/8 $1-1/8
Second Quarter..... 2 5/8
Third Quarter...... 1-1/4 5/8
Fourth Quarter..... 1-1/8 9/16
Fiscal 1993
First Quarter...... $ 7/8 $ 5/8
Second Quarter..... 7/8 9/16
Third Quarter...... 1-3/8 3/4
Fourth Quarter..... 1-1/4 5/8
Fiscal 1994
First Quarter...... $ 7/8 $ 5/8
Second Quarter..... 3/4 1/2
Third Quarter...... 7/8 3/8
Fourth Quarter..... 13/16 1/2
</TABLE>
The closing sales price for IDT Common Stock, as reported on the AMEX, was
$ 9/16 on March 20, 1995.
IDT has never declared or paid dividends on the IDT Common Stock and does
not anticipate paying dividends on the IDT Common Stock at any time in the
foreseeable future. The terms of the IDT Series A Preferred Stock will
prohibit IDT from paying dividends on all classes of stock junior to such
stock (including the IDT Common Stock) while shares of IDT Series A Preferred
Stock remain outstanding. See "Business -- Recent Developments -- The Proposed
IDT Merger."
10
<PAGE>
Item 6. Selected Financial Data.
Set forth below are certain selected historical financial data of IDT. The
selected historical financial data for, and as of the end of, each of the
fiscal years in the five-year period ended December 31, 1994 are derived from
the audited financial statements of IDT. The following selected historical
financial data does not give effect to the proposed l-for-15 Reverse Stock
Split.
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
----------------------------------------------------------
1994 1993 1992 1991 1990
------- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C>
(in thousands, except share and per share data)
Statement of Operations Data:
Net sales.................................... $32,365 $48,047 $48,319 $59,205 $50,244
Cost of sales................................ 26,277 39,355 39,920 46,881 40,343
------- ------- ------- ------- -------
Gross profit................................. 6,088 8,692 8,399 12,324 9,901
Selling, general and administrative expenses.. 8,641 7,908 7,690 9,388 8,246
------- ------- ------- ------- -------
Operating income (loss)....................... (2,553) 784 709 2,936 1,655
Interest and other income.................... 321 50 165 127 188
Interest expense............................. 117 120 143 -- 163
------- ------- ------- ------- -------
Income (loss) before tax..................... (2,349) 714 731 2,971 1,680
Provision for income taxes................... 900 287 305 1,259 672
------- ------ ----- ------ ------
Net income (loss)............................ $(3,249) $427 $426 $1,712 $1,008
======= ====== ===== ====== ======
Income (loss) per share of common
stock..................................... $(0.24) $0.03 $0.03 $0.13 $0.08
Average common stock outstanding............. 13,317,165 13,317,165 13,317,165 13,317,165 13,317,165
Balance Sheet Data (at end of period):
Working capital.............................. $8,455 $14,094 $14,455 $13,836 $12,166
Total assets................................. 20,046 22,614 24,093 28,159 22,715
Long-term obligations........................ -- -- 1,106 -- --
Shareholders' equity......................... 14,161 17,410 16,983 16,557 14,845
</TABLE>
11
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Year Ended December 31, 1994 Compared with Year Ended December 31, 1993
IDT's business is seasonal and most of its sales and pre-tax profits occur
in the third quarter of the calendar year. This occurs primarily as a result of
increased business activity in the summer months when schools are closed and
construction activity increases. Market conditions in 1994 remained relatively
flat overall compared with 1993. However, the downturn in the Northeast market,
which typically represents the largest concentration of IDT's revenues, was
partially offset by increased demand in the West and Southeast markets.
IDT's backlog as of December 31, 1994 was $16,400,000 compared with
$21,300,000 as of December 31, 1993. The reduction in the backlog was due to
management's decision to redirect IDT's sales efforts so that IDT manufactured
product is the primary market focus instead of resales of product purchased from
other suppliers and distributed by IDT. IDT anticipates an increase in margins
and a reduction in working capital requirements as a result of this decision.
Revenues decreased from $48,047,000 in 1993 to $32,365,000 in 1994.
Included in net revenues for IDT for the year ended December 31, 1993 was one
large construction project at the State University of New York at Buffalo
Natural Science Center Complex with incremental revenues of $4,700,000. The
project was completed in the fourth quarter of 1993, and due to change orders
and other minor modifications in the project, accounted for another $28,000 in
net revenue for the year ended December 31, 1994. Also included in the year
ended December 31, 1993 were $2,700,000 of revenues attributable to IDT's
Kensington division, which was sold during December 1993. The remaining decline
in net revenues was attributable to the concentration of sales efforts towards
IDT manufactured products rather than product purchased from other suppliers and
distributed by IDT. In this regard, such third party purchases declined 67% from
$11,688,000 in 1993 to $3,827,000 in 1994.
Gross margins increased to 18.8% of revenues in 1994 from 18.1% of
revenues in 1993. Certain raw material prices used in the IDT manufacturing
process have increased significantly over the same period in 1993. Specifically,
prices have increased for wood products used in institutional casework and
aluminium and steel products used in the manufacturing of chalkboards and
markerboards. 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 resulting from the reversal of the provision relating to this
contingency. IDT's gross margin for the year ended December 31, 1993 excluding
the Kensington division, the 1993 use tax adjustment and the one large project
mentioned above, would have been comparable to 1994 as a result of significant
raw material price increases and the decline in the Northeast market in 1994.
This has affected overall margins since IDT operates from a backlog mainly
comprised of fixed price contracts.
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<PAGE>
IDT anticipates the prices to normalize on these raw materials and is
attempting to increase selling prices in a market that remains relatively
flat.
Selling, general and administrative expenses increased $733,000 in 1994, or
9%, in comparison to 1993. This increase was attributable to IDT Merger-related
professional fees of $587,000 and a $702,000 comparative increase in bad debt
expense, offset by lower commissions on reduced levels of sales and cost
reductions realized by organizational changes made in late 1993.
Included in interest and other income for the year ended December 31, 1994
was a $26,000 gain on the sale of IDT's eastern Pennsylvania sales office
building and $230,000 of interest income on the intercompany loan arrangement
with Adience.
Year Ended December 31, 1993 Compared with Year Ended December 31, 1992
Net revenues in 1993 of $48,000,000 were consistent with the prior year's
net revenues of $48,300,000. Included in 1993 and 1992 revenues was one large
construction project at the State University of New York at Buffalo Natural
Science Center Complex with revenues of $4,700,000 and $2,000,000, respectively.
The project was completed in the fourth quarter of 1993. Excluding this project,
net revenues declined $3,000,000, or 6.4%, during 1993. This decline was
attributable to management's efforts to reduce the number of contracts which
require the use of purchased rather than manufactured product, because the
former generates lower gross margins.
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 relating to the reversal of 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 use tax adjustment and
the one large project, mentioned above, which recognized a loss of $290,000
during 1993, would have been 9% higher than 1992. The improvement in gross
margin resulted 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 were established during 1993 to minimize these types of overruns.
Selling, general and administrative expenses increased $218,000, or 2.8%,
during 1993. The increase was primarily the result of more precise allocations
of fringe benefits to selling and administrative wages. Such expenses were
previously included in cost of revenues.
Included in interest and other income for 1993 was the $94,000 loss on the
sale of the Kensington division, which was recorded during December 1993.
13
<PAGE>
The Proposed IDT Merger
In the first full year following the IDT Merger, IDT anticipates, although
there can be no assurances thereof, revenues of approximately $35,000,000, of
which IDT and Posterloid will have revenues of approximately $30,000,000 and
$5,000,000, respectively. IDT expects some improvement in IDT's gross margin of
18.9% in 1994 as a result of the consolidation of the quoting and project
management functions for most of IDT's locations at its Dixonville, Pennsylvania
facility. Inconsistent quoting practices and deficiencies in project management
methodology at IDT field offices have resulted in, from time to time in the
past, cost overruns and other unrecoverable costs.
Management is currently reviewing IDT's product lines and manufacturing
capacity. Although no final decisions have been made, management expects that
IDT's manufacturing facilities will be consolidated and that its casework
product line may be altered. In addition, management is evaluating the
consolidation of Posterloid's and IDT's manufacturing operations. Because of the
heavy seasonal load on operating capacity, any actions taken in this regard are
not likely to occur until the fall of 1995. In any event, the analyses of such
actions will take into account not only the potential for disruption of
production and customer requirements, but also any incremental working capital
or other resources required to effect such actions.
IDT anticipates, although no assurances can be given, the introduction of
PolyVision products in 1996. However, any revenue generated from the sale of
such products will be offset by an annual funding requirement for research and
development of approximately $4,000,000 and the expectation that initial
commercial production will, typical of the flat-panel display industry, be
characterized by low yields and various efficiency-related costs.
Liquidity and Capital Resources
IDT's principal sources of liquidity have been cash from operations, cash
on hand and IDT's credit facility with Congress Financial Corporation
("Congress"). During 1994, IDT generated $987,000 in cash from operating
activities as compared to $523,000 in 1993. In 1994, cash flows from operating
activities included a net loss of $3,249,000, of which $2,315,000, or 71%, was
comprised of non-cash expenses, and also included $1,921,000 of net cash inflows
from changes in working capital components, of which the most significant was a
$1,612,000 cash inflow from a reduction in accounts receivable. The 1994
reduction in working capital requirements is consistent with reduced resales of
product purchased from other suppliers and distributed by IDT. IDT's business is
seasonal and a slowdown in sales typically begins during the latter part of the
third quarter and continues into the first quarter of the following year.
Capital expenditures totaled $303,000 during the year ended December 31,
1994. Approximately $101,000 of capital spending related to the implementation
of a new management information system. In addition, during 1994, IDT had cash
outflows of $2,822,000 representing net loans to its majority shareholder,
Adience. As of December 31, 1994, IDT had no material commitments for capital
spending. It is anticipated that necessary capital expenditures in future years
will not exceed historical depreciation expense and will not represent a
material use of operating funds.
14
<PAGE>
As more fully described under "Business -- Environmental Matters," IDT has
been cited by the Ohio Environmental Protection Agency for violations of Ohio's
hazardous waste regulations.
As of March 15, 1995, IDT had a $5,000,000 credit line under a short-term
credit facility with Congress which remains in effect from year to year unless
terminated upon 60 days' written notice by either party on the anniversary of
the renewal date (June 30) in any year. The facility is collateralized by
accounts receivable, inventory and fixed amounts. The interest rate on loans
under the credit facility is 2.5% over the prime rate. IDT pays a commitment fee
of .5% on the unused portion of the facility. Under the terms of the facility,
IDT is required to maintain minimum levels of net worth and working capital. As
of December 31, 1994, $800,000 had been borrowed under such credit facility. In
addition, at December 31, 1994, IDT had outstanding irrevocable standby letters
of credit totaling $700,000, which reduced the availability under such credit
facility in a like amount. Thus, IDT had available credit of $3,500,000 at
December 31, 1994 under the facility. IDT plans to continue using short-term
bank borrowings to finance interim needs during the next 12 months. The consent
of Congress is required to consummate the IDT Merger and IDT believes that such
consent will be obtained on a timely basis.
At the present time, IDT is also a guarantor of Adience's credit facility
with Congress and has pledged its own accounts receivable, inventory and
equipment to secure the guarantee. As of December 31, 1994, Adience's
outstanding loan balance was $12,468,000, including checks in transit, and it
had outstanding letters of credit totaling $200,000. Under the terms of
Adience's credit facility, Adience is required to maintain certain financial
ratios and other financial conditions. As of December 31, 1994, Adience was not
in compliance with all such financial requirements, but has obtained waivers
from Congress which are effective through March 31, 1995. If the IDT guarantee
is called by Congress, Alpine is obligated to provide IDT the necessary funds to
satisfy any amounts owed under the guarantee.
On or before the effective time of the IDT Merger, IDT will enter into an
agreement with Alpine, pursuant to which IDT may borrow from time to time, prior
to the second anniversary of the effective time of the IDT Merger, up to
$5,000,000 from Alpine to be used by IDT to fund PolyVision research,
development and commercialization activities. Borrowings under the agreement
will be unsecured and will bear interest at a market rate reflecting Alpine's
cost of funds (currently approximately 13.5%), with interest deferred through
the third anniversary of the effective time of the IDT Merger and payable
semiannually thereafter. The principal balance outstanding will be due on the
tenth anniversary of the effective time of the IDT Merger, subject to mandatory
prepayment of principal and interest, in whole or in part, from the net cash
proceeds of any public or private, equity or debt financing made by IDT at any
time before maturity. Alpine's obligation to lend such funds to IDT is subject
to a number of conditions, including review by Alpine of the proposed use of
such funds by IDT. Alpine has informed IDT that this agreement is not in
conflict with the covenants of any other of its financing arrangements currently
in effect. The operating cash flows of IDT and Posterloid, together with the
Congress credit facility and borrowings which may be available from Alpine,
should be sufficient to meet the requirements of IDT after the IDT Merger,
including the needs of the PolyVision development efforts, for the next 12
months, which are estimated to require approximately $4,000,000.
15
<PAGE>
In the long term, the successful introduction of commercially viable
products will be required to continue to support a sustained research and
development effort at its current level. APV will continue to explore
development and licensing opportunities that further broaden the applications of
the PolyVision technology and provide additional funding. In addition, IDT
management will also consider the private and/or public equity markets as
potential capital sources in connection with the goal of commercializing its
PolyVision technology. There can be no assurance, however, that commercially
viable products will be introduced or that such additional sources of funding
will be available on reasonable terms.
Item 8. Financial Statements and Supplementary Data.
The financial statements and supplementary data of IDT appear on pages F-2
through F-16 of this Form 10-K, are indexed herein under Item 14(a)(1), and are
incorporated herein by reference. See also the financial statement schedule
appearing herein under Item 14(a)(2).
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information covering IDT's directors is incorporated herein by reference to
material under the caption "Additional Matters to be Considered at the Annual
Meeting -- Proposal No. 2: Election of IDT Directors -- Nominees for Election at
the Annual Meeting" in the IDT Proxy Statement. Information covering IDT's
executive officers is included as an Optional Item hereof under the caption
"Executive Officers of the Registrant."
Item 11. Executive Compensation.
The response to this Item is incorporated herein by reference to material
under the caption "Additional Matters to be Considered at the Annual Meeting --
Proposal No. 2: Election of IDT Directors -- Executive Compensation" in the IDT
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The response to this Item is incorporated herein by reference to material
under the caption "Principal Holders of IDT, APV and Posterloid Common Stock --
IDT" in the IDT Proxy Statement.
16
<PAGE>
Item 13. Certain Relationships and Related Transactions.
Information concerning certain relationships and related transactions is
incorporated herein by reference to material under the caption "Certain
Relationships and Related Transactions" in the IDT Proxy Statement and Note 3 to
the Notes to Financial Statements appearing on page F-7 of this Form 10-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(l) Financial Statements.
The following financial statements of IDT are submitted in a separate
section beginning on page F-1 pursuant to the requirements of Form 10-K, part
II, Item 8 and Part IV, Items 14(a) and 14(d):
Page
----
Report of Independent Accountants................................. F-1
Balance Sheets as of December 31,
1994 and 1993.................................................... F-2
Statements of Operations for the
Years ended December 31, 1994,
1993 and 1992.................................................... F-3
Statements of Shareholders' Equity for
the Years ended December 31, 1994,
1993 and 1992.................................................... F-4
Statements of Cash Flows for the
Years ended December 31, 1994, 1993
and 1992......................................................... F-5
Notes to Financial Statements..................................... F-6
(a)(2) Financial Statement Schedules.
The following schedule of IDT is submitted for the years ended December 31,
1994, 1993 and 1992:
Page
Schedule II - Valuation and Qualifying Accounts........................ S-1
17
<PAGE>
All other schedules are omitted because they are not applicable or are not
required, or because required information is included in the financial
statements or the notes thereto.
(a)(3) Exhibits.
Exhibit No. Document
- ----------- --------
2.1 Agreement and Plan of Merger, dated as of December 21, 1994, among
IDT, The Alpine Group, Inc., Alpine PolyVision, Inc. and
Posterloid Corporation./(1)/
3.1 Certificate of Incorporation of IDT./(2)/
3.2 By-laws of IDT./(3)/
4.4 Specimen form of Common Stock Certificate of IDT./(2)/
10.1 Asset Acquisition Agreement, dated as of April 24, 1990, relating
to the purchase of the Information Display Division of Adience,
Inc. by IDT./(4)/
10.2 Management and Administrative Services Agreement, dated as of
April 24, 1990, between IDT and Adience, Inc./(2)/
10.3 Employment Agreement, dated as of October 8, 1990, between IDT and
N. Roy Anderson./(3)/
10.4 Tax Sharing Agreement, dated as of April 24, 1990, between IDT and
Adience, Inc./(2)/
10.7 1990 Stock Incentive Plan of IDT./(3)/
10.8 Nonstatutory Stock Option Agreement, dated November 12, 1990,
between IDT and N. Roy Anderson./(3)/
10.9 Accounts Financing Agreement [Security Agreement], dated June 30,
1993, between Congress Financial Corp. ("Congress") and IDT./(5)/
10.10 Covenant Supplement to Accounts Financing Agreement [Security
Agreement], dated June 30, 1993, between Congress and IDT./(5)/
10.11 Inventory Loan Letter, dated June 30, 1993, between Congress and
IDT./(5)/
10.12 Inventory and Equipment Security Agreement Supplement to Accounts
Financing Agreement [Security Agreement], dated June 30, 1993,
between Congress and IDT./(5)/
18
<PAGE>
10.13 Trade Financing Agreement Supplement to Accounts Financing
Agreement [Security Agreement], dated June 30, 1993, between
Congress and IDT./(5)/
10.14 Trademark Collateral Assignment and Security Agreement, dated June
30, 1993, between Congress and IDT./(5)/
- --------------------
(1) Incorporated herein by reference from Current Report on Form 8-K,
dated December 21, 1994.
(2) Incorporated herein by reference from Post-Effective Amendment
No. 1 to Registration Statement No. 33-22701 NY.
(3) Incorporated herein by reference from Annual Report on Form 10-K
for the fiscal year ended December 31, 1990.
(4) Incorporated herein by reference from Current Report on Form 8-K,
dated April 24, 1990.
(5) Incorporated herein by reference from Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.
(b) Reports on Form 8-K.
A Current Report on Form 8-K, dated December 21, 1994, was filed by IDT in
connection with the matters referred to in this Form 10-K under the caption
"Business -- Recent Developments."
19
<PAGE>
600 Grant Street Telephone 412 355 6000
Pittsburgh, PA 15219
Price Waterhouse LLP [LOGO OF PRICE WATERHOUSE]
Report of Independent Accountants
March 17, 1995
To the Board of Directors
and Shareholders of
Information Display Technology, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Information Display Technology,
Inc. (IDT), at December 31, 1994 and 1993, and the results of its operations and
its cash flows for each of the 3 years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of IDTs management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these 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.
As discussed in Note 1, IDT became a majority owned subsidiary of The Alpine
Group Inc. (Alpine) on December 21, 1994. In addition, as discussed in Note 1,
on December 21, 1994, IDT entered into a merger agreement with two of Alpine's
subsidiaries. Consummation of the merger will result in a new reporting entity
and a new basis of accounting for IDT which may differ materially from the
historical accounting basis. As discussed in Note 3, Alpine has certain
financing arrangements with IDT.
/s/ Price Waterhouse LLP
F-1
<PAGE>
Information Display Technology, Inc.
Balance Sheet
December 31, 1994 and 1993
- ----------------------------------------------------------------------------
(in thousands of dollars)
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 315 $ 1,646
Accounts receivable, less allowance for doubtful accounts
(1994 - $462; 1993 - $272) 9,258 11,453
Inventories 3,812 3,438
Costs and estimated earnings in excess of
billings on uncompleted contracts 689 1,596
Prepaid expenses, deposits and other 266 490
Deferred income taxes -- 675
------- -------
Total current assets 14,340 19,298
------- -------
Receivable from affiliate 3,683 861
Deferred income taxes -- 172
Property, plant and equipment:
Land 139 122
Buildings 2,048 2,063
Machinery and equipment 3,326 3,174
------- -------
5,513 5,359
Less - Allowances for depreciation 4,007 3,621
---- ------- -------
1,506 1,738
Other assets 517 545
------- -------
Total assets $20,046 $22,614
======= =======
Liabilities and Shareholders' Equity
Current liabilities:
Line of credit $ 800 $ --
Accounts payable 1,657 2,537
Billings in excess of costs and estimated earnings
on uncompleted contracts 671 469
Accrued expenses 1,158 493
Accrued commissions 260 436
Accrued workers' compensation 589 486
Environmental liability 750 783
------- -------
Total current liabilities 5,885 5,204
------- -------
Commitments and contingencies
Shareholders' equity:
Preferred stock - 5,000 shares authorized; none
issued or outstanding -- --
Common stock - $.001 par value; 50,000,000 shares
authorized; 13,317,165 issued and outstanding 13 13
Paid-in capital 7,451 7,451
Retained earnings 6,697 9,946
------- -------
Total shareholders' equity 14,161 17,410
------- -------
Total liabilities and shareholders' equity $20,046 $22,614
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
Information Display Technology, Inc.
Statement of Operations
Years Ended December 31, 1994, 1993 and 1992
- --------------------------------------------------------------------------------
(in thousands of dollars, except earnings per share data)
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Net revenues $32,365 $48,047 $48,319
Costs and expenses:
Cost of revenues 26,277 39,355 39,920
Selling, general and administrative 8,641 7,908 7,690
------- ------- -------
34,918 47,263 47,610
------- ------- -------
Operating (loss) profit (2,553) 784 709
------- ------- -------
Other income (expense):
Interest and other income 321 50 165
Interest expense (117) (120) (143)
------- ------- -------
(Loss) income before income taxes (2,349) 714 731
------- ------- -------
Income taxes 900 287 305
------- ------- -------
Net (loss) income $(3,249) $ 427 $ 426
------- ------- -------
(Loss) earnings per common share $ (0.24) $ 0.03 $ 0.03
------- ------- -------
Average common shares outstanding
(in thousands) 13,317 13,317 13,317
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
Information Display Technology, Inc.
Staternent of Shareholders' Equity
Years Ended December 31,1994, 1993 and 1992
- -------------------------------------------------------------------------------
(in thousands of dollars)
<TABLE>
<CAPTION>
Common stock Paid-in Retained
Shares Amount capital earnings
(thousands)
<S> <C> <C> <C> <C>
Balance at January 1, 1992 13,317 $ 13 $ 7,451 $ 9,093
Net income -- -- -- 426
------ ----- ------- -------
Balance at December 31, 1992 13,317 13 7,451 9,519
Net income -- -- -- 427
------ ----- ------- -------
Balance at December 31, 1993 13,317 13 7,451 9,946
Net loss -- -- -- (3,249)
------ ----- ------- -------
Balance at December 31, 1994 13,317 $ 13 $ 7,451 $ 6,697
====== ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
Information Display Technology, Inc.
Statement of Cash Flows
Years Ended December 31, 1994, 1993 and 1992
- ------------------------------------------------------------------------------
(in thousands of dollars)
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Cash flow from operating activities:
Net (loss) income $ (3,249) $ 427 $ 426
Noncash expenses and revenues included in income:
Depreciation and amortization 496 510 591
Deferred income taxes 847 294 252
Provision for doubtful accounts 722 20 150
Provision for contract losses 250 -- --
Loss on sale of division -- 94 --
Changes in operating assets and liabilities excluding
proceeds from sale of division:
Short-term investments -- -- 1,910
Accounts receivable 1,612 299 874
Inventories (374) 377 (233)
Costs and estimated earnings in excess of
billings on uncompleted contracts 907 304 174
Prepaid expenses, deposits and other assets 145 (429) (63)
Accounts payable, accrued expenses, commissions
and workers' compensation (538) (1,439) (2,771)
Billings in excess of costs and estimated earnings
on uncompleted contracts 202 (144) 176
State income taxes payable -- -- (221)
Environmental liability (33) (323) 846
-------- ------- -------
Net cash provided by (used in) operating activities 987 523 (1,805)
-------- ------- -------
Cash flow from investing activities:
Purchases of property, plant and equipment (303) (127) (278)
Proceeds from sale of division -- 266 --
Other 7 (30) (188)
-------- ------- -------
Net cash (used in) provided by investing activities (296) 109 (466)
-------- ------- -------
Cash flow from financing activities:
Borrowings - Line of credit, net 800 -- --
Receivable from affiliate, net (2,822) 533 (3,916)
Other -- -- (139)
-------- ------- -------
Net cash used by financing activities (2,022) -- (139)
-------- ------- -------
Net (decrease) increase in cash and cash equivalents (1,331) 632 (2,410)
Cash and cash equivalents at:
Beginning of period 1,646 1,014 3,424
-------- ------- -------
End of period $ 315 $ 1,646 $ 1,014
-------- ------- -------
Supplementary cash flow disclosure:
State income taxes paid $ -- $ 18 $ 293
-------- ------- -------
Interest paid $ 117 $ 120 $ 143
-------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
Information Display Technology, Inc.
December 31, 1994,1993 and 1992
Notes to Financial Statements
(In Thousands of Dollars, Except Per Share Data)
- -------------------------------------------------------------------------------
1. Business and Basis of Presentation
Information Display Technology, Inc., a New York corporation (IDT, or the
Company), manufactures and sells custom-designed and engineered writing,
projection and other visual display surfaces (such as porcelain chalkboards
and markerboards), custom cabinets and workstation and conference center
casework. IDT has its own nationwide marketing network that enables it to
market its products to schools, healthcare facilities, offices and other
institutions throughout the country. IDTs products are marketed under the
trade name "Greensteel." Most of IDTs products 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.
IDT is an 80.3 percent owned subsidiary of Adience, Inc. (Adience). On
December 21, 1994, The Alpine Group, Inc. (Alpine), acquired an additional 82
percent of the outstanding common stock of Adience to increase its ownership
in Adience to approximately 87 percent, resulting in an indirect ownership in
IDT of approximately 70 percent. Also on December 21, 1994, the Company
entered into a merger agreement with Alpine and two of its subsidiaries,
Alpine/PolyVision, Inc. (APV), and Posterloid Corporation (together, IDG),
whereby the Company will be merged with the two Alpine subsidiaries and the
Company will be named Polyvision Corporation.
The merger agreement is subject to the approval of a majority of the
Company's shareholders, with a meeting to vote on the transaction anticipated
to be held in late April or early May 1995. Alpine, which through Adience
controls the vote of approximately 80 percent of the Company's stock eligible
to vote, has indicated it will vote for the merger. Consummation of the
merger would result in a new reporting entity and would be accounted for as a
reorganization of entities under common control after giving effect to push-
down accounting to adjust IDTs accounting basis to fair value related to the
acquisition of Adience by Alpine. The new accounting basis may differ
materially from the historical accounting basis of IDT, which has been
retained in these financial statements.
The statements of income include all of IDTs direct costs and expenses of
operations and certain allocated expenses from Adience (see Note 3).
2. Significant Accounting Policies
Cash Flow Reporting
IDT considers all highly liquid investments with an original maturity of 3
months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market, with cost determined
on the first-in first-out basis. Inventories consisted primarily of raw
materials of $3,198 and $3,038, work-in-process of $372 and $286, and
finished goods of $242 and $114 at December 31, 1994 and 1993, respectively.
The Company has a reserve of $125 for obsolete and slow-moving inventory for
each of the years December 31, 1994 and 1993.
F-6
<PAGE>
Information Display Technology, Inc.
December 31, 1994, 1993 and 1992
Notes to Financial Statements
(In Thousands of Dollars, Except Per Share Data)
- -------------------------------------------------------------------------------
Property, Plant and Equipment
Property, plant and equipment are stated on the basis of cost and include
expenditures for new equipment and improvements of existing equipment that
materially extend the life of properties. Expenditures for normal maintenance
and repairs are charged to expense as incurred and amounted to $216 in 1994,
$334 in 1993 and $227 in 1992. Provisions for depreciation are based on the
estimated useful lives of the respective assets and are computed using
straight-line methods.
Revenue Recognition
IDTs revenues are from sales of specific products and construction of custom
installations under contracts. Revenues from sales of specific products are
recorded when title transfers, which is typically when shipment occurs.
Revenues from contracts are recorded on the percentage-of-completion method
of accounting, measured on the basis of costs incurred to estimated total
costs, which approximates contract performance to date. Approximately 75
percent of 1994, 77 percent of 1993 and 68 percent of 1992 revenues were from
contracts, and approximately 82 percent of 1994, 84 percent of 1993 and 74
percent of 1992 costs of revenues were from contracts. Provisions for losses
on uncompleted contracts are made if it is determined that a contract will
ultimately result in a loss.
Warranty Claims
Warranty claims are accounted for on an accrual basis based on historical
experience. There have been no significant warranty claims to date.
Income Taxes
The operating results of IDT are included in Adience's consolidated federal
income tax return for the period ended December 21, 1994, the date of
Alpine's acquisition of Adience. (The operating results of IDT will be
included in Alpine's consolidated federal income tax return from that date
through the date the merger described above becomes effective.) In accordance
with a tax-sharing agreement between Adience and IDT, federal income tax
expense is computed on a separate-company basis. All members of the
consolidated group are jointly and severally liable for federal income taxes
of the consolidated group. Additionally, IDT files state income tax returns
as a separate company. Deferred income taxes are recorded to reflect certain
items of income and expense recognized in different periods for financial
reporting and tax purposes. IDT accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes," which requires an asset and liability approach in accounting
for income taxes.
Earnings Per Common Share
Earnings per common share are computed by dividing net income by the weighted
average number of shares outstanding.
3. Allocations and Other Related-Party Transactions
Adience performs certain financial and risk management and administrative
services for the Company. The fees charged to the Company for these services
were $300 in each of
F-7
<PAGE>
Information Display Technology, Inc.
December 31, 1994, 1993 and 1992
Notes to Financial Statements
(In Thousands of Dollars, Except Per Share Data)
- -------------------------------------------------------------------------------
1994 and 1993 and $135 in 1992. Management believes that the cost of
comparable services, had IDT operated without affiliation to Adience, would
have amounted to approximately $420 annually.
Adience allocates general insurance expense based on revenues and allocates
unemployment and workers' compensation insurance expense based on payroll
costs. Such allocated costs totaled $633 in 1994, $1,296 in 1993 and $1,283
in 1992 and are reflected in IDT's results of operations.
An advance agreement has existed between the Company and Adience since 1991.
Under the terms of the agreement, the Company may loan to or borrow from
Adience up to a maximum amount of $5,000 with no specified repayment terms.
Interest accrues on the outstanding balance at 2.5 percent over the prime
rate (effective rate of 11 percent at December 31, 1994), which is equivalent
to the Company's interest rate paid to Congress Financial Corporation
(Congress), the Company's main lender.
The net amount of interest income recognized by IDT from Adience was $230,
$107 and $53 during 1994, 1993 and 1992, respectively.
In connection with the acquisition of Adience by Alpine and the anticipated
merger, approximately $587 of costs have been incurred by IDT or allocated to
IDT. Alpine has committed to provide IDT up to $5,000 to fund the PolyVision
research, development and communication activities. See Note 5.
F-8
<PAGE>
Information Display Technology, Inc.
December 31, 1994, 1993 and 1992
Notes to Financial Statements
(In Thousands of Dollars, Except Per Share Data)
- -------------------------------------------------------------------------------
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, 1994:
Costs and estimated
earnings of $1,724 $ 21,602 $ 9,680 $ 31,282
Billings 20,913 10,351 31,264
---------- --------- --------
$ 689 $ (671) $ 18
---------- --------- --------
December 31, 1993:
Costs and estimated
earnings of $1,649 $ 19,761 $ 6,080 $ 25,841
Billings 18,165 6,549 24,714
---------- --------- --------
$ 1,596 $ (469) $ 1,127
---------- --------- --------
</TABLE>
Accounts receivable at December 31, 1994 and 1993, included amounts billed
but not yet paid by customers under retainage provisions of approximately
$2,678 and $2,989, respectively. Such amounts are generally due within 1
year.
5. Financing Agreement and Guaranty
IDT has a $5,000 line-of-credit agreement with Congress that expires June 30,
1995, but is automatically renewed unless either party gives 60 days' advance
notice. If the Congress facility is not renewed or if alternate financing is
not obtained, management believes that IDT will be able to generate
sufficient cash flow from operations to meet its working capital needs. Under
this agreement, IDT may request loan advances not to exceed the lesser of
$5,000 or available collateral (85 percent of eligible accounts receivable
less than 90 days, plus 30 percent of raw material and finished goods
inventory). The loan is collateralized by accounts receivable, inventory and
equipment. The interest rate on this loan is 2.5 percent over the prime rate
(effective rate of 11 percent at December 31, 1994).
IDT pays a commitment fee on the unused portion of the credit facility of 0.5
percent. Under the terms of the financing agreement, IDT is required to
maintain certain financial ratios and other financial conditions. The
agreement does not allow IDT to incur certain additional indebtedness; pay
cash dividends; make certain investments, advances or loans; and it limits
IDTs annual capital expenditures. As of December 31, 1994, IDT was in
compliance with the covenants.
F-9
<PAGE>
Information Display Technology, Inc.
December 31, 1994, 1993 and 1992
Notes to Financial Statements
(In Thousands of Dollars, Except Per Share Data)
- --------------------------------------------------------------------------------
Adience also has a line-of-credit agreement with Congress that expires
June 30, 1995. Adience may borrow the lesser of $15,000 or available
collateral.
IDT guarantees the amounts borrowed by Adience, and IDT's accounts
receivable, inventory and equipment are pledged as collateral under
Adience's financing agreement. As of December 31, 1994, Adience's
outstanding loan balance was $12,468 including checks in transit and it had
outstanding letters of credit of $200. Under the terms of the financing
agreement, Adience is required to maintain certain financial ratios and
other financial conditions. As of December 31, 1994, Adience was not in
compliance with all financial requirements of this agreement but has
obtained waivers through March 31, 1995. If the IDT guarantee is called by
Congress, Alpine is obligated to provide IDT the necessary funds to satisfy
the obligation.
6. Commitments and Contingencies
At December 31, 1994, IDT had $700 of outstanding irrevocable standby
letters of credit, not reflected in the accompanying financial statements,
as guarantees in force for various performance and bid bonds. These
instruments are usually for a period of 1 year or the duration of the
contract. Currently, the letters of credit reduce IDT's availability under
the Congress credit facility.
In February 1992, IDT was cited by the Ohio Environmental Protection Agency
(the Ohio EPA) for violations of Ohio's hazardous waste regulations,
including speculative accumulation of waste and illegal disposal of
hazardous waste on the site of its Alliance, Ohio, facility. The Company
accrued $1,106 at December 31, 1992, for the cleanup of this site.
In December 1993, IDT and Adience signed a consent order with the Ohio EPA
and Ohio Attorney General that 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 required 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. The work to be
conducted under the closure plan was substantially completed in February
1995, subject to the Company receiving all necessary approvals from the Ohio
EPA. In addition, the Company is preparing a risk assessment study which
demonstrates, in management's opinion, that no further cleanup actions will
be required on the remaining property area not addressed under the closure
plan. Based on administrative precedent, IDT believes that it is likely that
the Ohio EPA will agree with the risk assessment study. If such an agreement
is not reached, additional costs may have to be incurred to complete
additional remediation efforts. Although there are no assurances that
additional costs will not have to be incurred, the Company believes that
such costs will not need to be incurred.
At December 31, 1994, environmental accruals amounted to $750, which
represents management's reasonable estimate of the amounts 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 paid $693.
F-10
<PAGE>
Information Display Technology, Inc.
December 31, 1994, 1993 and 1992
Notes to Financial Statements
(In Thousands of Dollars, Except Per Share Data)
- --------------------------------------------------------------------------------
(excluding the $200 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. 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 from Alpine that
Adience will honor such claim. Adience has reimbursed IDT $643 through
December 31, 1994; if Adience is financially unable to honor its remaining
obligation, such costs would be borne by IDT.
In October 1994, three district sales managers of IDT filed a lawsuit in
United States District Court for the Western District of Pennsylvania against
IDT. The lawsuit alleges that IDT has taken unlawful and discriminatory
employment actions in an effort to induce the three employees, because of
their ages, to leave the employment of IDT and demands compensatory damages
in excess of $25 (the statutory minimum) for each employee. The lawsuit also
alleges breach by IDT of each of their employment contracts. In December
1994, IDT filed an answer denying all such allegations. Management of IDT
believes that the claims filed against IDT have no merit and intends to
vigorously defend the lawsuit. Accordingly, IDT has not accrued for this
contingency in the accompanying financial statements.
7. Income Taxes
Federal and state income taxes (benefits) applicable to IDT, computed on a
separate-company basis, consisted of the following:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------------
1994 1993 1992
----------------------- ---------------------- ----------------------
Current Deferred Total Current Deferred Total Current Deferred Total
<S> <C>
Federal $ (6) $ 757 $ 751 $ (6) $ 230 $ 224 $ 42 $199 $ 241
State 59 90 149 (1) 64 63 11 53 64
----- ----- ----- ---- ----- ----- ---- ---- -----
$ 53 $ 847 $ 900 $ (7) $ 294 $ 287 $ 53 $ 252 $ 305
----- ----- ----- ---- ----- ----- ---- ---- -----
F-11
</TABLE>
<PAGE>
Information Display Technology, Inc.
December 31, 1994,1993 and 1992
Notes to Financial Statements
(In Thousands of Dollars, Except Per Share Data)
- -------------------------------------------------------------------------------
The effective income tax rate varied from the statutory federal income tax
rate as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Statutory federal income tax
(benefit) rate (34.0)% 34.0% 34.0%
Increases:
Increase in valuation allowance 68.0 - -
State income taxes, net of
federal tax benefit 4.2 5.8 5.7
Other items 0.1 .4 2.0
----- ---- ----
38.3% 40.2% 41.7%
----- ---- ----
</TABLE>
Deferred tax assets comprised the following at December 31:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Property, plant and equipment $ 205 $ 156
Inventory reserves 50 50
Accrued commissions and labor costs 353 434
Bad debt reserve 186 109
Reserve for future losses 100 -
Reserve for merger fees 201 -
NOL carryforward 662 -
Other 24 98
Valuation allowance (1,781) -
------- ------
$ - $ 847
------- ------
</TABLE>
SFAS No. 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." As a result of the current tax sharing agreement between
IDT and Adience and as a result of the proposed merger, it is not "more
likely than not" that the reorganized entities will generate taxable income
in the future sufficient to utilize any of IDT's net operating loss
carryforwards and net deductible temporary differences. Accordingly, a full
valuation allowance has been provided for all deferred tax assets as of
December 31, 1994.
As of December 31, 1994, IDT, on a separate-company basis, had net operating
loss carryforwards for federal income tax purposes of approximately $1,648,
which will expire
F-12
<PAGE>
Information Display Technology, Inc.
December 31, 1994, 1993 and 1992
Notes to Financial Statements
(In Thousands of Dollars, Except Per Share Data)
- -------------------------------------------------------------------------------
in 2008 and 2009. Under Internal Revenue Code Section 382 and other
limitations, the use of the loss carryforwards will be limited as a result of
the December 21, 1994, ownership change.
8. 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, including those employed by
IDT, who meet minimum age and service requirements. Effective June 30, 1993,
the remaining shares were allocated to the participants' accounts. The cost
of the ESOP is borne by IDT through annual contributions to an Employee Stock
Ownership Trust equal to 7 percent of each participant's base salary.
Contributions to the ESOP charged to expense for IDT employees amounted to
$115 and $238 for 1993 and 1992, respectively.
401(k) Savings Plan
During 1992, Adience initiated a 401(k) savings plan. This plan covers
substantially all nonbargaining 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. In
addition, effective January 1, 1994, the Company declared a discretionary
contribution equal to 3 percent of employees' salaries. Amounts charged
against income totaled $194, $42 and $12 in 1994, 1993 and 1992,
respectively.
Defined Benefit Pension Plan
IDT maintains a defined benefit pension plan covering substantially all
hourly employees. The plan provides pension benefits based on the employee's
years of service. IDT's funding policy is to make annual contributions to the
extent deductible for federal income tax purposes.
F-13
<PAGE>
Information Display Technology, Inc.
December 31, 1994, 1993 and 1992
Notes to Financial Statements
(In Thousands of Dollars, Except Per Share Data)
- -------------------------------------------------------------------------------
The Company's pension plan benefit obligations and assets were valued as of
December 31, 1994, 1993 and 1992. Net pension cost for each year includes
the following components:
<TABLE>
<CAPTION>
December 31,
----------------------------
1994 1993 1992
<S> <C> <C> <C>
Service cost - Benefits earned during
the period $ 52 $ 51 $ 48
Interest cost on projected
benefit obligations 30 27 29
Return on plan assets (55) (47) (44)
Amortization of net asset existing
at date of adoption (8) (8) (8)
Amortization of actuarial gain (3) (2) (6)
------- ------- --------
Net pension cost $ 16 $ 21 $ 19
------- ------- --------
</TABLE>
The following table sets forth the funding status of the plan and amounts
recognized in the accompanying balance sheet at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ (391) $ (407)
Nonvested benefits (21) (28)
-------- --------
Accumulated benefit obligations (412) (435)
Effect of projected future salary increases - -
-------- --------
Projected benefit obligations (412) (435)
Assets available for benefits -
Funded assets at fair value 690 680
-------- --------
Funded status 278 245
Unrecognized transition amount (157) (165)
Unrecognized net gain (62) (175)
-------- --------
Prepaid (accrued) pension costs $ 59 $ (95)
-------- --------
</TABLE>
The plan assets are invested in cash, treasury bonds and listed stocks and
bonds.
F-14
<PAGE>
Information Display Technology, Inc.
December 31, 1994, 1993 and 1992
Notes to Financial Statements
(In Thousands of Dollars, Except Per Share Data)
- --------------------------------------------------------------------------------
Assumptions used to develop the net pension costs for 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Discount rate 7.5% 7.5%
Expected long-term rate of return on assets 7.5% 7.5%
Rate of increase in compensation levels 0% 0%
</TABLE>
Certain union employees of IDT are covered by multiemployer defined benefit
retirement plans. Expenses relating to these plans amounted to
approximately $139, $367 and $255 for 1994, 1993 and 1992, respectively.
Stock Option Plan
On November 12, 1990, the Board of Directors of IDT approved an incentive
stock option plan, pursuant to which a maximum aggregate of 300,000 shares
have been reserved for grants to key personnel. Generally, options become
exercisable 6 months following the date of grant and expire 10 years from
the date of grant. The plan provides for the option price to be paid in
cash, in shares of IDTs common stock owned by the option holder, or in a
combination of such shares and cash. As of December 31, 1994 and 1993,
177,500 options were outstanding. No options were granted or exercised for
the years ended December 31, 1994 and 1993. Each option granted entitles the
holder to acquire one share of IDT common stock for each option at an
exercise price of $2.50, which was above market value at the date of the
grant. At December 21, 1994, the stock option plan was terminated without
any effect on any outstanding options under such plan and a new stock option
plan was adopted, subject to final shareholder approval. Under the new stock
option plan, 6,000,000 shares are reserved for grants to key personnel. As
of December 31, 1994, no options were outstanding.
9. Operating Leases
IDT leases certain buildings, machinery and equipment under both short- and
long-term lease arrangements. As of December 31, 1994, future minimum lease
commitments under noncancelable operating leases were $283 for 1995, $171
for 1996, and $101 for 1997.
Aggregate rental expense was approximately $388 in 1994, $420 in 1993 and
$373 in 1992.
10. Sale of Division
In December 1993, the Company sold its Kensington division. The sale
resulted in cash proceeds of $266 and a pretax loss of approximately $94,
which has been reflected in interest and other income.
F-15
<PAGE>
Information Display Technology, Inc.
December 31, 1994, 1993 and 1992
Notes to Financial Statements
(In Thousands of Dollars, Except Per Share Data)
- --------------------------------------------------------------------------------
1 1. Quarterly Data and Fourth Quarter Adjustments (Unaudited)
<TABLE>
<CAPTION>
Quarter ended 1994 March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Net revenues $6,084 $9,123 $10,682 $6,476
Cost of revenues $5,058 $7,165 $8,502 $5,552
Operating profit (loss) $(608) $143 $586 $(2,674)
Net income (loss) $(320) $113 $361 $(3,403)
Earnings (loss) per
common share $(0.02) $0.01 $0.03 $(0.26)
Weighted average common
shares outstanding 13,317 13,317 13,317 13,317
Quarter ended 1993 March 31 June 30 September 30 December 31
Net revenues $10,682 $13,058 $15,021 $9,286
Cost of revenues $8,513 $11,033 $12,110 $7,699
Operating profit (loss) $14 $66 $907 $(203)
Net income (loss) $10 $(7) $530 $(106)
Earnings (loss) per
common share $ - $ - $0.04 $(0.01)
Weighted average common
shares outstanding 13,317 13,317 13,317 13,317
</TABLE>
F-16
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
INFORMATION DISPLAY TECHNOLOGY, INC.
(Dollars in thousands)
<TABLE>
<CAPTION>
Charged to
Balance at Charged to Other Balance at
Beginning of Costs and Accounts- Deductions- End of
Description Period Expenses Describe Describe Period
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts $272 $722 $532(1) $462
Inventory obsolescence reserve 125 125
- -------------------------------------------------------------------------------------------------------
Totals $397 $722 $532 $587
=======================================================================================================
Environmental Liability $783 $41 $300 (3) $374 (2) $750
=======================================================================================================
Year ended December 31, 1993:
Deducted from asset accounts:
Allowance for doubtful accounts $295 $20 $43 (1) $272
Inventory obsolescence reserve 125 125
- -------------------------------------------------------------------------------------------------------
Totals $420 $20 $43 $397
=======================================================================================================
Environmental Liability $1,106 $0 $323 (2) $783
=======================================================================================================
Year ended December 31, 1992:
Deducted from asset accounts:
Allowance for doubtful accounts $200 $150 $55 (1) $295
Inventory obsolescence reserve 125 125
------------------------------------------------------------------------------------------------------
Totals $325 $150 $55 $420
=======================================================================================================
Environmental Liability $260 $1,042 (3) $196 (2) $1,106
=======================================================================================================
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Payments made related to the Ohio EPA Consent Order (See Note 6).
(3) Excess of initial $250 is funded by IDT's majority shareholder, Adience,
Inc., and charged to the intercompany "Receivable from Parent" account.
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or l5(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INFORMATION DISPLAY TECHNOLOGY, INC.
Date: March 29, 1995 By: /s/Alan J. Nickerson
-------------------------------
Alan J. Nickerson
Chief Financial Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Steven S. Elbaum Chairman of the Board and March 29, 1995
- ----------------------------- Director
Steven S. Elbaum
/s/ N. Roy Anderson President, Chief Operating March 29, 1995
- ----------------------------- Officer and Director (principal
N. Roy Anderson executive officer)
/s/ Alan J. Nickerson Chief Financial Officer, March 29, 1995
- ----------------------------- Secretary and Director
Alan J. Nickerson (principal financial and
accounting officer)
/s/ Bragi F. Schut Director March 29, 1995
- ------------------------------
Bragi F. Schut
/s/ James R. Kanely Director March 29, 1995
- ------------------------------
James R. Kanely
/s/ Herbert T. Kerr Director March 29, 1995
- -------------------------------
Herbert T. Kerr
/s/ Thomas M. Kerr Director March 29, 1995
- -------------------------------
Thomas M. Kerr
</TABLE>
