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.
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
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.
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
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
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.
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
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
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.
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.
Heat Technology Division
Adience owns plants at the following locations:
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:
IDT
The information set forth under the caption "Properties" of the IDT Form 10-K is incorporated herein by reference.
Item 3.
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.
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.
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.
PART II
Item 5.
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.
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.
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.
(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.
Item 7.
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
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).
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.
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
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
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,
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.
(1) For further discussion, see Note 1 to Consolidated Financial Statements.
Excluding the effects of reorganization items, the pre-emergence and post- emergence loss of $4.7 million and $13.6 million, respectively, decreased by $5.7 million from 1992, reflecting primarily a reduction in selling, general and administrative expenses of $2.8 million and a decrease in interest
expense of $7.3 million, offset partially by a net increase in depreciation and amortization expense of $7.2 million. Included in the net increase in amortization expense for 1993 is the fourth quarter write down of the Company's reorganization value in excess of amounts allocable to identifiable assets. The amount written down was based on management's comparison of actual cash flows for the post-emergence period through December 31, 1993 with the projected cash flows used to arrive at the reorganization value at June 30, 1993. This charge increased the post-emergence loss by $8 million or $.80 per share.
Additional losses from previously discontinued operations and disposals amounted to $400,000 and $84,000 for the pre-emergence and post-emergence periods, respectively, and $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:
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.
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.
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
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
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.
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.
Item 8.
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.
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.
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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
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
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
The accompanying notes are an integral part of these consolidated financial statements.
ADIENCE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands of Dollars, Except Per Share Data)
* 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
ADIENCE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of Dollars)
See Note 1 for significant non-cash transactions not reflected above.
The accompanying notes are an integral part of these consolidated financial statements.
ADIENCE, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (In Thousands of Dollars, Except Per Share Data)
The accompanying notes are an integral part of these consolidated financial statements.
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.
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.
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:
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.
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:
ADIENCE, INC. CONSOLIDATING BALANCE SHEET AS OF JUNE 30, 1993 UNAUDITED
ADIENCE, INC. CONSOLIDATING BALANCE SHEET AS OF JUNE 30, 1993 UNAUDITED
Note 1 - Continued
The following entries record the provisions of the Plan and the adoption of fresh start reporting:
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.
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.
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:
ADIENCE, INC. CONSOLIDATING PRO FORMA STATEMENT OF OPERATIONS
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:
5. Other Assets
Included in other assets are the following:
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.
7. Long-Term Obligations
Long-term obligations consisted of the following:
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:
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.
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.
12. Income Taxes
(Loss) income from continuing operations before income taxes, and extraordinary item consisted of:
Federal, foreign, and state income taxes (benefits) from continuing operations consisted of the following:
Note 12 - Continued
The effective income tax rate from continuing operations varied from the statutory federal income tax (benefit) rate as follows:
Deferred tax liabilities (assets) are comprised of the following at December 31, 1994 and December 31, 1993:
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.
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.
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.
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:
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.
Item 9.
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.
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.
Item 11.
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
/(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.
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
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).
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.
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.
Item 13.
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.
PART IV
Item 14.
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.
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.
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.
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.
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
EXHIBITS TO FORM 10-K
ADIENCE, INC.
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.
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.
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.
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.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ADIENCE, INC. (THOUSANDS OF DOLLARS)
(1) Uncollectible accounts written off, net of recoveries. (2) Inventory balances written off.