Back to GetFilings.com

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

   X    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

or

         Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 0-27202

ADVANCED LIGHTING TECHNOLOGIES, INC.

440 / 519-0500

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes      ü     No          

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes          No      ü     

There were 23,807,347 shares of the Registrant’s Common Stock, $.001 par value per share, outstanding as of September 30, 2003.

Table of Contents

INDEX

     Advanced Lighting Technologies, Inc.

Table of Contents

Advanced Lighting Technologies, Inc.
Consolidated Balance Sheets
(in thousands, except per share amounts)

See notes to consolidated financial statements

2

Table of Contents

Advanced Lighting Technologies, Inc.
Consolidated Balance Sheets
(in thousands, except per share amounts)

See notes to consolidated financial statements

3

Table of Contents

Advanced Lighting Technologies, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share dollar amounts)

See notes to condensed consolidated financial statements

4

Table of Contents

Advanced Lighting Technologies, Inc.
Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)
Three Months Ended September 30, 2003
(in thousands)

See notes to condensed consolidated financial statements

5

Table of Contents

Advanced Lighting Technologies, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)

See notes to condensed consolidated financial statements

6

Table of Contents

Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
(Dollars in thousands, except per share data)

A.     Organization

Advanced Lighting Technologies, Inc. (the “Company” or “ADLT”) is an innovation-driven designer, manufacturer and marketer of metal halide lighting products, including materials, system components, systems and equipment. The Company also develops, manufactures and markets passive optical telecommunications devices, components and equipment based on the optical coating technologies of its wholly-owned subsidiary, Deposition Sciences, Inc. (“DSI”).

B.     Voluntary Bankruptcy Filing

On February 5, 2003, Advanced Lighting Technologies, Inc. (the “Company” or “ADLT”) and six of its United States subsidiaries, (collectively, the “Debtors”), filed voluntary petitions for reorganization (the “Filing”) under Chapter 11 of the United States Bankruptcy Code (“Chapter 11” or the “Bankruptcy Code”) in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the “Bankruptcy Court”). ADLT’s non-U.S. operating subsidiaries and DSI, a U.S. subsidiary, were not a part of the Filing.

Background of Filing—In the fourth quarter of fiscal 2002, the Company incurred a loss from operations and at June 30, 2002 was in default on its fourth quarter fixed charge coverage ratio under its then existing Bank Credit Facility. On September 16, 2002 ADLT and its bank group entered into a Forbearance Agreement. At the end of the second quarter of fiscal 2003 the Company was in default under the Forbearance Agreement. In addition, in accordance with the terms of the Forbearance Agreement, the Company did not make the September 16, 2002 semi-annual interest payment on its 8% Senior Notes which resulted in an Event of Default under the Senior Notes Indenture. As a result of the defaults, the trustee for the noteholders declared all principal and interest due and payable immediately on the 8% Senior Notes. The Filing by ADLT was made since it did not have the available funds to pay the noteholders and because of the uncertainty of the willingness of the bank group to grant continued forbearance under acceptable terms. These defaults are discussed in more detail in Note F. Under Chapter 11, the Debtors have continued to operate their businesses as debtors-in-possession under court protection from their creditors and claimants, while using the Chapter 11 process to develop and implement a plan for addressing the repayment of its Debtor-in-Possession Facility and 8% Senior Notes.

Consequence of Filing—As a consequence of the Filing, all pre-petition liabilities of the Debtors are stayed and no party may take any action to realize its pre-petition claims except pursuant to order of the Bankruptcy Court. It is the Debtors’ intention to address all of their pre-petition claims as well as the interests of their preferred and common shareholders and, in that regard, filed a plan of reorganization with the Bankruptcy Court on April 28, 2003, and amended plans on August 15, 2003, September 16, 2003, and October 3, 2003. On October 3, 2003, the Bankruptcy Court approved the adequacy of the disclosure statement describing the plan, as amended. It is currently impossible to predict with any degree of certainty whether the plan, as amended, will be accepted by the Company’s creditors and common shareholders. Generally, under the provisions of the Bankruptcy Code, holders of equity interests may not participate under a plan of reorganization unless the claims of creditors are satisfied

7

Table of Contents

Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
(Dollars in thousands, except per share data)

B.     Voluntary Bankruptcy Filing (continued)

in full under the plan or unless creditors accept a reorganization plan that permits holders of equity interests to participate. A committee representing unsecured creditors, including the noteholders, and a committee representing equity security holders have been appointed by the United States Trustee. In accordance with the provisions of the Bankruptcy Code, these committees have the general right to be heard on all matters that come before the Bankruptcy Court under or in connection with the Filing. The Debtors are also required to bear certain of these committees’ costs and expenses, including those of their legal counsel and financial advisors. Due to material uncertainties, it is not possible to predict the length of time the Debtors will operate under Chapter 11 protection, the outcome of the reorganization in general, the effect on the Debtors’ business or the recovery by creditors of the Debtors and equity holders of ADLT.

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. However, as a result of the Filing, such realization of certain Debtors’ assets and liquidation of certain Debtors’ liabilities are subject to significant uncertainty and raises substantial doubt about the Company’s ability to continue as a going concern. Further, a plan of reorganization could materially change the amounts and classifications reported in the condensed consolidated financial statements, which do not give effect to any adjustments to the carrying value or classification of assets or liabilities that might be necessary as a consequence of a specific plan of reorganization.

On June 30, 2003, the Debtors obtained a new Debtor-in-Possession credit facility from two financial institutions (the “Replacement DIP Facility”). Proceeds from the Replacement DIP Facility were used to repay the Debtors’ original Debtor-in-Possesion credit facility (the “Original DIP Facility”) and all remaining amounts due on the existing secured Bank Credit Facility. The Replacement DIP Facility consists of a revolving loan and two term loans. The revolving loan facility allows the Debtors to incur up to $18,500 in revolving loans, subject to the availability of adequate collateral. The revolving loan bears interest at the prime rate plus 1% or at the London Interbank Borrowing Rate (“LIBOR”) plus 3%. One of the term loans is in the amount of $5,000, bears interest at the prime rate of interest plus 2% or at LIBOR plus 5%, and requires principal payments of $83 per month beginning October 1, 2003. The other term loan is in the amount of $13,500 and bears interest at the prime rate of interest plus 6% per annum, with payment of 2% per annum deferred until maturity. The Replacement DIP Facility originally extended to October 31, 2003 and does not require the Debtors to sell assets. The Company secured an amendment to the Replacement Facility dated September 16, 2003, that extends the term to February 28, 2004, which would serve to extend the Replacement DIP Facility beyond the anticipated date of emergence from bankruptcy. The Bankruptcy Court issued a final order approving the extension of the Replacement DIP Facility on October 23, 2003.

As part of the bankruptcy process, the Company is pursuing restructuring with its noteholders, other creditors and equity holders. While the Company has continued to manage its business as a debtor-in-possession, it has received approval from the Bankruptcy Court to, among other things, pay or otherwise

8

Table of Contents

Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
(Dollars in thousands, except per share data)

B.     Voluntary Bankruptcy Filing (continued)

honor certain of its pre-petition obligations, including claims of critical trade creditors, customer warranty and rebate programs, and employee wages and benefits in the ordinary course of business.

Plan of Reorganization—The Company has had ongoing negotiations with the Official Committee of Unsecured Creditors (the “Creditors Committee”). In the absence of an agreement with the Creditors Committee, on April 28, 2003 the Company filed a Disclosure Statement with respect to a Joint Chapter 11 Plan of Reorganization (the “Original Plan”) with the Bankruptcy Court based substantially on one of its last restructuring proposals to the Creditors Committee. Under the proposed terms of the Original Plan, unclassified claims, including administrative claims, priority tax claims and the DIP Facility claim, would have been paid in cash on the effective date of the Original Plan. In addition, the existing pre-petition Revolving Credit Facilities claim, other secured claims and classified priority claims would have been paid in cash (except to the extent that the Company sought to reinstate secured claims), either on the effective date of the Original Plan or in installment payments, as provided in the Original Plan. Further, the Original Plan proposed exchanging for existing unsecured debt and preferred and common stock, a new debt issue and new preferred and common stock issues. Unsecured creditors of ADLT would have been provided with an option on form of payment; unsecured creditors of the other Debtors would have been paid in installment payments. Holders of the Company’s Common Stock would have received common stock that would have been diluted to 2% if the Company failed to redeem the new preferred stock within three years.

Based on negotiations with the official Creditors Committee and General Electric Company (“GE”), which at that time owned all of the Company’s Series A Preferred Stock outstanding, subsequent to the filing of the Original Plan, the Debtors determined that a consensual restructuring was more probable than the Original Plan. On May 28, 2003, the Company’s Board of Directors approved a revised Plan of Reorganization (the “Noteholder Plan”) and an agreement in principle on the Noteholder Plan was reached with the Creditors Committee and GE. The Noteholder Plan provided substantially the same treatment for creditors of the Company as under the Original Plan except as otherwise noted herein. In particular, the Noteholder Plan provided that the $100,000 8% Senior Notes and unpaid interest due on such Notes would be exchanged for new notes having a principal amount of $40,000. In addition, the holders of the Notes would have received common stock representing in aggregate approximately 79.2% of the common stock. The preferred shareholder would have received approximately 11.6% of the common stock and incentives for certain incremental business and cost savings initiatives. The Company would have established a new management incentive plan which would have had shares available equal to approximately 9.2% of the common stock. The holders of the Company’s Common Stock, including holders of existing warrants and options who acquire shares pursuant to the terms of such instruments, would have received in aggregate $2,850, less the professional fees (up to $350) incurred by the committee representing the common shareholders. The Noteholder Plan also provided for incentives to GE for incremental purchases from the Company (other than APL Engineered Materials, Inc.) and management fees to certain noteholders, and, if management services were requested by the Company, compensation to GE. The Noteholder Plan was not filed.

9

Table of Contents

Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
(Dollars in thousands, except per share data)

B.     Voluntary Bankruptcy Filing (continued)

On August 15, 2003, GE sold its equity interests in the Company to Saratoga Lighting Holdings, LLC (“Saratoga Lighting”) for cash consideration of $12,000. Immediately following Saratoga Lighting’s purchase of the GE equity interests, and in accordance with the agreement between Saratoga Lighting and GE, Messrs. Breen and Mohn, who had been nominated by GE to the Company’s Board of Directors, resigned as directors of the Company. Following such acquisition, Saratoga Lighting informed the Company’s directors that it would not support the Noteholder Plan. As a result, the Company’s Board of Directors determined that there was a substantial risk that the Noteholder Plan was not confirmable. The Company’s Board of Directors approved a revised Plan of Reorganization (the “Saratoga Joint Plan”) on August 15, 2003. The Saratoga Joint Plan provides substantially the same treatment for creditors of the Company as under the Original Plan except as otherwise noted herein. In particular, the Saratoga Joint Plan provided that the $100,000 8% Senior Notes and unpaid interest due on such Notes will be exchanged for new notes having a principal amount of approximately $108,000. The unsecured creditors will be offered the option to be paid 85% of the amounts of their claims shortly after the effective date of the Saratoga Joint Plan or 100% of the amounts of their claims, plus interest, over one year. The preferred shareholder will receive, in exchange for the existing Series A Stock and an $18,000 cash investment, new redeemable preferred stock and approximately 90.8% of the common stock. The Company will establish a new management incentive plan which would have shares available equal to approximately 9.2% of the common stock. Under the Saratoga Joint Plan as originally filed, the holders of the Company’s Common Stock, including holders of existing warrants and options who acquire shares pursuant to the terms of such instruments, would have received the same consideration as under the Noteholder Plan. Under the amended Saratoga Joint Plan, filed October 3, 2003, the Company would provide the common shareholders with the benefit of certain equity investments held by the Company in Fiberstars, Inc. and Hexagram, Inc., as well as a possible future payment, based on 3% of amounts received by Saratoga Lighting after providing investors with a return of capital plus an agreed rate of return, as more fully described in the amended Saratoga Joint Plan. The Saratoga Joint Plan also provides for incentives to GE for incremental purchases from the Company (other than APL Engineered Materials, Inc.) and management fees to an affiliate of Saratoga Lighting.

On October 28, 2003, the Company, Saratoga, the Creditor’s Committee and certain holders of the Company’s 8% Senior Notes agreed, subject to Bankruptcy Court approval, to amend the Saratoga Joint Plan. The Bankruptcy Court approved the agreement and a supplement to the disclosure statement describing the terms of the agreement on October 30, 2003 and the above named parties entered into the agreement to amend the Saratoga Joint Plan on October 31, 2003. The amendments provide that the aggregate principal amount of the New Notes to be issued to holders of the 8% Senior Notes be set at $114,400, subject to adjustment if the Company emerges from bankruptcy protection after January 1, 2004, the interest rate on the New Notes be set at 11%, and the maturity date of the New Notes be set at March 31, 2009 and place certain limitations on transactions involving the CEO of the Company. The parties to the agreement have agreed to support the Saratoga Joint Plan following implementation of these amendments.

The description of the Saratoga Joint Plan is subject to revision and completion by the Debtors and to review and approval by the Bankruptcy Court. The Debtors can give no assurance that the Saratoga Joint

10

Table of Contents

Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
(Dollars in thousands, except per share data)

B.     Voluntary Bankruptcy Filing (continued)

Plan will be approved by the Bankruptcy Court, that the Saratoga Joint Plan will receive the required approvals of the creditors and, if necessary, equity securityholders of the Debtors, or that the Debtors will be able to implement the Saratoga Joint Plan.

Upon the confirmation of a plan of reorganization the Company’s investment banker will receive, in addition to monthly fees and reimbursement of expenses, fees based on formulas contained in the Company’s agreement with the investment banker, which will aggregate between $1,000 and $3,000. All such fees are subject to Bankruptcy Court approval. The Company recorded $1,000 of fees as reorganization expenses in fiscal 2003 and $2,000 in the first quarter of fiscal 2004.

The Company incurred reorganization expenses of $5,623 during the quarter ended September 30, 2003, for consultants, investment bankers, attorneys and other costs related to the Company’s efforts to reorganize under Chapter 11 Bankruptcy.

Accounting Impact—Beginning with the third quarter of fiscal 2003, ADLT was required to follow Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code (“SOP 90-7”). Pursuant to SOP 90-7, ADLT’s pre-petition liabilities that are subject to compromise are reported separately on the balance sheet at an estimate of the amount that is expected to be allowed by the Bankruptcy Court. Obligations of ADLT subsidiaries not covered by the Filing are classified on the condensed consolidated balance sheet based upon maturity dates or the expected dates of payment. Liabilities subject to compromise at September 30, 2003 were as follows:

Under SOP 90-7 the Company is separately reporting certain expenses, and any realized gains and losses, and provisions for losses related to the Filing as reorganization expenses, which consist primarily of legal and investment and financial advisory fees. Due to material uncertainties, it is not possible to determine the additional amount of claims that may arise or ultimately be filed, or to predict the length of time the Company will operate under the protection of Chapter 11. Further, uncertainties exist regarding the outcome of the Chapter 11 proceedings in general, whether the Company will continue to operate under its current organizational structure, the effect of the proceedings on the business of ADLT and its subsidiaries or on the interests of the various creditors and security holders.

11

Table of Contents

Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
(Dollars in thousands, except per share data)

B.     Voluntary Bankruptcy Filing (continued)

Condensed Consolidated Financial Statements of Debtors-in-Possession (Unaudited)—The following condensed consolidated financial statements of the Debtors at September 30, 2003 and for the three months ended September 30, 2003 have been prepared on the same basis as the financial statements for ADLT, exclude the Company’s non-U.S. operating subsidiaries and DSI, and are presented in accordance with SOP 90-7:

12

Table of Contents

Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
(Dollars in thousands, except per share data)

B.     Voluntary Bankruptcy Filing (continued)

13

Table of Contents

Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
(Dollars in thousands, except per share data)

C.     Basis of Presentation and Accounting Change

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, the financial statements include all material adjustments necessary for a fair presentation, including adjustments of a normal and recurring nature as well as the impact of the Company’s Chapter 11 Filing. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2003. Operating results for the three months and ended September 30, 2003 are not necessarily indicative of the results that may be expected for the full-year ending June 30, 2004.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates.

Accounting Changes

In January 2003, the FASB issued Interpretation (FIN) No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements. The provisions of FIN No. 46 are effective immediately for interests acquired in Variable Interest Entities (VIE) after January 31, 2003. The Company is required to account for interests in VIEs existing on January 31, 2003, under the provisions of FIN No. 46 as of July 1, 2003. The FIN addresses the consolidation of business enterprises of variable interest entities and certain required disclosures related to such relationships. The Company has determined that none of its investments meet the requirement for consolidation or disclosure under this FIN.

In May 2003, the FASB issued Statement of Financial Accounting Standards (FAS) No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. FAS No. 150 changes the classification in the statement of financial position of certain common financial instruments from either equity or mezzanine presentation to liabilities and requires an issuer of those financial statements to recognize changes in fair value or redemption amount, as applicable, in earnings. FAS No. 150 is effective for the Company as of July 1, 2003. The provisions of FAS No. 150 had no impact on the condensed consolidated financial statements.

14

Table of Contents

Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
(Dollars in thousands, except per share data)

C.     Basis of Presentation and Accounting Change (continued)

Income Taxes

Actual income tax expense for the three month interim periods differ from the amounts computed by applying the U.S. Federal income tax rate of 35% to the income (loss) before income taxes because under FAS No. 109, Accounting for Income Taxes, the tax benefit related to the loss for these interim periods was required to be reserved in a valuation allowance due to the uncertainty regarding the ultimate realization of the tax benefit of such losses. The income tax expense recognized for the interim periods relates to income taxes on certain foreign subsidiaries’ income.

Stock Options

At September 30, 2003 the Company had four stock option plans. The Company accounts for these plans under the recognition and measurement principles (the “intrinsic value” method) of APB Opinion No. 25 Accounting for Stock Issued to Employees, and related Interpretations. No stock-based compensation cost is reflected in net income, as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the grant date. The following table sets forth the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of FAS No. 123, Accounting for Stock-Based Compensation, to its stock options.