<PAGE>
REGISTRATION NO. 001-09078
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9078
------------------------
THE ALPINE GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 22-1620387
(State or other jurisdiction (I.R.S. Employer
of Identification
incorporation or No.)
organization)
1790 BROADWAY 10019-1412
NEW YORK, NEW YORK (Zip code)
(Address of principal
executive offices)
</TABLE>
Registrant's telephone number, including area code 212-757-3333
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ____
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
<TABLE>
<S> <C>
Class Outstanding at December 5, 1995
- ----------------------------------- -----------------------------------
Common Stock, $.10 Par Value 18,251,779
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited condensed financial statements have been prepared
in accordance with the requirements of Form 10-Q and therefore do not include
all information and footnotes required by generally accepted accounting
principles. However, in the opinion of management, all adjustments (which,
except as disclosed elsewhere herein, consist only of normal recurring accruals)
necessary for a fair presentation of the results of operations for the relevant
periods have been made. Results for the interim periods are not necessarily
indicative of the results to be expected for the year.
2
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
APRIL 30,
1995
OCTOBER 31, ---------
1995
-----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents.................. $ 4,420 $ 15,546
Marketable securities...................... 6,276 1,495
Accounts receivable (less allowance for
doubtful accounts; October, $997; April,
$956)..................................... 68,043 41,255
Inventories................................ 53,630 35,242
Other current assets....................... 5,622 5,347
----------- ---------
Total current assets..................... 137,991 98,885
Property, plant and equipment, net........... 95,874 52,240
Long-term investments and other assets (Note
4).......................................... 32,367 16,941
Goodwill (less accumulated amortization:
October, $3,243; April, $2,338)............. 81,861 65,712
----------- ---------
Total assets............................. $ 348,093 $ 233,778
----------- ---------
----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings...................... $ -- $ 33,135
Current portion of long-term debt.......... 1,010 2,022
Accounts payable........................... 49,755 31,655
Accrued expenses........................... 34,106 24,993
----------- ---------
Total current liabilities................ 84,871 91,805
----------- ---------
Long-term debt, less current portion......... 203,932 84,022
----------- ---------
Other long-term liabilities.................. 4,811 7,560
----------- ---------
Contingent purchase consideration............ 5,306 5,733
----------- ---------
Stockholders' equity:
8% Cumulative convertible preferred stock
at liquidation value...................... 14,068 11,823
9% Cumulative convertible preferred stock
at liquidation value...................... 1,927 1,927
8.5% Cumulative convertible preferred stock
at liquidation value...................... -- 3,500
Common stock, $.10 par value; authorized
25,000,000 shares; issued: October,
18,251,779 shares; April, 17,429,141
shares.................................... 1,825 1,743
Capital in excess of par value............. 116,032 103,114
Cumulative translation adjustment.......... (165 ) 144
Accumulated deficit........................ (81,451 ) (76,050)
----------- ---------
52,236 46,201
Less shares held in treasury, at cost:
October, 528,048 shares; April, 233,290
shares.................................... (2,749 ) (1,229)
Receivable from stockholder.................. (314 ) (314)
----------- ---------
Total stockholders' equity............... 49,173 44,658
----------- ---------
Total liabilities and stockholders'
equity.................................. $ 348,093 $ 233,778
----------- ---------
----------- ---------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
----------------------
1995 1994
----------- ---------
<S> <C> <C>
Net sales................................................................................ $ 136,252 $ 40,552
Cost of goods sold....................................................................... 119,729 35,274
----------- ---------
Gross profit........................................................................... 16,523 5,278
Selling, general and administrative...................................................... 8,170 3,647
Amortization of goodwill................................................................. 642 220
----------- ---------
Operating income....................................................................... 7,711 1,411
Interest income.......................................................................... 324 28
Interest (expense)....................................................................... (6,768) (1,027)
Other income (expense)................................................................... 13 (51)
----------- ---------
Income from continuing operations before income taxes.................................. 1,280 361
Income tax expense....................................................................... 299 112
----------- ---------
Income from continuing operations before extraordinary item............................ 981 249
(Loss) from discontinued operations...................................................... (1,834) (4,042)
----------- ---------
(Loss) before extraordinary item....................................................... (853) (3,793)
Extraordinary gain on early extinguishment of debt....................................... 324 --
----------- ---------
Net (loss)............................................................................. (529) (3,793)
Preferred stock dividends................................................................ (313) (122)
----------- ---------
(Loss) applicable to common stock...................................................... $ (842) $ (3,915)
----------- ---------
----------- ---------
Income (loss) per share of common stock:
Continuing operations.................................................................. $ 0.04 $ 0.01
Discontinued operations................................................................ (0.11) (0.22)
Extraordinary gain on early extinguishment of debt..................................... 0.02 --
----------- ---------
Net (loss) per share of common stock................................................. $ (0.05) $ (0.21)
----------- ---------
----------- ---------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31,
----------------------
1995 1994
----------- ---------
<S> <C> <C>
Net sales................................................................................ $ 265,036 $ 79,882
Cost of goods sold....................................................................... 232,185 68,919
----------- ---------
Gross profit........................................................................... 32,851 10,963
Selling, general and administrative...................................................... 16,072 7,153
Amortization of goodwill................................................................. 1,315 511
----------- ---------
Operating income....................................................................... 15,464 3,299
Interest income.......................................................................... 1,069 74
Interest (expense)....................................................................... (13,876) (2,025)
Other income (expense)................................................................... 127 (30)
----------- ---------
Income from continuing operations before income taxes.................................. 2,784 1,318
Income tax expense....................................................................... 449 231
----------- ---------
Income from continuing operations before extraordinary item............................ 2,335 1,087
(Loss) from discontinued operations...................................................... (2,213) (4,868)
----------- ---------
Income (loss) before extraordinary item................................................ 122 (3,781)
Extraordinary (loss) on early extinguishment of debt..................................... (4,856) --
----------- ---------
Net (loss)............................................................................. (4,734) (3,781)
Preferred stock dividends................................................................ (667) (250)
----------- ---------
(Loss) applicable to common stock...................................................... $ (5,401) $ (4,031)
----------- ---------
----------- ---------
Income (loss) per share of common stock:
Continuing operations.................................................................. $ 0.10 $ 0.04
Discontinued operations................................................................ (0.13) (0.26)
Extraordinary (loss) on early extinguishment of debt................................... (0.28) --
----------- ---------
Net (loss) per share of common stock................................................. $ (0.31) $ (0.22)
----------- ---------
----------- ---------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED OCTOBER 31, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
8.5%
CUMULATIVE
9% CUMULATIVE 8% CUMULATIVE CONVERTIBLE
CONVERTIBLE PREFERRED CONVERTIBLE PREFERRED
COMMON STOCK CAPITAL STOCK PREFERRED STOCK STOCK
----------------------- IN EXCESS ------------------------ -------------------- -----------
SHARES AMOUNT OF PAR SHARES AMOUNT SHARES AMOUNT SHARES
---------- ----------- --------- ----------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30,
1995..................... 17,429,141 $ 1,743 $ 103,114 1,927 $ 1,927 236,480 $ 11,823 3,500
Compensation expense
related to stock options
and grants............... 320
Dividends on preferred
stock....................
Foreign currency
translation..............
Conversion of convertible
preferred stock.......... 737,476 74 3,804 (3,500)
Conversion of convertible
notes.................... 51,243 5 245
Exercise of stock
options.................. 33,919 3 88
Shares issued for
directors' fees.......... (18)
Purchase of treasury
stock....................
Adience acquisition debt
exchange................. 44,900 2,245
PolyVision merger and
distribution (Note 6).... 8,479
Net (loss) for the six
months ended October 31,
1995.....................
---------- ----------- --------- ----- ----------- --------- --------- -----------
Balance at October 31,
1995..................... 18,251,779 $ 1,825 $ 116,032 1,927 $ 1,927 281,380 $ 14,068 --
---------- ----------- --------- ----- ----------- --------- --------- -----------
---------- ----------- --------- ----- ----------- --------- --------- -----------
<CAPTION>
FOREIGN TREASURY STOCK RECEIVABLE
ACCUMULATED CURRENCY ---------------------- FROM
AMOUNT DEFICIT TRANSLATION SHARES AMOUNT STOCKHOLDER TOTAL
----------- ------------ ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30,
1995..................... $ 3,500 $ (76,050) $ 144 (233,290) $ (1,229) $ (314) $ 44,658
Compensation expense
related to stock options
and grants............... 320
Dividends on preferred
stock.................... (667) (667)
Foreign currency
translation.............. (309) (309)
Conversion of convertible
preferred stock.......... (3,500) 378
Conversion of convertible
notes.................... 250
Exercise of stock
options.................. 91
Shares issued for
directors' fees.......... 11,042 59 41
Purchase of treasury
stock.................... (305,600) (1,579) (1,579)
Adience acquisition debt
exchange................. 2,245
PolyVision merger and
distribution (Note 6).... 8,479
Net (loss) for the six
months ended October 31,
1995..................... (4,734) (4,734)
----------- ------------ ------ --------- ----------- ------ ---------
Balance at October 31,
1995..................... -- $ (81,451) $ (165) 528,048 $ (2,749) $ (314) $ (49,173)
----------- ------------ ------ --------- ----------- ------ ---------
----------- ------------ ------ --------- ----------- ------ ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
6
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31,
---------------------
1995 1994
---------- ---------
<S> <C> <C>
Cash flow from operating activities:
Income from continuing operations........................................................ $ 2,335 $ 1,087
Adjustments to reconcile income to net cash provided by continuing operations:
Depreciation and amortization........................................................ 6,022 2,180
Accretion of debt discount and amortization of deferred financing.................... 1,163 215
Compensation expense related to stock options and grants............................. 129 205
Changes in assets and liabilities:
Accounts receivable.................................................................. 954 (4,491)
Inventories.......................................................................... 14,771 (350)
Prepaid expenses and other current assets............................................ 1,784 (195)
Other assets......................................................................... 2,322 --
Accounts payable and accrued expenses................................................ 4,820 5,073
Other................................................................................ (164) 191
---------- ---------
Cash provided by continuing operating activities........................................... 34,136 3,915
---------- ---------
(Loss) from discontinued operations........................................................ (2,213) (4,868)
Adjustments to reconcile loss to net cash (used for) discontinued operations:
Depreciation and amortization.......................................................... -- 363
Increase (decrease) in net liabilities................................................. 1,300 2,698
Other.................................................................................. 179 157
---------- ---------
Cash (used for) discontinued operations.................................................... (734) (1,650)
---------- ---------
Cash provided by operating activities...................................................... 33,402 2,265
---------- ---------
Cash flow from investing activities:
Acquisitions, net of cash acquired....................................................... (103,409) (778)
Investment in marketable securities...................................................... (4,781) 769
Capital expenditures on continuing operations............................................ (3,268) (803)
Capital expenditures on discontinued operations.......................................... -- (182)
Loan to PolyVision Corporation........................................................... (4,306) --
Other.................................................................................... (250) --
---------- ---------
Cash (used for) investing activities....................................................... (116,014) (994)
---------- ---------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
7
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31,
-----------------------
1995 1994
------------ ---------
<S> <C> <C>
Cash flow from financing activities:
Short-term (repayments)................................................................ $ (21,000) $ --
Borrowing (repayments) under revolving credit facilities, net.......................... 17,339 (814)
Dividends on preferred stock........................................................... (354) (122)
Capitalized financing costs............................................................ (13,699) --
Purchase of treasury shares............................................................ (1,579) (360)
Proceeds from exercise of stock options................................................ 91 172
Repayments of long-term debt on continuing operations.................................. (189,669) (1,802)
Term loan repayments on discontinued operations........................................ -- (34)
Long-term borrowings by continuing operations.......................................... 280,357 --
------------ ---------
Cash provided by (used for) financing activities......................................... 71,486 (2,960)
------------ ---------
Net (decrease) in cash and cash equivalents.............................................. (11,126) (1,689)
Cash and cash equivalents at beginning of period......................................... 15,546 2,507
------------ ---------
Cash and cash equivalents at end of period............................................... $ 4,420 $ 818
------------ ---------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31,
-----------------------
1995 1994
------------ ---------
<S> <C> <C>
Supplemental disclosures:
Taxes paid............................................................................. $ 329 $ --
------------ ---------
------------ ---------
Interest paid.......................................................................... $ 6,885 $ 2,048
------------ ---------
------------ ---------
Non-cash investing and financing activities:
Exchange of preferred stock............................................................ $ 3,500 $ 250
------------ ---------
------------ ---------
Dividend on preferred stock exchanged.................................................. $ 378
------------
------------
Conversion of notes and exchange of debentures:
Conversion of notes.................................................................... $ 300
------------
------------
Exchange of debentures................................................................. $ 135
---------
---------
Acquisition of business:
Assets, net of cash acquired........................................................... $ 126,127
Liabilities assumed.................................................................... (22,718)
------------
Net cash paid.......................................................................... $ (103,409)
------------
------------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
8
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
The Alpine Group, Inc. ("Alpine" or the "Company") reflect all adjustments
which, in the opinion of management, are necessary for a fair presentation of
the results of operations for the interim periods presented. These financial
statements should be read in conjunction with the summary of accounting policies
and the notes to the financial statements included in the Company's Annual
Report on Form 10-K for the year ended April 30, 1995.
Certain reclassifications have been made to the October 31, 1994 financial
statements to conform with the October 31, 1995 presentation.
2. INVENTORIES
The components of inventories are:
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1995 1995
----------- ---------
<S> <C> <C>
(IN THOUSANDS)
Raw materials..................................................... $ 15,609 $ 11,969
Work in process................................................... 14,053 8,716
Finished goods.................................................... 23,968 14,557
----------- ---------
$ 53,630 $ 35,242
----------- ---------
----------- ---------
</TABLE>
3. INCOME (LOSS) PER SHARE
For the six months ended October 31, 1995 and 1994, the number of shares
used in computing income (loss) per share were 17,375,279 and 18,106,495,
respectively, based on the weighted average number of shares outstanding.
4. LONG-TERM INVESTMENTS AND OTHER ASSETS
The components of long-term investments and other assets are:
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1995 1995
----------- ---------
<S> <C> <C>
(IN THOUSANDS)
Investment in PolyVision (Note 6)................................. $ 15,633 $ 11,202
Deferred financing charges........................................ 8,242 --
Other assets...................................................... 8,492 5,739
----------- ---------
$ 32,367 $ 16,941
----------- ---------
----------- ---------
</TABLE>
5. ALCATEL ACQUISITION
On May 11, 1995, Alpine completed the acquisition (the "Alcatel
Acquisition") of the U.S. and Canadian copper wire and cable business (the
"Alcatel Business") of Alcatel NA Cable Systems, Inc. and Alcatel Canada Wire,
Inc. (collectively, "Alcatel NA"), which was initially financed with the
proceeds of the sale by Superior Telecommunication Inc. ("Superior"), a
subsidiary of Alpine, of
9
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995
(UNAUDITED)
5. ALCATEL ACQUISITION (CONTINUED)
$140,000,000 aggregate principal amount of notes (the "Alcatel Acquisition
Notes") (see Note 7). The following reflects the preliminary allocation of the
purchase price of the net assets of the Alcatel Business based upon the
estimated fair values of such assets:
<TABLE>
<CAPTION>
AMOUNT
--------------
<S> <C>
(IN THOUSANDS)
Estimated acquisition cost.................................................... $ 103,409
Less, historical book value of net assets at May 11, 1995..................... (80,909)
Write-up of property, plant and equipment..................................... (4,945)
Accrual of Alcatel employee relocation and severance costs.................... 500
--------------
Acquisition goodwill.......................................................... $ 18,055
--------------
--------------
</TABLE>
The estimated acquisition cost of $103,409,000 represents (i) $102,909,000
paid in cash to Alcatel NA and (ii) acquisition expenses estimated at $500,000.
The Alcatel Acquisition has been accounted for using the purchase method,
and accordingly, Alcatel's results of operations are included in the Company's
consolidated results on a prospective basis from the date of the acquisition.
Unaudited condensed pro forma results of operations for the six month periods
ended October 31, 1995 and 1994 which give effect to the Alcatel Acquisition and
the acquisition of Adience Inc. ("Adience"), acquired December 21, 1994, as if
both transactions had occurred on May 1, 1994 are presented below. The pro forma
amounts reflect acquisition related purchase accounting adjustments, including
adjustments to depreciation and amortization expense. The pro forma financial
information does not purport to be indicative of either the results of
operations that would have occurred had the acquisitions taken place at the
beginning of the periods presented or of future results of operations.
<TABLE>
<CAPTION>
PRO FORMA
(UNAUDITED)
SIX MONTH PERIOD ENDED
OCTOBER 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Net sales.................................................................. $ 272,557 $ 228,943
Income (loss) from continuing operations before income taxes............... 2,966 (2,755)
Income (loss) from continuing operations before extraordinary item......... 2,517 (2,986)
(Loss) from discontinued operations........................................ (2,213) (4,868)
Net (loss)................................................................. (4,552) (7,854)
Income (loss) per share of common stock:
Continuing operations.................................................... 0.11 (0.21)
Discontinued operations.................................................. (0.13) (0.28)
Extraordinary (loss) on early extinguishment of debt..................... (0.28) --
Net (loss)............................................................... (0.30) (0.49)
</TABLE>
6. DISCONTINUED OPERATIONS
During fiscal 1995 Alpine management adopted a plan to distribute to its
shareholders a substantial portion of its ownership of its information display
segment consisting of its interest in Alpine PolyVision, Inc. ("APV") and
Posterloid Corporation ("Posterloid"). In May 1995, APV and Posterloid
10
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995
(UNAUDITED)
6. DISCONTINUED OPERATIONS (CONTINUED)
were merged (the "PolyVision Merger") into PolyVision Corporation ("PolyVision")
(formerly Information Display Technology, Inc.), a 78% owned subsidiary of
Adience. Following the PolyVision Merger, Alpine owned 98% of PolyVision's
outstanding preferred stock with a liquidation preference of $25,000,000 and 94%
of the outstanding PolyVision common stock.
As a result of the PolyVision Merger, Alpine's ownership of the outstanding
PolyVision common stock increased from 70.0% to 94%. In accordance with FASB
Technical Bulletin 85-5, this increase in equity ownership has been recorded as
the acquisition of a portion of PolyVision minority interest at its estimated
fair value. Because the minority interest was acquired by an Alpine subsidiary
issuing stock, and because Alpine subsequently distributed to its stockholders
most of the PolyVision common stock owned by it, the excess of the fair value of
the minority interest acquired over the book value of the interest given up in
APV and Posterloid, has been added directly to capital surplus.
On June 14, 1995, Alpine distributed to its stockholders 73% of the
outstanding PolyVision common stock (the "PolyVision Spin-Off"). This
distribution, when combined with shares of PolyVision common stock to be used as
partial consideration in connection with the acquisition of Adience and the
retirement of the Adience 11% Senior Secured Notes will result in the ownership
by Alpine of less than 20% of the outstanding shares of PolyVision common stock.
Accordingly, Alpine is accounting for its remaining PolyVision investment at its
fair value as a security available for sale which amount is included in long
term investments and other assets in the accompanying balance sheet. Because the
shares of PolyVision common stock distributed had a negative book value,
Alpine's stockholders' equity was not reduced by the PolyVision Spin-Off. The
aforementioned transaction is a taxable transaction and actual taxes payable, if
any, will depend on Alpine's tax position for fiscal 1996.
11
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995
(UNAUDITED)
7. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1995 1995
----------- ---------
<S> <C> <C>
(IN THOUSANDS)
12.25% Senior Secured Notes due 2003 (face value $153,000,000).............. $ 140,527 $ --
$85.0 million revolving credit facility..................................... 44,059 --
13.5% Senior Secured Notes (face value $21,000,000)......................... -- 20,790
Adience 11% Senior Secured Notes due 2002 (face value of $4,989,000 and
$49,079,000 at October 31, 1995 and April 30, 1995, respectively).......... 4,649 44,386
Revolving credit loan -- Superior........................................... -- 16,533
Revolving credit loan -- Adience............................................ -- 12,345
Revolving credit loan -- DNE................................................ -- 627
Term loan................................................................... -- 5,386
Mortgage loan............................................................... 5,098 5,297
Subordinated note........................................................... -- 2,469
Lease finance obligations................................................... 5,918 5,967
Other....................................................................... 4,691 5,379
----------- ---------
Total debt................................................................ 204,942 119,179
Less: Short-term borrowings and current portion........................... 1,010 35,157
----------- ---------
Long-term debt............................................................ $ 203,932 $ 84,022
----------- ---------
----------- ---------
</TABLE>
The aggregate maturities of long-term debt for the five years subsequent to
October 31, 1995, are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
<S> <C>
(IN THOUSANDS)
1996.......................................................................... $ 1,010
1997.......................................................................... 1,874
1998.......................................................................... 698
1999.......................................................................... 553
2000.......................................................................... 44,585
</TABLE>
On July 21, 1995 Alpine completed a placement of $153,000,000 principal
amount of 12.25% Senior Secured Notes (the "Senior Notes") due 2003 at an issue
price of 91.737%, with interest payable semiannually on January 15 and July 15.
The Senior Notes are secured by a pledge of the capital stock of Superior and
Adience and are guaranteed by certain subsidiaries of Alpine. The Senior Notes
include certain customary covenants including, among other things, limitations
on indebtedness, investments, and payment of dividends on common stock.
In conjunction with the placement of the Senior Notes, Alpine entered into
an $85.0 million revolving credit facility (the "Credit Facility") of which
$44,059,000 was outstanding at October 31, 1995. Interest on the Credit Facility
is payable monthly at a rate of LIBOR plus 2.25% or prime plus 0.375%.
Borrowings under the facility are subject to a borrowing base determined as a
percentage of eligible accounts receivable and inventory (as defined). As of
October 31, 1995 total borrowing availability amounted to approximately
$67,000,000. Loans under the Credit Facility are guaranteed by Superior and
Adience and are secured by substantially all of Alpine's assets, other than
capital
12
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995
(UNAUDITED)
7. DEBT (CONTINUED)
stock of its subsidiaries, real estate, and other fixed assets. Amounts
outstanding under the Credit Facility are due upon termination in July 2000. The
Credit Facility contains customary covenants including limitations on capital
expenditures, dividends, and additional borrowings, as well as certain financial
covenants related to net worth and operating cash flow.
Proceeds from the Senior Notes, borrowings under the Credit Facility, and a
portion of cash reserves were used to refinance a substantial portion of the
Company's debt, including repayment of the $140,000,000 Alcatel Acquisition
Notes (see Note 5). The Alcatel Acquisition Notes were issued on May 11, 1995,
and the proceeds of which were used to: (1) pay the initial purchase price for
the Alcatel Acquisition ($93,000,000); (2) repay amounts outstanding under
Superior's revolving credit facility ($17,200,000) and its term loan
($5,400,000); (3) pay fees and expenses amounting to $5,100,000; with the
balance of $19,300,000 being added to corporate cash reserves. The other major
uses of the proceeds from the Senior Notes and the Credit Facility included
repayment of $21,000,000 face amount of the Company's 13.5% Senior Secured
Notes; redemption at a discount of approximately 90% of $49,100,000 million face
amount of Adience's 11% Senior Secured Notes; and the repayment of the balance
outstanding under Adience's revolving credit facility, which amounted to
$10,000,000 million.
As a result of the refinancing and the aforementioned redemption of
indebtedness, the Company recognized a $4,856,000 extraordinary loss on the
early extinguishment of debt during the six months ended July 31, 1995 related
principally to the write-off of deferred loan fees associated with the various
debt repayments.
8. PREFERRED STOCK
On July 31, 1995, the Company issued 737,476 shares of Company common stock
in connection with the exchange of all the outstanding 8.5% Cumulative
Convertible Preferred Stock plus accrued dividends at a conversion price of
$5.25 per share of common stock.
9. COMMITMENTS AND CONTINGENCIES
On May 25, 1994, Alpine and 10 other parties were named as co-defendants in
a lawsuit filed by the State of New York in Federal district court relating to
the release of hazardous chemicals at a landfill near Rochester, New York. The
State of New York alleges that Alpine, by virtue of its purchase of some (but
not all) of the assets of an entity that allegedly disposed of hazardous
substances, is liable as a corporate successor under the federal Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA" or "Superfund")
for the costs of remediation. The total remediation costs for the site have been
estimated by the New York Department of Environmental Conservation to
potentially be in excess of $14,000,000. Alpine has filed a motion for summary
judgment dismissing the case against Alpine. This action is in an early stage,
and no determination has yet been made as to either the reasonableness of New
York's claim and its cost estimates or as to Alpine's liability, if any, or its
share of such remediation costs. Management believes that it has strong defenses
to this action and it has indemnification rights with respect to liabilities, if
any, relating to this matter from the seller of the assets, Panex Industries,
Inc. which through its successor, Panex Industries, Inc. Liquidating Trust, has
elected to control the defense of this action. Management believes that such
Trust has sufficient assets to meet its indemnification obligations. However,
there can be no assurance that an adverse outcome in this case would not have a
material adverse effect on Alpine's consolidated financial position or results
of operations.
13
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995
(UNAUDITED)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In February 1992, PolyVision 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, PolyVision and Adience
signed a consent order with the Ohio EPA and the Ohio Attorney General which
required PolyVision and Adience to pay to the State of Ohio a civil penalty 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, PolyVision and
Adience filed a proposed amendment to the consent order which would allow
PolyVision 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 October 31, 1995, environmental
accruals amounted to $493,000 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. 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 PolyVision acquired the
Alliance facility from Adience, Adience represented and warranted that, except
as otherwise disclosed to PolyVision, no hazardous material had 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
PolyVision for any losses in excess of $250,000. PolyVision has notified Adience
that it is claiming the right to indemnification for all costs in excess of
$250,000 incurred by PolyVision in this matter and has received assurance that
Adience will honor such claim.
In May 1995 Adience was named as one of 153 defendants in a class action
lawsuit brought in the circuit court of Cook County, Illinois, seeking unstated
monetary damages and alleging that products produced by Adience caused certain
of its employees, former employees, and such persons' family members to suffer
from asbestos-related diseases or an increased risk of developing such diseases.
The total number of claims has not yet been determined. Alpine and its counsel
are evaluating the validity of such claims and the scope of its potential
liabilities and defense costs.
Alpine is subject to other legal proceedings and claims which have primarily
arisen in the ordinary course of business and have not been finally adjudicated.
In the opinion of management, based on its examination of such matters and
discussions with counsel, the ultimate resolution of all pending or threatened
litigation, claims and assessments will not have a material adverse effect upon
Alpine's consolidated financial position, liquidity or results of operations.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
LIQUIDITY AND CAPITAL RESOURCES
Alpine is a diversified industrial company principally engaged in the
manufacture and sale of copper wire and cable for the telecommunications
industry, specialty refractory products for the iron and steel, glass, aluminum,
cement and co-generation industries and data communications and other electronic
products and systems for military, governmental and commercial applications.
Alpine entered the copper wire and cable business in 1993 with the acquisition
of Superior and significantly enlarged its presence in this business with the
Alcatel Acquisition in May 1995 (see Note 5 to the accompanying Condensed
Consolidated Financial Statements). Alpine entered the specialty refractory
business with the acquisition of Adience in December 1994 (the "Adience
Acquisition").
RESULTS OF OPERATIONS
The Alcatel Acquisition and the Adience Acquisition were both accounted for
under the purchase method with the results from these operations included in
Alpine's consolidated results on a prospective basis. As a consequence, the
operations of Adience and the Alcatel Business are reflected in Alpine's
historical results of operations from their respective acquisition dates.
The following comparative table includes operating statement data for Alpine
on an industry segment basis. Such operating data by industry segment is
presented on an historical reporting basis for the three month and six month
periods ended October 31, 1995 and 1994. Further, due to the significance of the
Alcatel Acquisition and the Adience Acquisition on Alpine's results of
operations, proforma operating data is included in the table to reflect such
acquisitions as if they occurred on May 1, 1994. Management believes that the
proforma presentation provides meaningful comparability among reporting periods.
The proforma data includes adjustments to depreciation and goodwill amortization
to reflect acquisition related purchase accounting adjustments. The proforma
data for the Alcatel Business and the Adience operations also includes proforma
adjustments to reflect: (1) with respect to Adience, the elimination of certain
expenses incurred by Adience that were directly attributable to the acquisition
of Adience or would not have been incurred if the acquisition of Adience had
taken place on May 1, 1994 and; (2) with respect to the Alcatel Business,
reductions in manufacturing expenses, as well as to selling, general and
administrative expenses incurred by the Alcatel Business and which are not
expected to recur or have been eliminated. The proforma adjustments described
above are consistent with those adjustments reflected in the "Unaudited Proforma
Condensed Combined Statements of Operations" for the 12 months ended April 30,
1995 included in Item 7 in the Company's Annual Report on Form 10-K for the year
ended April 30, 1995, as amended. The proforma data are not necessarily
indicative of the results that would have been achieved had such acquisitions
actually occurred on May 1, 1994, nor are they necessarily indicative of
Alpine's future results.
15
<PAGE>
The data presented in the table below reflects the Company's three business
segments: telecommunications wire and cable ("Superior"); refractories
("Adience") and data communications and electronic products ("DNE").
<TABLE>
<CAPTION>
THREE MONTHS
ENDED OCTOBER THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
31, 1995 OCTOBER 31, 1994 OCTOBER 31, 1995 OCTOBER 31, 1994
------------- ------------------------ ------------------------ ------------------------
HISTORICAL HISTORICAL PROFORMA HISTORICAL PROFORMA HISTORICAL PROFORMA
------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales
Superior.................... $ 102,957 $ 33,857 $ 81,663 $ 197,016 $ 204,537 $ 65,714 $ 164,345
Adience..................... 27,176 -- 24,008 56,636 56,636 -- 50,430
DNE......................... 6,119 6,695 6,695 11,384 11,384 14,168 14,168
------------- ----------- ----------- ----------- ----------- ----------- -----------
Consolidated.............. $ 136,252 $ 40,552 $ 112,366 $ 265,036 $ 272,557 $ 79,882 $ 228,943
Gross profit
Superior.................... $ 9,180 $ 3,346 $ 6,091 $ 17,090 $ 17,685 $ 6,692 $ 13,210
Adience..................... 5,483 -- 4,784 12,308 12,308 -- 9,701
DNE......................... 1,860 1,932 1,932 3,453 3,453 4,271 4,271
------------- ----------- ----------- ----------- ----------- ----------- -----------
Consolidated.............. $ 16,523 $ 5,278 $ 12,807 $ 32,851 $ 33,446 $ 10,963 $ 27,182
Gross margin percentage
Superior.................... 8.9% 9.9% 7.5% 8.7% 8.7% 10.2% 8.0%
Adience..................... 20.2% -- 19.9% 21.7% 21.7% N/A 19.2%
DNE......................... 30.4% 28.9% 28.9% 30.3% 30.3% 30.1% 30.1%
------------- ----------- ----------- ----------- ----------- ----------- -----------
Consolidated.............. 12.1% 13.0% 11.4% 12.4% 12.3% 13.7% 11.9%
Selling, general and
administrative expenses
Superior.................... $ 1,889 $ 1,259 $ 1,549 $ 3,605 $ 3,643 $ 2,446 $ 3,026
Adience..................... 3,630 -- 3,949 7,284 7,284 -- 7,908
DNE......................... 1,499 1,753 1,753 3,082 3,082 3,367 3,367
Corporate................... 1,152 635 635 2,101 2,101 1,340 1,340
------------- ----------- ----------- ----------- ----------- ----------- -----------
Consolidated.............. $ 8,170 $ 3,647 $ 7,886 $ 16,072 $ 16,110 $ 7,153 $ 15,641
Amortization of goodwill
Superior.................... $ 330 $ 220 $ 401 $ 692 $ 706 $ 500 $ 787
Adience..................... 312 -- 312 623 623 -- 623
DNE......................... -- -- -- -- -- -- --
Corporate................... -- -- -- -- -- 11 11
------------- ----------- ----------- ----------- ----------- ----------- -----------
Consolidated.............. $ 642 $ 220 $ 713 $ 1,315 $ 1,329 $ 511 $ 1,421
Operating income
Superior.................... $ 6,961 $ 1,867 $ 4,141 $ 12,793 $ 13,336 $ 3,746 $ 9,397
Adience..................... 1,541 -- 523 4,401 4,401 -- 1,170
DNE......................... 361 179 179 371 371 904 904
Corporate................... (1,152) (635) (635) (2,101) (2,101) (1,351) (1,351)
------------- ----------- ----------- ----------- ----------- ----------- -----------
Consolidated.............. $ 7,711 $ 1,411 $ 4,208 $ 15,464 $ 16,007 $ 3,299 $ 10,120
</TABLE>
NET SALES
PROFORMA BASIS
For the quarter ended October 31, 1995, net sales were $136.3 million or 21%
greater than proforma net sales of $112.4 million recorded in the October 31,
1994 quarterly period. For the six month period ended October 31, 1995, proforma
net sales were $272.6 million, representing a $43.7 million, or 19%, increase
over proforma net sales of $228.9 million recorded in the October 31, 1994 six
month period.
On an industry segment basis, Superior's net sales of $103.0 million for the
October 1995 fiscal quarter increased $21.3 million or 26% over October 1994
quarterly proforma net sales. On a six month basis, Superior's proforma net
sales of $204.5 million for the October 1995 period were 24%, or $40.2 million,
higher than proforma net sales for the October 1994 six month period.
Approximately
16
<PAGE>
$8.0 million and $19.5 of Superior's comparative increase in net sales for the
October 1995 three month and six month periods, respectively, was attributable
to the pass through, in the form of increased selling prices, of higher copper
costs. The remainder of the comparative increase, representing $13.3 million
(16%) for the 1995 three month period and $20.7 million (13%) for the 1995 six
month period, was the result of increased demand for telecommunications wire and
cable products and additional business under new long-term supply agreements
with two regional Bell operating companies.
Adience's net sales for the October 1995 quarter were $27.2 million, or 13%,
higher than proforma net sales for the October 1994 quarter of $24.0 million.
For the October 1995 six month period, Adience's net sales were $56.6 million,
representing an increase of more than 12% over proforma net sales of $50.4
million for the October 1994 six month period. The increase in comparative
proforma net sales in both the 1995 three month and six month periods was due to
higher sales of block to the plate glass industry, driven by the current high
level of demand for flat plate glass resulting in additional flat plate glass
capacity being added both in the U.S. and internationally, as well as an
increase in Adience's rebuilding services for coke ovens.
DNE's net sales for the October 1995 quarter were $6.1 million as compared
to $6.7 million in the October 1994 quarterly period. Net sales for the October
1995 six month period were $11.4 million as compared to $14.2 million for the
October 1994 six month period. The comparative reduction in net sales for both
the three month and six month periods of 1995 was due primarily to the
substantial completion during the year ended April 30, 1995 of a major contract
with NASA for the manufacture of hardware interface modules, as well as customer
delays under certain requirements contracts due to several factors, including
the recent Federal government budgetary impasse. It is currently anticipated
that a substantial portion of delayed orders will be filled in the third and
fourth quarters of the current fiscal year.
HISTORICAL BASIS
On an historical basis, net sales increased by $95.7 million, from $40.6
million in the October 1994 quarter to $136.3 million in the October 1995
quarter. For the six month period, net sales increased $185.2 million, to $265.0
for the six months ended October 31, 1995. The comparative increase in net sales
for the 1995 three month and six month periods was primarily attributable to the
inclusion of the results of operations of Adience and the Alcatel Business and
the aforementioned pass through of higher copper costs during the October 1995
fiscal periods, offset somewhat by the aforementioned reduction in DNE's net
sales.
GROSS PROFIT
PROFORMA BASIS
Gross profit for the October 1995 fiscal quarter was $16.5 million,
representing an increase of $3.7 million or 29% over the October 1994 quarterly
proforma gross profit of $12.8 million. The gross margin percentage increased to
12.1% for the October 1995 quarterly period as compared to 8.0% for the October
1994 quarter. For the six month period ended October 31, 1995, proforma gross
profit was $33.4 million or 23% higher than the proforma gross profit of $27.2
million recorded in the October 1994 six month period. The proforma gross margin
increased from 11.9% in the October 1994 six month period to 12.3% in the
October 1995 six month period.
Superior's gross margin was 8.9% in the October 1995 quarter. However,
excluding the impact of the pass through of higher copper costs, Superior's
October 1995 quarterly proforma gross margin would have been 9.7%. This compares
favorably to Superior's proforma gross margin during the October 1994 quarterly
period of 7.5%, and to the gross margin of 8.9% (as adjusted to exclude the
impact of the pass through of higher copper costs) reported during the preceding
quarter ended July 31, 1995. For the October 1995 six month period, Superior's
proforma gross margin was 8.7% (9.5% as adjusted for the pass through of higher
copper costs) as compared to 8.0% in the October 1994 six month period. The
increase in Superior's comparative proforma gross margin for the three month
17
<PAGE>
and six month periods ended October 1995, as well as the increase in gross
margin for the October 1995 quarter as compared to the July 1995 quarter,
resulted principally from the impact of price increases on a majority of
Superior's long-term customer agreements, which price increases are being phased
in over varying periods through December 1995. In addition, during the 1995
fiscal periods higher production volumes associated with increased product
demand resulted in improved absorption of fixed costs.
Adience's proforma gross margin was 20.2% for the October 1995 quarter as
compared to 19.9% for the October 1994 quarter. For the six month period,
Adience's gross margin increased from 19.2% in October 1994 to 21.7% in 1995.
The comparative proforma gross margin improvement in 1995 was due primarily to
the elimination of unprofitable product lines and the reduction in cost in
Adience's specialty block division, improved fixed cost absorption due to the
aforementioned higher sales of block to the flat plate glass industry, and a
proportional increase in revenues from Adience's coke rebuilding division which
generates higher gross margins as compared to Adience's other divisions.
DNE's gross margin of 30.4% and 30.3% for the October 1995 three month and
six month periods, respectively, was comparable to DNE's 1994 gross margin of
28.9% and 30.3%, respectively.
HISTORICAL BASIS
On an historical basis, gross profit increased from $5.3 million during the
October 1994 quarter to $16.5 million during the October 1995 quarter,
representing an increase of $11.2 million or 213%. During this same period the
gross margin declined from 13.0% to 12.1%. For the six month period ended
October, the gross profit in 1995 of $32.9 million represented an increase of
approximately $21.9 million over 1994 gross profit of $11.0 million. The gross
margin for this same period declined from 13.7% to 12.4%. The comparative
increase in gross profit during the three month and six month periods of 1995
was directly attributable to the inclusion of the Alcatel Business and Adience
during 1995. Similarly, the decline in gross margin was also due to the
inclusion of these acquired operations which operate in relatively lower gross
margin markets as compared to DNE. In addition, the lower gross margin in the
1995 fiscal periods resulted from the aforementioned pass through of higher
copper costs which incrementally increases net sales, but does not impact gross
profit.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A EXPENSES)
PROFORMA BASIS
SG&A expenses increased by 3.6%, to $8.2 million for the quarter ended
October 31, 1995, as compared to proforma SG&A expenses of $7.9 million for the
quarter ended October 31, 1994. For the October 1995 six month period, proforma
SG&A expenses were $16.1 million, representing an increase of 2.8% over 1994 six
month proforma SG&A expenses of $15.6 million. The major components of the
comparative change in proforma SG&A expenses included the following: (1) a
comparative increase at Superior of $340,000 and $617,000 for the three month
and six month periods, respectively, representing primarily transitional data
processing charges associated with the Alcatel Acquisition and higher sales
commissions; (2) a comparative reduction at Adience for the three month and six
month periods of $319,000 and $624,000, respectively, due primarily to a
reduction in corporate staffing and related expenses; and (3) a comparative
increase in corporate expenses of $517,000 and $761,000 for the three month and
six month periods, respectively, related to recent transactional activities
commensurate with the growth in operations.
HISTORICAL BASIS
On an historical basis, SG&A expenses increased from $3.6 million in the
October 1994 quarter to $8.2 million in the October 1995 quarter. For the six
month period, SG&A expenses increased from $7.2 million in the October 1994
period to $16.1 million in the October 1995 period. The principal cause of the
comparative increase in SG&A expenses for the October three month and six month
periods was the inclusion of SG&A expenses for Adience's operations, as well as
an increase in Superior and at corporate, reflecting Superior's acquisition of
Alcatel and the growth in its operations, and the overall increase in corporate
activities.
18
<PAGE>
OPERATING INCOME
PROFORMA BASIS
On a proforma basis, comparative operating income for the October quarter
increased $3.5 million, or 83%, from $4.2 million for the October 1994 quarter
to $7.7 million for the October 1995 quarter. For the six month period, proforma
operating income increased 58%, from $10.1 million for the October 1994 six
month period to $16.0 million for the October 1995 six month period.
On an industry segment basis, Superior's comparative proforma operating
income reflected an increase of $2.8 million (68%) for the October 1995 three
month period and $3.9 million (42%) for the October 1995 six month period. Such
increases were due to higher sales, higher gross margins (particularly during
the second fiscal quarter of 1995), offset somewhat by higher SG&A expenses.
Adience's comparative proforma operating income increased from $523,000 in
the October 1994 quarter to $1.5 million in the October 1995 quarter (an
increase of 195%). For the October six month period, Adience's proforma
operating income increased from $1.2 million in 1994 to $4.4 million in 1995 (an
increase of 276%). Adience's improved operating profit was attributable to
higher sales in the coke oven rebuilding division, cost and overhead reductions,
and elimination of unprofitable product lines.
DNE's comparative operating income increased in the October 1995 quarter by
$182,000, but declined by $533,000 in the October 1995 six month period.
The aggregate increase in comparative proforma operating income at Alpine's
operating divisions for the October 1995 fiscal periods of $4.0 million (or 83%)
for the three month period, and $6.6 million (or 58%) for the six month period,
was partially offset by comparative increased corporate expenses of $517,000 and
$761,000, for the October 1995 three month and six month periods, respectively.
HISTORICAL BASIS
On an historical basis, operating income increased from $1.4 million for the
October 1994 quarter to $7.7 million for the October 1995 quarter, an increase
of 446%. For the six month period ended October 1995, comparative operating
income increased by $12.2 million or 369%. The comparative increase in operating
income for the three month and six month periods of 1995 was attributable to the
inclusion of the operations of the Alcatel Business and of Adience's operations
in 1995, offset by a comparative reduction at DNE and a comparative increase in
corporate expenses.
NET INTEREST EXPENSE
During the October 1995 quarter, Alpine incurred net interest expense
(interest expense, net of interest income) of $6.4 million as compared to net
interest expense of $1.0 million in the October 1994 quarter. For the six month
period ended October 1995, net interest expense was $12.8 million as compared to
$2.0 million for the 1994 October six month period. The increase in net interest
expense for the three month and six month periods of 1995 was due primarily to
interest cost associated with debt assumed in the Adience Acquisition of
approximately $61 million, and debt incurred in connection with the Alcatel
Acquisition.
As described in Note 7, on July 21, 1995 Alpine refinanced a substantial
portion of its debt by issuance of $153 million ($135 million net of discount,
commissions and expenses) of Senior Secured Notes due 2003 and by entering into
an $85 million revolving credit facility (of which $44.1 million was drawn at
October 31, 1995). Management believes that the refinancing, if reflected on a
proforma basis, would not have had a material impact on net interest expense in
the current fiscal year.
INCOME TAX EXPENSE
The Company did not incur any Federal income tax expense for the October
1995 or 1994 fiscal periods. The Company did however incur state income tax
expense and foreign tax expense (subject to the potential future benefit of the
foreign tax credit) during such periods, with such amounts reflected as income
tax expense in the accompanying Condensed Consolidated Financial Statements.
19
<PAGE>
DISCONTINUED OPERATIONS
As described in Note 6 to the Condensed Consolidated Financial Statements,
during the quarter ended July 31, 1995 the Company completed the merger of IDT
(a subsidiary of Adience) with its Alpine PolyVision, Inc. ("APV") and
Posterloid subsidiaries. Further on June 14, 1995 the Company distributed a
substantial majority of its common equity ownership in the merged company
("PolyVision Corp.") to its stockholders resulting in the Company's investment
in the common stock of PolyVision Corp. being less than 20%. As a result of the
distribution, the operations of APV and Posterloid have been reported as
discontinued operations in the Condensed Consolidated Financial Statements.
Loss from discontinued operations for the three month and six month periods
ended October 31, 1995 amounted to $1.8 million and $2.2 million, respectively,
which included, among other things, a one-time $1.6 million charge related to
certain contractual employee termination matters associated with the
aforementioned distribution of PolyVision Corp.
For the three month and six month periods ended October 31, 1994, loss from
discontinued operations amounted to $4.0 million and $4.9 million, respectively.
Such charges in 1994 included the accrual of operating losses expected to be
incurred by APV and Posterloid from October 31, 1994 to the anticipated date of
the PolyVision Corp. distribution.
EXTRAORDINARY LOSS
During the six months ended October 31, 1995, the Company incurred an
extraordinary loss from the extinguishment of debt of $5.1 million offset by an
extraordinarily gain of $324,000. The extraordinary loss related primarily to
the write-off of unamortized deferred loan fees associated with debt that was
repaid in conjunction with the refinancing described in Note 7 to the Condensed
Consolidated Financial Statements. The extraordinary gain reflected the
discounted redemption in August 1995 of a $2.5 million subordinated note
payable.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended October 31, 1995, Alpine generated $36.2 million in
cash flow from continuing operating activities, approximately $26.5 million of
which represented reductions in net working capital deployed, including a $14.8
million reduction in investment in inventories. Partially offsetting cash flow
from continuing operating activities was $0.7 million of cash used for
discontinued operations. Cash used for investing activities of $116.0 million
included $103.4 million used in connection with the Alcatel Acquisition, $4.8
million invested in marketable securities, $4.3 million loaned to PolyVision,
and $3.3 million in capital expenditures. The investment in the Alcatel
Acquisition and the loan to PolyVision are more fully described below. Cash
provided by financing activities of $69.4 million included net borrowings
resulting from the sale of the Alcatel Acquisition Notes and the refinancing of
a significant portion of Alpine's debt, both of which are more fully described
below, partially offset by $13.7 million in capitalized financing costs related
to the Alcatel Acquisition Notes and the aforementioned refinancing, and $1.6
million used for open market repurchases of Alpine Common Stock.
During the quarter ended July 31, 1995 Alpine completed the Alcatel
Acquisition, consummated a refinancing of a significant portion of its debt, and
completed the spin off of a substantial portion of its ownership in PolyVision
Corporation (see note 6 to the Condensed Consolidated Financial Statements),
which transactions have had a material impact on Alpine's financial condition
and liquidity.
The purchase price for the Alcatel Acquisition, including expenses, was
approximately $103.4 million which was paid in cash (including a deferred
payment of $9.9 million made in August 1995) and was financed by the issuance of
the $140 million Alcatel Acquisition Notes, due in 1997 (see notes 5 and 7 to
the accompanying Condensed Consolidated Financial Statements).
On July 21, 1995 Alpine completed a refinancing which included the issuance
of $153 million principal amount of Senior Secured Notes ("Senior Notes") (net
proceeds of approximately $135
20
<PAGE>
million, net of discount and expenses), due in 2003. The Company also entered
into an $85.0 million revolving credit facility ("Credit Facility") of which
$44.1 million was outstanding at October 31, 1995. Proceeds from the Senior
Notes and the Credit Facility along with a portion of cash reserves were used:
(1) to redeem the Alcatel Acquisition Notes, (2) to repay $30.9 million in short
term borrowings, (3) to redeem at a discount $44.8 million in face amount of
Adience's 11% Senior Notes, and (4) to redeem, repay or reduce other outstanding
indebtedness of Alpine.
At October 31, 1995, after the refinancing and the payment of the $9.9
million deferred purchase price component of the Alcatel Acquisition, Alpine's
capital structure included $204.9 million of long term debt (including current
maturities of $1.0 million), and stockholders' equity of $49.2 million
(including $16.0 million of convertible preferred stock). At October 31, 1995
Alpine did not have any short term borrowings.
Alpine believes the aforementioned refinancing has had a positive impact on
its financial condition and liquidity by substantially lengthening the
maturities on its debt while creating liquidity through funds availability under
its Credit Facility.
With respect to debt maturities, the refinancing eliminated $30.9 million of
short term borrowings due within the next twelve months and redeemed entirely
the Alcatel Acquisition Notes which were due in 1997. This debt was replaced
with the Senior Notes and the Credit Facility, neither of which have any
principal payment requirements until their respective maturities (2000 with
respect to the Credit Facility, and 2003 with respect to the Senior Notes). Debt
remaining after the refinancing, other than the Senior Notes and the Credit
Facility amounted to $20.3 million at October 31, 1995, with required principal
payments in the next twelve months of $1.0 million, and aggregate required
principal payments over the next 5 years of $4.6 million.
With respect to liquidity, Alpine had excess consolidated availability under
its Credit Facility (based on eligible accounts receivable and inventory) of
approximately $23 million as of October 31, 1995 which, when combined with cash
and marketable securities, resulted in total cash and credit availability of
approximately $33.7 million. While the Credit Facility does include sublimit
restrictions on outstanding borrowings allocated to Alpine's principal
subsidiaries (Superior, Adience and DNE), such sublimits are not expected to
negatively impact, over the next twelve month, or in future years, the liquidity
of Superior, Adience and DNE. There are also no restrictions on utilizing
borrowing under the Credit Facility to pay interest on the Senior Notes or any
of the Company's other debt so long as the Company is in compliance with its
related loan covenants.
With respect to commitments, the Company projects that cash interest expense
over the next 12 months will approximate $24 million, which, when combined with
principal repayment requirements, will result in total annual debt service
requirements (principal and interest) of approximately $25 million. Further, the
Company also expects to invest, on an annual recurring basis, approximately
$6-$9 million in capital expenditures. In addition to annual recurring amounts,
on December 1, 1995, Superior acquired certain capital equipment in conjunction
with an asset purchase of BICC Phillips, Inc.'s Canadian copper
telecommunications wire and cable business. The purchase price for this capital
equipment amounted to approximately $4.0 million, with payment of approximately
$1.1 million deferred until December 1996. It is expected that this acquisition
will replace approximately $1.0 million in planned capital expenditures.
Accordingly, including this acquisition, the Company expects its total capital
commitments and debt service requirements over the next twelve months to
approximate $33-$36 million.
The Company intends to fund its capital expenditure and debt service
commitments from funds generated from operations. The Company has experienced a
significant growth in its operating cash flow during fiscal 1996 due to: (1) the
impact of the Alcatel Acquisition, (2) improvements in Adience's operating
results, and (3) subject to certain commitments discussed below, the elimination
of the negative cash flow impact of funding development expenses associated with
the Company's APV activities which was included in the aforementioned PolyVision
Spin Off. During the six month period ended October 31, 1995, the Company
generated earnings before interest, taxes, depreciation and
21
<PAGE>
amortization ("EBITDA") of $21.7 million ($22.3 million on a proforma basis,
assuming the Alcatel Acquisition occurred as of May 1, 1995). At this level of
operations the Company would expect to incur in excess of $40 million of EBITDA
over the next twelve months.
Since the Company does not expect to incur any material income tax expense
due to its level of non-cash charges and existing tax loss carryforwards,
substantially all of the EBITDA generated should be available to service the
aforementioned capital expenditures and debt service commitments. Accordingly,
the Company expects to be able to fund all of its anticipated operating
commitments on an annual basis from internally generated cash flow without
having to use excess availability under the Credit Facility or by using existing
cash reserves.
Alpine's Superior operations (and to a lesser degree its Adience operations)
typically experience a seasonal slowdown during December and January. During
this period, operating cash flow and EBITDA is depressed due to lower sales.
Also, during this same time the Company typically experiences an increase in
inventories, a reduction in accounts receivable, and a reduction in accounts
payable, all of which, combined, tend to result in a short term reduction in
credit availability under the Credit Facility. Notwithstanding the impact of
these seasonal fluctuations, the Company believes its existing cash and credit
availability should be sufficient to maintain adequate liquidity through such
seasonal periods.
In connection with the PolyVision Merger, Alpine entered into an arrangement
pursuant to which Alpine agreed to lend to PolyVision from time to time prior to
May 24, 1997 up to $5.0 million to be used by PolyVision to fund its working
capital needs. Borrowings under the agreement are unsecured and bear interest at
a market rate. The principal balance outstanding is due on May 24, 2005, subject
to mandatory prepayment of principal and interest from the net cash proceeds of
any public or private equity offering or debt financing completed by PolyVision
at any time prior to maturity. Alpine's obligation to lend such funds to
PolyVision is subject to a number of conditions, including review by Alpine of
the proposed use of such funds by PolyVision. As of October 31, 1995, Alpine had
advanced approximately $2.1 million to PolyVision under this arrangement. In
addition to the $5.0 million commitment, Alpine has also agreed to make advances
to PolyVision under a short term loan for working capital deficiencies in an
amount not to exceed $2.5 million. This short term loan is due in May 1996. As
of October 31, 1995, $2.2 million is outstanding under this loan. As of October
31, 1995 the Company's remaining commitment for funding under these loans
amounted to less than $3.0 million. The Company believes its existing cash and
credit availability will be sufficient to fund this remaining commitment without
materially effecting the Company's overall liquidity.
22
<PAGE>
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS ON SENIOR SECURITIES.
(a) None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Alpine is herewith filing as exhibits the following financial statements
relating to Alpine's subsidiaries, Superior and Adience, each of which has
guaranteed Alpine's 12 1/2% Senior Secured Notes due 2003, and the stock of each
of such subsidiaries has been pledged to secure such Notes:
ADIENCE, INC.
Unaudited Consolidated Financial Statements:
Consolidated balance sheets at October 31, 1995 and April 30, 1995
Consolidated statements of operations for the three months and six months
ended October 31, 1995 and 1994
Consolidated statement of shareholder's equity for the six months ended
October 31, 1995 and 1994
Consolidated statements of cash flows for the six months ended October 31,
1995 and 1994
Notes to consolidated financial statements
SUPERIOR TELECOMMUNICATIONS INC. (formerly Superior TeleTec Inc.)
Unaudited Consolidated Financial Statements:
Condensed consolidated balance sheets at October 29, 1995 and April 30, 1995
Condensed statements of operations and retained earnings for the three
months and six months ended October 29, 1995 and October 30, 1994
Condensed consolidated statements of cash flows for the six months ended
October 29, 1995 and October 30, 1994
Notes to Consolidated financial statements
(B) REPORTS ON FORM 8-K.
During the quarter ended October 31, 1995, Alpine filed the following
Current Reports on Form 8-K:
(i)Current Report on Form 8-K, filed May 26, 1995, as amended by Current
Report on Form 8-K/A, filed July 25, 1995, Current Report on Form
8-K/A-2, filed October 10, 1995, and Current Report on Form 8-K/A-3,
filed November 21, 1995 (setting forth certain financial statements of
the Alcatel Business);
(ii)
Current report on Form 8-K, filed October 30, 1995 (setting forth certain
financial statements of Adience and the Alcatel Business)
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE ALPINE GROUP, INC.
Date: December 15, 1995
By: _______/s/_DAVID S. ALDRIDGE______
David S. Aldridge
CHIEF FINANCIAL OFFICER
24
<PAGE>
ADIENCE, INC.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF OCTOBER 31, 1995
<PAGE>
ADIENCE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1995 1995
----------- ---------
<S> <C> <C>
(UNAUDITED) (AUDITED)
Current assets:
Cash and cash equivalents.................. $ 2,730 $ 1,974
Accounts receivable, less allowance
(October 31, 1995 -- $909;
April 30, 1995 -- $897)................... 18,511 17,983
Inventories................................ 11,259 9,547
Cost and estimated earnings in excess of
billings on uncompleted contracts......... 1,420 953
Prepaid expenses, deposits and other....... 100 1,181
Assets held for sale....................... 2,177 2,473
Deferred income taxes...................... 1,581 1,581
----------- ---------
Total current assets..................... 37,778 35,692
----------- ---------
Net assets of discontinued operations........ -- 8,030
Property, plant and equipment:
Land....................................... 1,425 1,425
Buildings.................................. 7,383 7,198
Machinery and equipment.................... 15,497 14,517
----------- ---------
24,305 23,140
Less allowances for depreciation........... 2,297 1,058
----------- ---------
22,008 22,082
Other assets................................. 1,516 2,080
Goodwill, net of amortization................ 33,116 38,163
----------- ---------
Total assets............................. $ 94,418 $ 106,047
----------- ---------
----------- ---------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Revolving line of credit................... $ -- $ 14,387
Current portion of long-term obligations... 692 714
Accounts payable and other................. 6,780 8,722
Salaries, wages and withholdings........... 2,120 1,330
Payable to former principal shareholder.... 460 563
Accrued expenses........................... 5,939 6,195
Billings in excess of costs and estimated
earnings on uncompleted contracts......... 265 165
Accrued insurance.......................... 4,340 5,208
Accrued interest........................... 206 4,449
Income tax payable......................... 1,581 1,558
Deferred income taxes...................... 25 24
----------- ---------
Total current liabilities................ 22,408 43,315
----------- ---------
Payable to The Alpine Group, Inc............. 59,813 --
Payable to affiliate......................... -- 3,583
Payable to former principal shareholder...... 1,143 1,317
Long-term debt............................... 6,224 47,213
Deferred income taxes........................ 1,774 1,759
Shareholders' equity:
Common stock, $.01 par value; authorized
20,000,000 shares; issued and outstanding
10,100,000 shares......................... 101 101
Additional paid-in capital................. 6,518 12,303
Retained earnings (deficit)................ (3,696 ) (3,688)
Foreign currency translation............... 133 144
----------- ---------
Total shareholders' equity............... 3,056 8,860
----------- ---------
Total liabilities and shareholders'
equity.................................. $ 94,418 $ 106,047
----------- ---------
----------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE>
ADIENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED
ENDED
------------------------ ------------------------
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues.................................................. $ 27,176 $ 24,008 $ 56,636 $ 50,430
Costs and expenses:
Cost of revenues............................................ 21,693 19,624 44,328 41,788
Selling, general and administrative......................... 3,630 4,029 7,284 8,695
Amortization of intangible asset............................ 312 263 623 540
----------- ----------- ----------- -----------
25,635 23,916 52,235 51,023
----------- ----------- ----------- -----------
Operating income (loss)....................................... 1,541 92 4,401 (593)
----------- ----------- ----------- -----------
Other income (expense):
Interest and other income................................... 200 194 315 456
Interest expense............................................ (2,129) (2,076) (4,248) (3,981)
----------- ----------- ----------- -----------
(1,929) (1,882) (3,933) (3,525)
----------- ----------- ----------- -----------
Income (loss) from continuing operations before income taxes,
minority interest in subsidiary and extraordinary item....... (388) (1,790) 468 (4,118)
----------- ----------- ----------- -----------
Income taxes.................................................. 106 168 318 257
----------- ----------- ----------- -----------
Income (loss) from continuing operations before minority
interest in subsidiary and extraordinary item................ (494) (1,958) 150 (4,375)
----------- ----------- ----------- -----------
Minority interest in subsidiary............................... -- (3) -- 76
----------- ----------- ----------- -----------
Income (loss) from continuing operations before extraordinary
item......................................................... (494) (1,955) 150 (4,451)
----------- ----------- ----------- -----------
Discontinued operations:
Income (loss) from discontinued operations.................. -- (14) -- 389
----------- ----------- ----------- -----------
Income (loss) before extraordinary loss....................... (494) (1,969) 150 (4,062)
----------- ----------- ----------- -----------
Extraordinary loss on early extinguishment of debt............ -- -- (158) --
----------- ----------- ----------- -----------
Net income (loss)............................................. $ (494) $ (1,969) $ (8) $ (4,062)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per common share:
Income (loss) from continuing operations.................... $ (0.05) $ (0.19) $ 0.01 $ (0.44)
Income (loss) from discontinued operations.................. -- -- -- 0.04
Extraordinary loss.......................................... -- -- (0.01) --
----------- ----------- ----------- -----------
Net income (loss) per common share............................ $ (0.05) $ (0.19) $ -- $ (0.40)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Average common shares outstanding............................. 10,100 10,100 10,100 10,100
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
ADIENCE, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX-MONTH PERIOD ENDED OCTOBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED FOREIGN TOTAL
COMMON PAID IN EARNINGS CURRENCY SHAREHOLDERS'
STOCK CAPITAL (DEFICIT) TRANSLATION EQUITY
----------- ----------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1995........................... $ 101 $ 12,303 $ (3,688) $ 144 $ 8,860
Dividend in kind paid to The Alpine Group, Inc...... (5,785) (5,785)
Net income (loss)................................... (8) (8)
Foreign currency translation adjustment............. (11) (11)
----- ----------- --------- ----- -------------
Balance at October 31, 1995......................... $ 101 $ 6,518 $ (3,696) $ 133 $ 3,056
----- ----------- --------- ----- -------------
----- ----------- --------- ----- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE>
ADIENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31,
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss).................................................................... $ (8) $ (4,071)
Non-cash expenses and revenues included in income (loss):
Depreciation and amortization...................................................... 2,143 3,359
Provision for doubtful accounts.................................................... 90 184
(Gain) loss on disposal of property, plant and equipment........................... 2 (139)
Minority interest.................................................................. -- 76
Changes in operating assets and liabilities:
Accounts receivable................................................................ (618) 776
Inventories, prepaid expenses, deposits and other.................................. (631) 3,464
Costs and estimated earnings in excess of billings on uncompleted contracts........ (467) 479
Income tax receivable.............................................................. -- 696
Accounts payable, salaries, wages and withholdings, accrued expenses, accrued
insurance, accrued interest, income tax payable and payable to principal
shareholder....................................................................... (4,018) (3,089)
Billings in excess of costs and estimated earnings on uncompleted contracts........ 100 (33)
Other.............................................................................. (376) 331
----------- -----------
Net cash provided (used) by operating activities..................................... (3,783) 2,033
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment............................................ (1,190) (1,284)
Proceeds from sale of assets......................................................... 308 --
Other................................................................................ (151) (276)
----------- -----------
Net cash used by investing activities................................................ (1,033) (1,560)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings (payments) on revolving line of credit................................ (2,475) 145
Net borrowings (payments) on long-term debt.......................................... (41,011) (184)
Net borrowings (payments) from The Alpine Group, Inc................................. 49,058 --
----------- -----------
Net cash provided (used) by financing activities..................................... 5,572 (39)
----------- -----------
Net decrease in cash and cash equivalents............................................ 756 434
Cash and cash equivalents at beginning of period..................................... 1,974 1,771
----------- -----------
Cash and cash equivalents at end of period........................................... 2,730 2,205
----------- -----------
----------- -----------
Cash paid (or charged by The Alpine Group, Inc.) for interest........................ 4,090 3,981
----------- -----------
----------- -----------
Cash paid for taxes.................................................................. 295 464
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
OCTOBER 31, 1995
1. ACQUISITION BY THE ALPINE GROUP, INC.
On December 21, 1994, The Alpine Group, Inc. ("Alpine") acquired from
certain stockholders of Adience, Inc. ("Adience" or the "Company") 82.3% of its
outstanding common stock (the "Adience Acquisition"). At April 30, 1995, Alpine,
which had previously purchased 4.9% of Adience's common stock, owned 87.2% of
Adience's outstanding common stock.
The Adience Acquisition has been accounted for using the purchase method to
the extent of the percentage of outstanding common stock acquired by Alpine. The
12.8% outstanding common stock not acquired by Alpine at April 30, 1995 was
reflected at prevailing net book value on such date. On July 21, 1995, the 12.8%
minority interest was purchased by Alpine for $1.6 million. As a result of this
transaction, Adience became a 100% wholly owned subsidiary of Alpine. In
accordance with purchase accounting, Adience's results of operations have been
included in Alpine's consolidated results on a prospective basis from the date
of the acquisition. The estimated purchase price for the Adience Acquisition
(including expenses) of $12.4 million has been allocated to the fair market
value of Adience's assets and liabilities as of the Adience Acquisition date
based on preliminary assumptions and is subject to revision. The excess of the
estimated purchase price over the estimated fair market value of identifiable
net assets acquired resulted in goodwill of approximately $38.7 million, which
is being amortized on a straight line basis over 30 years.
2. BASIS OF PRESENTATION
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 accompanying unaudited financial statements of Adience are presented on
a "stand alone" basis, and accordingly, transactions with Alpine and their
subsidiaries are not eliminated.
The accompanying unaudited consolidated financial statements of Adience
reflect all adjustments which, in the opinion of management, are necessary for a
fair presentation of the results of operations for the interim periods
presented. These financial statements should be read in conjunction with the
summary of significant accounting policies and the notes to the financial
statements included in the Company's audited financial statements as of April
30, 1995 and December 31, 1994.
Certain reclassifications have been made to the October 31, 1994 financial
statements to conform with the October 31, 1995 presentation.
The October 31, 1994 statements of operations and cash flow do not reflect
adjustments resulting from the allocation of the Alpine purchase price to assets
and liabilities, which adjustments relate primarily to changes in depreciation
and amortization charges. Consequently, the consolidated statements of
operations and cash flows after the date of acquisition are not comparable to
the respective financial statements prior to such date due to the different
basis of accounting for the periods presented.
30
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
OCTOBER 31, 1995
3. INVENTORIES
The components of inventories are:
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1995 1995
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
Raw materials.................................................................... $ 4,151 $ 3,037
Work in process.................................................................. 1,896 1,488
Finished goods................................................................... 5,212 5,022
----------- -----------
$ 11,259 $ 9,547
----------- -----------
----------- -----------
</TABLE>
4. DISCONTINUED OPERATIONS
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 provided 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. To effectuate the merger, the Company's equity interest in IDT was
distributed to Alpine as a dividend in kind. In addition, the balance of the
amounts due IDT (classified in the April 30, 1995 balance sheet as "Payable to
Affiliate") was assigned to Alpine. On June 14, 1995, Alpine distributed a
majority of its ownership in the information display group, consisting of IDT,
APV and Posterloid to its stockholders. As a result of the merger and subsequent
distribution, Adience's consolidated financial statements have been reclassified
to reflect operations of IDT as discontinued. Further, the balance sheet at
April 30, 1995, reflects the net assets of IDT as "Net Assets of Discontinued
Operations".
5. LINES OF CREDIT
On July 21, 1995, through proceeds from a debt restructuring, Alpine repaid
the balance outstanding under the Adience revolving credit facility (see Note
6).
31
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
OCTOBER 31, 1995
6. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1995 1995
----------- ---------
<S> <C> <C>
(IN THOUSANDS)
Senior Secured Notes due 2002, interest at 11%................................. $ 4,989 $ 49,079
Capital lease obligations...................................................... 657 621
Notes payable with monthly installments of principal and interest of $22
through December 1997, interest at 10%........................................ 485 587
Industrial Development Authority Note with monthly installments of principal
and interest of $2 through February 2010, interest at 2%...................... 331 343
Machinery and Equipment Loan Fund Note with monthly installments of principal
and interest of $4 through February 2002, interest at 2%...................... 332 361
Other (interest ranges from 10% to 13%)........................................ 461 519
----------- ---------
7,255 51,510
Less: current portion.......................................................... 692 714
----------- ---------
6,563 50,796
Discount on Senior Secured Notes............................................... 339 3,583
----------- ---------
$ 6,224 $ 47,213
----------- ---------
----------- ---------
</TABLE>
The Senior Secured Notes with an annual interest rate of 11% were issued
under an indenture agreement dated as of June 30, 1993. The Secured Notes are
redeemable at the option of Adience after December 15, 1997. The Secured Notes
are not guaranteed by the subsidiaries of Adience. The Secured Notes are secured
by a lien on all the assets of Adience. Adience, on a consolidated basis, has
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.
On July 21, 1995, Alpine completed the placement of $153 million of 12.25%
Senior Secured Notes (the "Alpine Notes") and entered into an $85 million
revolving credit facility (the "Credit Facility"). A portion of the proceeds
were used to redeem, at a discount, approximately 90% of the $49 million face
amount of Senior Secured Notes, and to repay the balance outstanding under
Adience's revolving credit facility. The Alpine Notes are guaranteed by Adience
and Superior Telecommunications, Inc. ("Superior"), another Alpine subsidiary,
and are secured by a pledge of the capital stock of Adience and Superior.
The Credit Facility, which allows Alpine to make working capital loans to
Adience to fund its working capital needs, is guaranteed by Adience, with such
guarantees secured by a pledge of Adience's inventory and accounts receivable.
As a result of the refinancing and the aforementioned redemption of
indebtedness, the Company recognized a $158,000 extraordinary loss on the early
extinguishment of debt, related principally to termination fees associated with
Adience's credit facility.
32
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
OCTOBER 31, 1995
7. COMMITMENTS AND CONTINGENCIES
In February 1992, PolyVision (formerly 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, PolyVision and Adience signed a consent order with the Ohio EPA
and the Ohio Attorney General which required PolyVision and Adience to pay to
the State of Ohio a civil penalty 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, PolyVision and Adience filed a proposed amendment to the consent
order which would allow PolyVision 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 propose 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
October 31, 1995, environmental accruals amounted to $114,000 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. 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 PolyVision acquired the
Alliance facility from Adience, Adience represented and warranted that, except
as otherwise disclosed to PolyVision, no hazardous material had 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
PolyVision for any losses in excess of $250,000, PolyVision has notified Adience
that it is claiming the right to indemnification for all costs in excess of
$250,000 incurred by PolyVision in this matter and has received assurance that
Adience will honor such claim.
Adience was recently named as one of many defendants in a class action
lawsuit brought in the circuit court of Cook County, Illinois, seeking unstated
monetary damages and alleging that products produced by Adience caused certain
of its employees, former employees, and such persons' family members to suffer
from asbestos-related diseases or an increased risk of developing such diseases.
Alpine and its counsel are evaluating the validity of such claims and the scope
of its potential liabilities and defense costs.
Adience is subject to other legal proceedings and claims which have
primarily arisen in the ordinary course of business and have not been finally
adjudicated.
In the opinion of management, based on its examination of such matters and
discussions with counsel, the ultimate resolution of all pending or threatened
litigation, claims and assessments will not have a material adverse effect upon
Adience's consolidated financial position or results of operations.
8. RELATED TRANSACTIONS
Adience performs, or has performed in the past, certain management and
administrative services for PolyVision. 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
33
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
OCTOBER 31, 1995
8. RELATED TRANSACTIONS (CONTINUED)
administration of insurance and workers' compensation programs, legal and
employee benefit services and the preparation of salaried payrolls. The fee paid
by PolyVision for these services, as agreed to by the respective Boards of
Adience and PolyVision, is at the current rate of $300,000 per year.
As a result of the restructuring of debt (see Note 6) and additional
borrowings through the use of the Credit Facility, the Company is indebted to
Alpine in the amount of $59.8 million at October 31, 1995. In conjunction with
this indebtedness, Alpine charges the Company interest and related debt service
expenses at their prevailing rate. The total interest expense charged by Alpine
and reflected on the accompanying financial statements totaled approximately
$2.1 million for the six months ended October 31, 1995.
34
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY
OF THE ALPINE GROUP, INC.)
FINANCIAL STATEMENTS
OCTOBER 29, 1995
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
APRIL 30,
1995
OCTOBER 30, ---------
1995
-----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash....................................... $ 11 $ 4
Accounts receivable, net................... 49,882 18,268
Inventories................................ 36,166 19,665
Other current assets....................... 1,457 1,041
----------- ---------
Total current assets..................... 87,516 38,978
----------- ---------
Property and equipment (net of accumulated
depreciation: October, $6,677; April,
$3,713)..................................... 70,033 26,132
----------- ---------
Goodwill (net of accumulated amortization:
October, $2,248; April, $1,557)............. 49,283 32,161
Other long-term assets....................... 567 1,017
----------- ---------
Total assets............................. $ 207,399 $ 98,288
----------- ---------
----------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt....... $ -- $ 1,600
Accounts payable........................... 39,908 16,281
Accrued expenses and other liabilities..... 10,123 3,640
----------- ---------
Total current liabilities................ 50,031 21,521
----------- ---------
Due to Parent................................ 99,140 --
----------- ---------
Long-term debt............................... 6,569 25,320
----------- ---------
Deferred income taxes........................ 5,693 5,693
----------- ---------
Other long-term liabilities.................. 1,493 1,493
----------- ---------
Stockholder's equity:
Common stock -- authorized 10,000 shares,
par value $.01, issued and outstanding
1,000 shares.............................. -- --
Additional paid-in capital................. 41,144 41,144
Foreign currency translation adjustment.... (298 ) --
Retained earnings.......................... 3,627 3,117
----------- ---------
Total stockholder's equity............... 44,473 44,261
----------- ---------
Total liabilities and stockholder's
equity.................................. $ 207,399 $ 98,288
----------- ---------
----------- ---------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
36
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
OCTOBER 29, OCTOBER 30,
1995 1994
----------- -----------
<S> <C> <C>
Net sales.............................................................................. $ 102,957 $ 33,857
Cost of sales.......................................................................... 93,777 30,511
----------- -----------
Gross profit......................................................................... 9,180 3,346
Selling, general, and administrative expense........................................... 1,889 1,258
Goodwill amortization.................................................................. 330 281
----------- -----------
Operating income..................................................................... 6,961 1,807
Interest expense, net.................................................................. 4,272 705
----------- -----------
Income before income tax expense..................................................... 2,689 1,102
Income tax expense..................................................................... 1,152 455
----------- -----------
Net income......................................................................... $ 1,537 $ 647
----------- -----------
----------- -----------
Net income per share of common stock............................................... $ 1,537.44 $ 647.58
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
37
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------
OCTOBER 29, OCTOBER 30,
1995 1994
------------ -----------
<S> <C> <C>
Net sales............................................................................. $ 197,016 $ 65,714
Cost of sales......................................................................... 179,926 59,022
------------ -----------
Gross profit........................................................................ 17,090 6,692
Selling, general, and administrative expense.......................................... 3,605 2,446
Goodwill amortization................................................................. 692 561
------------ -----------
Operating income.................................................................... 12,793 3,685
Interest expense, net................................................................. 7,801 1,389
------------ -----------
Income before income tax expense and extraordinary item............................. 4,992 2,296
Income tax expense.................................................................... 2,379 1,015
------------ -----------
Income before extraordinary item.................................................... 2,613 1,281
Extraordinary loss on early extinguishment of debt (net of income tax impact of
$1,195).............................................................................. 2,103 --
------------ -----------
Net income.......................................................................... 510 1,281
Retained earnings at beginning of period............................................ 3,117 196
------------ -----------
Retained earnings at end of period.................................................. $ 3,627 $ 1,477
------------ -----------
------------ -----------
Income per share of common stock:
Income before extraordinary item.................................................... $ 2,613.98 $ 1,281.48
Extraordinary loss on early extinguishment of debt.................................. (2,103.52) --
------------ -----------
Net income per share of common stock................................................ $ 510.46 $ 1,281.48
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
38
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
OCTOBER 29, OCTOBER 30,
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................................................... $ 510 $ 1,281
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization..................................................... 3,992 1,988
Extraordinary loss on early extinguishment of debt................................ 3,298 --
(Increase) decrease in:
Accounts receivable............................................................... (2,400) (2,705)
Inventories....................................................................... 16,687 (223)
Other current assets.............................................................. 541 (112)
Increase (decrease) in:
Accounts payable.................................................................. 8,423 2,894
Accrued expenses and other liabilities............................................ (1,649) 252
------------ ------------
Net cash provided by operating activities....................................... 29,402 3,375
------------ ------------
Cash flows from investing activities:
Acquisitions, net of cash acquired.................................................. (103,409) (134)
Capital expenditures................................................................ (1,685) (642)
Other............................................................................... 124 --
------------ ------------
Net cash used in investing activities........................................... (104,970) (776)
------------ ------------
Cash flows from financing activities:
Repayments under revolving lines of credit, net..................................... (14,964) (1,862)
Increase in due to Parent........................................................... 99,140 160
Principal payments on term loan..................................................... (5,386) (897)
Capitalized financing costs......................................................... (3,215) --
------------ ------------
Net cash used in (provided by) financing activities............................. 75,575 (2,599)
------------ ------------
Net increase in cash............................................................ 7 --
Cash at beginning of period........................................................... 4 4
------------ ------------
Cash at end of period................................................................. $ 11 $ 4
------------ ------------
------------ ------------
Supplemental disclosures:
Cash interest paid or charged by Parent during the period........................... $ 8,260 $ 1,442
------------ ------------
------------ ------------
Cash paid during the period for income taxes........................................ $ -- $ 379
------------ ------------
------------ ------------
Acquisition of business:
Assets, net of cash acquired........................................................ $ 126,127
Liabilities assumed................................................................. (22,718)
------------
Net cash paid................................................................... $ (103,409)
------------
------------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
39
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 29, 1995
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Superior Telecommunications Inc. (the "Company") reflect all adjustments which,
in the opinion of management, are necessary for a fair presentation of the
results of operations for the interim periods presented. The Company is a wholly
owned subsidiary of The Alpine Group, Inc. ("AGI"). These financial statements
should be read in conjunction with the summary of accounting policies and the
notes to the financial statements included in the Company's financial statements
for the year ended April 30, 1995.
(2) INVENTORIES
The major classifications of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER 29, APRIL 30,
1995 1995
----------- ---------
<S> <C> <C>
Raw material................................................................... $ 8,543 $ 6,879
Work in process................................................................ 9,487 4,325
Finished goods................................................................. 18,136 8,461
----------- ---------
$ 36,166 $ 19,665
----------- ---------
----------- ---------
</TABLE>
(3) ALCATEL ACQUISITION
On May 11, 1995, the Company completed the acquisition (the "Alcatel
acquisition") of the U.S. and Canadian copper wire and cable business (the
"Alcatel Business") of Alcatel NA Cable Systems, Inc. and Alcatel Canada Wire,
Inc. (collectively, "Alcatel NA"). In connection with the acquisition, the
Company sold $140,000,000 aggregate principal amount of notes (the "Alcatel
Acquisition Notes"). The following reflects the preliminary allocation of the
purchase price of the net assets of the Alcatel Business based upon the
estimated fair values of such assets (in thousands):
<TABLE>
<S> <C>
Estimated acquisition cost............................................... $ 103,409
Less historical book value of net assets at May 11, 1995................. (80,909)
Write-up of property, plant and equipment................................ (4,945)
Accrual of Alcatel employee relocation and severance costs............... 500
---------
Acquisition goodwill..................................................... $ 18,055
---------
---------
</TABLE>
The estimated acquisition cost of $103,409,000 represents $102,909,000 paid
in cash to Alcatel NA and acquisition expenses estimated at $500,000.
The Alcatel acquisition has been accounted for using the purchase method,
and, accordingly, Alcatel's results of operations are included in the Company's
results on a prospective basis from the date of acquisition. Unaudited condensed
pro forma results of operations for the six months ended October 29, 1995 and
October 30, 1994 which give effect to the Alcatel acquisition as if the
transaction occurred on May 1, 1994 are presented below. The pro forma amounts
reflect acquisition related purchase accounting adjustments, including
adjustments to depreciation and amortization expense.
40
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 29, 1995
(UNAUDITED)
(3) ALCATEL ACQUISITION (CONTINUED)
The pro forma financial information does not purport to be indicative of either
the results of operations that would have occurred had the acquisition taken
place at the beginning of the periods or of future results of operations.
<TABLE>
<CAPTION>
PRO FORMA
(UNAUDITED)
SIX MONTHS ENDED
-------------------------
OCTOBER 29, OCTOBER 30,
1995 1994
----------- ------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Net sales................................................................... $ 204,537 $ 164,345
Income before income tax expense and extraordinary item..................... 5,174 1,235
Income before extraordinary item............................................ 2,742 655
Net income (loss)........................................................... 639 655
Income per share of common stock:
Income before extraordinary item.......................................... 2,742.00 655.00
Net income................................................................ 639.00 655.00
</TABLE>
(4) DEBT
Long-term debt at October 29, 1995 includes a $5,000,000 lease finance
obligation resulting from a sale/leaseback of one of the Company's manufacturing
facilities in December 1993. The term of the leaseback is twenty years, with
five additional option terms of five years each. The remaining $1,569,000 of
long-term debt represents net advances under a revolving line of credit pursuant
to a bank loan which is secured by a letter of credit issued by AGI.
(5) DUE TO PARENT
On July 21, 1995 AGI completed a placement of $153,000,000 principal amount
of 12.25% Senior Secured Notes (the "Senior Notes") due 2003, with interest
payable semiannually. On the same date AGI entered into an $85.0 million
revolving credit facility (the "Credit Facility") due July 2000, which allows
for AGI to make loans to the Company to fund its working capital needs. A
portion of the proceeds from the Senior Notes and the Credit Facility were
advanced to the Company to repay the Alcatel Acquisition Notes. As a result of
this redemption, the Company recognized an $2,103,000 extraordinary loss (net of
taxes of $1,195,000) on the early extinguishment of debt during the quarter
ended July 30, 1995 related principally to the write-off of deferred loan fees.
The Senior Notes are unconditionally guaranteed on a senior unsecured basis
by the Company and its subsidiary, Superior Cable Corp., and another AGI
subsidiary. All of the Company's stock is pledged as collateral to secure the
Senior Notes.
The Company and its subsidiary have also guaranteed the indebtedness
outstanding under the Credit Facility, of which $49,421,000 was outstanding at
October 29, 1995. Such guarantee is secured by a pledge of all of the Company's
inventory and accounts receivable.
41
