<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JANUARY 31, 1997
/ / 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
1790 BROADWAY
NEW YORK, NEW YORK 10019-1412
(Address of principal (Zip code)
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 March 14, 1997
Common Stock, $.10 Par Value 17,397,654
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated 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
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1996 1997
--------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 1,119 $ 34,097
Marketable securities................................................ 7,713 8,178
Accounts receivable (less allowance for doubtful accounts of: April,
$506; January, $413)............................................... 60,670 50,772
Inventories.......................................................... 68,990 61,580
Other current assets................................................. 7,850 6,641
--------- -----------
Total current assets............................................... 146,342 161,268
Property, plant, and equipment, net.................................... 99,425 99,368
Long-term investments and other assets................................. 26,403 25,309
Goodwill (less accumulated amortization; April, $4,996; January,
$7,291).............................................................. 82,734 79,326
--------- -----------
Total assets....................................................... $ 354,904 $ 365,271
--------- -----------
--------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................... $ 2,132 $ 1,418
Accounts payable..................................................... 53,167 34,634
Accrued expenses..................................................... 40,364 44,851
--------- -----------
Total current liabilities.......................................... 95,663 80,903
--------- -----------
Long-term debt, less current portion................................... 207,645 196,067
--------- -----------
Other long-term liabilities............................................ 8,460 13,962
--------- -----------
Minority interest in subsidiary........................................ -- 17,415
--------- -----------
Commitments and contingencies
Stockholders' equity:
8% cumulative convertible preferred stock at liquidation value....... 9,831 --
9% cumulative convertible preferred stock at liquidation value....... 1,927 1,927
Common stock, $.10 par value; authorized 25,000,000 shares; issued:
April, 19,307,012 shares; January, 18,638,890 shares............... 1,931 1,864
Capital in excess of par value....................................... 113,843 111,680
Cumulative translation adjustment.................................... (82) 156
Accumulated deficit.................................................. (78,998) (50,603)
--------- -----------
48,452 65,024
Less: shares of common stock in treasury, at cost; April, 1,025,496
shares; January, 1,072,047 shares.................................... (4,806) (7,467)
Receivable from stockholders......................................... (510) (633)
--------- -----------
Total stockholders' equity........................................... 43,136 56,924
--------- -----------
Total liabilities and stockholders' equity......................... $ 354,904 $ 365,271
--------- -----------
--------- -----------
</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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
----------------------
1996 1997
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net sales................................................................................. $ 119,504 $ 121,172
Cost of goods sold........................................................................ 103,796 99,587
---------- ----------
Gross profit............................................................................ 15,708 21,585
Selling, general and administrative....................................................... 8,622 8,480
Amortization of goodwill.................................................................. 660 767
---------- ----------
Operating income........................................................................ 6,426 12,338
Interest income........................................................................... 832 782
Interest (expense)........................................................................ (6,765) (4,345)
Other income (expense), net............................................................... (22) 362
---------- ----------
Income before income taxes.............................................................. 471 9,137
Provision for income taxes................................................................ (250) (3,749)
---------- ----------
Income before minority interest......................................................... 221 5,388
Minority interest in earnings of subsidiary............................................... -- (3,059)
---------- ----------
Income before extraordinary item........................................................ 221 2,329
Extraordinary (loss) on early extinguishment of debt...................................... -- (5,977)
---------- ----------
Net income (loss)....................................................................... 221 (3,648)
Preferred stock dividends................................................................. (197) (69)
---------- ----------
Net income (loss) applicable to common stock............................................ $ 24 $ (3,717)
---------- ----------
---------- ----------
Net income (loss) per share of common stock:
Income before extraordinary item........................................................ $ -- $ 0.12
Extraordinary (loss) on early extinguishment of debt.................................... -- (0.32)
---------- ----------
Net income (loss) per share of common stock........................................... $ -- $ (0.20)
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
4
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JANUARY 31,
----------------------
1996 1997
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net sales................................................................................. $ 384,540 $ 426,638
Cost of goods sold........................................................................ 335,981 353,730
---------- ----------
Gross profit............................................................................ 48,559 72,908
Selling, general and administrative....................................................... 24,694 29,480
Amortization of goodwill.................................................................. 1,975 2,292
---------- ----------
Operating income........................................................................ 21,890 41,136
Interest income........................................................................... 1,901 1,123
Interest (expense)........................................................................ (20,641) (17,954)
Gain on sale of subsidiary stock.......................................................... -- 80,397
Other income (expense), net............................................................... 105 357
---------- ----------
Income from continuing operations before income taxes................................... 3,255 105,059
Provision for income taxes................................................................ (699) (48,151)
---------- ----------
Income from continuing operations....................................................... 2,556 56,908
Minority interest in earnings of subsidiary............................................... -- (3,392)
---------- ----------
Income from continuing operations before extraordinary item............................. 2,556 53,516
(Loss) from discontinued operations....................................................... (2,213) --
---------- ----------
Income before extraordinary item........................................................ 343 53,516
Extraordinary (loss) on early extinguishment of debt...................................... (4,856) (19,389)
---------- ----------
Net income (loss)....................................................................... (4,513) 34,127
Preferred stock dividends................................................................. (864) (537)
Preferred stock redemption premium........................................................ -- (5,195)
---------- ----------
Net income (loss) applicable to common stock............................................ $ (5,377) $ 28,395
---------- ----------
---------- ----------
Net income (loss) per share of common stock:
Income from continuing operations....................................................... $ 0.10 $ 2.85
(Loss) from discontinued operations..................................................... (0.12) --
Extraordinary (loss) on early extinguishment of debt.................................... (0.27) (1.04)
Preferred stock redemption premium...................................................... -- (0.28)
---------- ----------
Net income (loss) per share of common stock........................................... $ (0.30) $ 1.52
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
5
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JANUARY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
9% CUMULATIVE 8% CUMULATIVE
CONVERTIBLE CONVERTIBLE
COMMON STOCK CAPITAL PREFERRED STOCK PREFERRED STOCK
---------------------- IN EXCESS ------------------------ ----------------------
SHARES AMOUNT OF PAR SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ----------- ----------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1996........... 19,307,012 $ 1,931 $ 113,843 1,927 $ 1,927 196,649 $ 9,831
Compensation expense related to
stock options and grants.......... 103,651 10 1,717
Dividends on preferred stock........
Foreign currency translation........
Exercise of stock options........... 228,227 23 690
Purchase of treasury stock..........
Retirement of treasury stock........ (1,000,000) (100) (4,570)
Redemption of preferred stock....... (196,649) (9,831)
Preferred stock redemption
premium...........................
Loans to stockholders...............
Net income for the nine months ended
January 31, 1997..................
--------- ----------- --------- ----- ----------- --------- -----------
Balance at January 31, 1997......... 18,638,890 $ 1,864 $ 111,680 1,927 $ 1,927 -- $ --
--------- ----------- --------- ----- ----------- --------- -----------
--------- ----------- --------- ----- ----------- --------- -----------
<CAPTION>
FOREIGN TREASURY STOCK
ACCUMULATED CURRENCY ---------------------- RECEIVABLE FROM
DEFICIT TRANSLATION SHARES AMOUNT STOCKHOLDERS TOTAL
------------ ------------- --------- ----------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1996........... $ (78,998) $ (82) (1,025,496) $ (4,806) $ (510) $ 43,136
Compensation expense related to
stock options and grants.......... 1,727
Dividends on preferred stock........ (537) (537)
Foreign currency translation........ 238 238
Exercise of stock options........... 713
Purchase of treasury stock.......... (1,046,551) (7,331) (7,331)
Retirement of treasury stock........ 1,000,000 4,670 --
Redemption of preferred stock....... (9,831)
Preferred stock redemption
premium........................... (5,195) (5,195)
Loans to stockholders............... (123) (123)
Net income for the nine months ended
January 31, 1997.................. 34,127 34,127
------------ ----- --------- ----------- ----- ---------
Balance at January 31, 1997......... $ (50,603) $ 156 (1,072,047) $ (7,467) $ (633) $ 56,924
------------ ----- --------- ----------- ----- ---------
------------ ----- --------- ----------- ----- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
6
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JANUARY 31,
-----------------------
1996 1997
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations before extraordinary item............................ $ 2,556 $ 53,516
Adjustments to reconcile income to net cash provided by continuing operations:
Depreciation and amortization........................................................ 9,312 10,523
Amortization of deferred financing costs and accretion of debt discount.............. 1,838 1,699
Compensation expense related to stock options and grants............................. 284 1,727
Provision for deferred income taxes.................................................. -- 9,651
Change in assets and liabilities:
Accounts receivable.................................................................. 9,519 9,898
Inventories.......................................................................... 2,812 7,410
Other current assets................................................................. (1,451) 1,209
Other assets......................................................................... 2,467 4,305
Accounts payable and accrued expenses................................................ (1,198) (14,396)
Other liabilities.................................................................... 46 497
----------- ----------
Cash provided by continuing operating activities......................................... 26,185 86,039
----------- ----------
(Loss) from discontinued operations...................................................... (2,213) --
Adjustments to reconcile loss to net cash (used for) discontinued operations:
Increase in net liabilities............................................................ 179 --
Other.................................................................................. 770 --
----------- ----------
Cash (used for) discontinued operations.................................................. (1,264) --
----------- ----------
Cash provided by operating activities.................................................... 24,921 86,039
----------- ----------
Cash flows from investing activities:
Acquisitions, net of cash acquired..................................................... (103,409) --
Investment in marketable securities.................................................... (5,531) (465)
Capital expenditures................................................................... (5,476) (8,790)
Capital expenditures for acquisition of BICC assets.................................... (3,895) --
Loans to PolyVision Corporation........................................................ (5,185) (1,695)
Minority interest in subsidiary........................................................ -- 17,415
Purchase of subsidiary common stock.................................................... -- (8,055)
Other.................................................................................. 1,841 2,003
----------- ----------
Cash provided by (used for) investing activities......................................... (121,655) 413
----------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
7
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JANUARY 31,
------------------------
1996 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from financing activities:
Repayments of short-term borrowings................................................... $ (21,000) $ --
Borrowings under revolving credit facilities, net..................................... 29,122 102,146
Dividends on preferred stock.......................................................... (793) (537)
Capitalized financing costs........................................................... (13,699) (5,352)
Purchase of treasury shares........................................................... (1,952) (7,331)
Proceeds from exercise of stock options............................................... 91 713
Redemption of preferred stock......................................................... -- (15,590)
Repayments of long-term debt.......................................................... (189,939) (137,523)
Long-term borrowings.................................................................. 282,466 10,000
----------- -----------
Cash provided by (used for) financing activities........................................ 84,296 (53,474)
----------- -----------
Net increase (decrease) in cash and cash equivalents.................................... (12,438) 32,978
Cash and cash equivalents at beginning of period........................................ 15,546 1,119
----------- -----------
Cash and cash equivalents at end of period.............................................. $ 3,108 $ 34,097
----------- -----------
----------- -----------
Supplemental disclosures:
Taxes paid............................................................................ $ 433 $ 17,973
----------- -----------
----------- -----------
Interest paid......................................................................... $ 18,395 $ 21,090
----------- -----------
----------- -----------
Non-cash investing and financing activities:
Conversion of preferred stock into common stock....................................... $ 7,736
-----------
-----------
Dividend on preferred stock converted................................................. $ 451
-----------
-----------
Conversion of notes into common stock................................................. $ 5,037
-----------
-----------
Preferred stock issued in connection with the retirement of Adience 11% Senior Notes.... $ 2,245
-----------
-----------
Conversion of notes into common stock................................................... $ 300
-----------
-----------
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
JANUARY 31, 1997
(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, except as disclosed elsewhere herein, consist only of normal accruals)
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, 1996.
Certain reclassifications have been made to the January 31, 1996 financial
statements to conform with the January 31, 1997 presentation.
2. INVENTORIES
The components of inventories are:
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1996 1997
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Raw materials......................................................... $ 14,885 $ 14,431
Work in process....................................................... 14,870 11,825
Finished goods........................................................ 39,235 35,324
--------- -----------
$ 68,990 $ 61,580
--------- -----------
--------- -----------
</TABLE>
3. LONG-TERM INVESTMENTS AND OTHER ASSETS
The components of long-term investments and other assets are:
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1996 1997
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Investment in PolyVision.............................................. $ 11,502 $ 11,502
Advances to PolyVision................................................ 3,086 4,781
Deferred financing charges............................................ 8,483 5,872
Other assets.......................................................... 3,332 3,154
--------- -----------
$ 26,403 $ 25,309
--------- -----------
--------- -----------
</TABLE>
4. INCOME (LOSS) PER SHARE
Income (loss) per share is determined by dividing net income (loss)
attributable to common stock by the weighted average number of outstanding
shares of common stock and, when dilutive, common equivalent shares outstanding.
Net income (loss) attributable to common stock is determined by deducting
preferred stock dividends and the preferred stock redemption premium (see Note
7) from net income (loss). The weighted average number of common and common
equivalent shares outstanding used in computing income (loss) per share for the
nine months ended January 31, 1996 and 1997 was 17,844,031 and 18,621,083,
respectively.
9
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997
(UNAUDITED)
5. SALE OF SUBSIDIARY STOCK
On October 2, 1996, the Company completed a reorganization and refinancing
(the "Reorganization") of its wholly-owned subsidiaries, Superior
Telecommunications Inc. ("Superior") and DNE Systems, Inc. ("DNE"). In
connection with the Reorganization (i) Superior issued the Company 20,000 shares
of Superior's 6% Cumulative Preferred Stock ("Superior Preferred Stock"), par
value $1.00 per share, with a liquidation preference of $1,000 per share, (ii)
Superior and DNE paid a dividend to the Company of $117.1 million, (iii) the
Company contributed all of the common stock of both Superior and DNE to a
newly-formed wholly-owned subsidiary, Superior Telecom Inc. ("Superior Telecom")
and (iv) Superior Telecom entered into a revolving credit facility (the
"Superior Credit Facility") (see Note 6), the proceeds of which were used to
repay the intercompany debt then owed to the Company and to pay $63.8 million of
the declared dividend.
On October 17, 1996, Superior Telecom sold 6,000,000 shares of its common
stock in an initial public offering at $16.00 per share. Superior Telecom used
the net proceeds of approximately $88.3 million to fund the repayment of $34.4
million under the Superior Credit Facility and to pay to the Company the balance
of the previously declared dividend. As a result of the offering, the Company's
ownership interest in Superior Telecom declined to 50.1% and the Company
recorded a gain of $80.4 million ($41.4 million, or $2.23 per share, after
provision for current and deferred income taxes).
In November 1996, the underwriters of the initial public offering of
Superior Telecom exercised their overallotment option to purchase an additional
900,000 shares of Superior Telecom common stock at $16.00 per share. Superior
Telecom used the net proceeds of approximately $13.3 million to repurchase
450,000 shares of its common stock for approximately $8.1 million with the
balance of such proceeds being used to reduce the amount outstanding under the
Superior Credit Facility. The Superior Telecom common stock repurchased was then
transferred to the Company in exchange for $8.1 million in liquidation value of
Superior Preferred Stock. After giving effect to the exercise of the
overallotment option and the subsequent repurchase and exchange of the Superior
Telecom common stock, the Company's ownership interest in Superior Telecom
remained at 50.1%. On February 12, 1997, Superior redeemed at liquidation value
an additional $11.3 million principal amount of Superior Preferred Stock.
6. DEBT
During the nine months ended January 31, 1997, the Company refinanced a
substantial portion of its outstanding debt. Such refinancing included (i)
repayment and termination of the Company's existing revolving credit facility
(with a balance of $48.5 million on the date of repayment) and (ii) the
redemption, at a premium, of $131.9 million principal amount ($122.3 million
recorded amount) of the Company's 12.25% Senior Secured Notes (the "Senior
Notes"). The funds utilized to complete the aforementioned refinancing included
approximately $120.0 from net borrowings under the Superior Credit Facility,
$45.0 million in net proceeds from a new $50 million bank credit facility
entered into by Alpine and its wholly owned subsidiary, Adience Inc.
("Adience"), with the balance being funded by a portion of the net proceeds from
the Superior Telecom initial public offering (see Note 5).
In connection with the aforementioned refinancing, the Company recognized an
after tax extraordinary charge for the nine months ended January 31, 1997 of
$19.4 million, or $1.04 per share, on the early extinguishment of debt. This
charge represents the premium paid on the redemption of the Senior Notes,
10
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997
(UNAUDITED)
6. DEBT (CONTINUED)
prepayment penalties related to the termination of the existing revolving credit
facility, and the associated write off of the unamortized portion of deferred
loan fees related to the debt extinguished.
At April 30, 1996 and January 31, 1997, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1996 1997
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
12.25% Senior Secured Notes (principal amount $21,141,000 at January
31, 1997)(a)....................................................... $ 141,070 $ 19,350
Alpine revolving credit facility(b).................................. 48,654 20,000
Adience revolving credit facility(b)................................. -- 15,000
Adience term loan(b)................................................. -- 10,000
Superior revolving credit facility(c)................................ -- 115,629
Adience 11% Senior Secured Notes(d).................................. 4,674 4,712
Mortgage loan(e)..................................................... 4,996 3,907
Lease finance obligations(f)......................................... 5,853 5,832
10% Convertible Senior Subordinated Notes............................ 804 --
Other................................................................ 3,726 3,055
---------- -----------
Total debt......................................................... 209,777 197,485
Less: current portion of long-term debt.............................. 2,132 1,418
---------- -----------
Long-term debt..................................................... $ 207,645 $ 196,067
---------- -----------
---------- -----------
</TABLE>
The aggregate maturities of long-term debt for the five years subsequent to
January 31, 1997, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998.......................................................................... $ 1,418
1999.......................................................................... 3,597
2000.......................................................................... 4,448
2001.......................................................................... 39,930
2002.......................................................................... 116,399
</TABLE>
- ------------------------
(a) The Senior Notes are due 2003 and pay interest semiannually on January 15
and July 15 of each year. The Senior Notes were issued at a price of 91.74%
and the discount is being added to the recorded amount through maturity
utilizing the effective interest method.
(b) On January 31, 1997, Alpine and Adience entered into a $50.0 million bank
credit facility. The facility consists of: (i) an Alpine revolving credit
facility of $20.0 million, (ii) an Adience revolving credit facility of
$15.0 million and (iii) an Adience term loan of $15.0 million, of which
$10.0 million has been drawn. Interest under the bank credit facility is
payable quarterly based upon the prime rate plus 1.125% or the Eurodollar
rate plus 2.375%. The revolving credit facilities have a three-year term.
The term loan has mandatory principal repayments of $3.0 million in 1998,
$4.0 million in 1999 and $8.0 million in 2000. The loans are secured by
substantially all of the assets of Adience and by the common stock of
Superior Telecom owned by the Company.
11
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997
(UNAUDITED)
6. DEBT (CONTINUED)
(c) Interest on the Superior Credit Facility is payable quarterly based upon the
prime rate plus 0.5% or the Eurodollar rate plus 1.5%. The variable
components of these rates are subject to periodic adjustment after October
1997 based on the ratio of debt to cash flow (as defined). The Superior
Credit Facility has a five-year term with a total commitment of $150.0
million, which is reduced by $25.0 million in October 1999 and October 2000.
Loans under the Superior Credit Facility are guaranteed by Superior
Telecom's domestic subsidiaries (but not by Alpine) and are secured by
substantially all of the assets of Superior Telecom and by the stock of each
of Superior Telecom's domestic subsidiaries.
(d) The Adience 11% Senior Secured Notes are due in 2002, are redeemable at the
option of Adience after December 15, 1997 and pay interest semi-annually on
June 15 and December 15. The Adience Senior Notes are secured by a lien on
substantially all of the assets of Adience.
(e) The mortgage loan is payable by DNE to the Connecticut Development
Authority. The loan is guaranteed by Alpine and collateralized by DNE's real
estate, machinery and equipment. The loan is payable March 2002 and is
subject to a 20-year amortization schedule. The interest rate is 7.25%
through February 28, 1999 and the higher of 7.25% or the yield on U.S.
Treasury securities with the same maturity thereafter.
(f) The lease finance obligations result from the sale/leaseback of two
properties during fiscal 1994 which, because of the Company's continuing
involvement in the form of repurchase options, have been recorded under the
finance method. The lease finance obligations at January 31, 1997 consisted
of: (a) $5.0 million related to the sale/leaseback of a Superior
manufacturing facility and (b) $0.8 million related to the sale/leaseback of
a manufacturing facility previously owned by DNE.
7. REDEMPTION OF PREFERRED STOCK
On October 31, 1996, the Company entered into an agreement to repurchase for
$13.2 million, 160,000 shares of the Company's 8% Cumulative Convertible Senior
Preferred Stock, with a par value of $8.0 million. In accordance with generally
accepted accounting principles, the repurchase price paid in excess of the par
value of such preferred stock has been recorded as a redemption premium and,
therefore, a reduction of net income attributable to common stockholders.
8. COMMITMENTS AND CONTINGENCIES
Adience's J.H. France unit ("France") which was merged into Adience in
December 1991, has been named as a party in numerous lawsuits, some of which
contain both multiple claimants and multiple defendants, filed in thirteen
jurisdictions principally by employees and former employees of certain customers
of France, alleging in certain cases that a single product, a plastic insulating
cement manufactured more than 25 years ago by France, caused them to suffer from
asbestos-related diseases and in other cases alleging that products manufactured
or sold by France, caused silica-related diseases. There are presently pending
approximately 3,280 such lawsuits involving approximately 10,000 claimants (the
"Pending France Cases"). The majority of the Pending France Cases seek monetary
damages ranging from $20,000 to $1.0 million each. France and its insurance
carriers have historically settled these lawsuits, typically for an average
amount per case of less than the minimum amount stated. Otherwise, France is
12
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997
(UNAUDITED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
dismissed from these lawsuits by agreement or upon application to the Court.
Punitive damages have also been claimed in some cases.
In addition to the lawsuits against France, Adience, as successor in
interest to BMI, has been named as a party in a similar series of lawsuits, some
of which contain both multiple claimants and multiple defendants, filed in the
States of Pennsylvania, Ohio, Michigan, West Virginia, Wisconsin, Kentucky,
Indiana, and North Dakota principally by employees and former employees of
certain customers of Adience alleging that products produced by Adience caused
silicosis, and in other cases alleging products manufactured or sold by BMI
caused asbestos-related diseases. There are presently pending approximately 460
such lawsuits involving approximately 5,500 claimants (the "Pending BMI Cases").
The majority of the Pending BMI Cases seek monetary damages ranging from $20,000
each, which is the minimal jurisdictional requirement for personal injury cases
in a majority of such state courts, to $1.0 million each. Adience and its
insurance carriers have historically settled these lawsuits for an average
amount per case of less than the minimum amount stated. Otherwise, Adience is
dismissed from the lawsuit by agreement or upon application to the court.
Virtually all such claims and all costs of defense for these cases are
covered by insurance. France and BMI are covered by policies of insurance issued
by separate insurance companies.
France's historical primary liability coverage is in the aggregate amount of
$5.6 million, of which approximately $500,000 remained as of January 31, 1997.
It is anticipated that settlements of the France claims will exhaust France's
primary layers of coverage. In the event of exhaustion of the primary policies,
France's defense and indemnity will be transferred to France's excess carriers.
France has umbrella liability coverage in the aggregate amount of $24 million
provided by eight policies of insurance written by five carriers. Six of these
policies have retention limits of $10,000 and two of these policies have
retention limits of $25,000. As applied to personal injury asbestos and silica
suits, courts in general have held such retention limits to be viewed as
aggregates. Therefore, it is anticipated that all the asbestos and silica claims
will be viewed as one occurrence for purposes of applying the aggregate
retention limits of $110,000.
Above the $24 million umbrella level France purchased one umbrella excess
policy in the aggregate amount of $5 million. This $5 million policy is the
subject of litigation pending in the Court of Common Pleas of Philadelphia. A
lower court has ruled that the insurer may declare this policy void. An appeal
of that order is pending.
The Pending BMI Cases are covered under separate policies of insurance. The
underlying primary policies insuring Adience's predecessor, BMI, have aggregate
policy limits of not less than $5 million, of which approximately $3.2 million
remained at January 31, 1997. Above the layer of primary coverage are excess
policies with aggregate coverage limits in excess of $50 million.
Furnco Construction Company ("Furnco"), an entity acquired by BMI prior to
Adience's acquisition of BMI, has been named but not yet served as a defendant
in seven separate lawsuits, each of which contains one plaintiff (i.e., either
husband or husband and wife) and multiple defendants in which it is alleged that
the plaintiffs were exposed to asbestos or silica used in materials provided or
installed by Furnco (the "Pending Furnco Claims"). While investigation continues
as to the nature and extent of such suits, and the extent of Furnco's separate
insurance coverage, one of Furnco's carriers has already agreed, subject to a
reservation of rights, to pay the reasonable and necessary costs incurred by
Furnco in the
13
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997
(UNAUDITED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
defense of these lawsuits once service is made. Furnco's other carriers have
been placed on notice of the Pending Furno Claims.
Based upon Adience's experience in obtaining dismissals or settlements in
closed cases, Adience anticipates, although no assurance can be given, that the
expected costs and liabilities in the Pending France Cases, the Pending BMI
Cases and the Pending Furnco Claims (collectively "the Pending Adience Cases")
will be adequately covered by insurance and that the aggregate limits on the
insurance policies in effect exceed the liabilities and defense costs which will
be incurred in the Pending Adience Cases.
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 have no 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, through its subsidiaries, Superior Telecom and Adience (which does
business under the name BMI-France and is herein referenced as "BMI-France"),
operates in three industry segments. Superior Telecom, a 50.1% owned subsidiary
(see Note 5 to the accompanying consolidated financial statements) operates in
the following industry segments: (i) telecommunications distribution wire and
cable products for the telecommunications industry through its subsidiary,
Superior, and (ii) data communications and electronics products and systems for
defense, governmental and commercial applications through its subsidiary, DNE.
BMI-France provides specialty refractory products and services for the iron,
steel, glass, aluminum, cement and cogeneration industries.
RESULTS OF OPERATIONS
The following table compares operating statement data for Alpine on an
industry segment basis. Such industry segment operating data is presented on an
historical reporting basis for the three and nine months ended January 31, 1996
and 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY JANUARY
---------------------- ----------------------
1996 1997 1996 1997
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales
Telecommunications wire and cable.............................. $ 84,445 $ 92,872 $ 281,461 $ 327,728
Data communications and electronics............................ 6,740 4,519 18,124 16,413
Refractories................................................... 28,319 23,781 84,955 82,497
---------- ---------- ---------- ----------
Consolidated................................................. 119,504 121,172 384,540 426,638
Gross profit
Telecommunications wire and cable.............................. $ 8,964 $ 16,447 $ 26,054 $ 52,255
Data communications and electronics............................ 1,937 980 5,390 4,134
Refractories................................................... 4,807 4,158 17,115 16,519
---------- ---------- ---------- ----------
Consolidated................................................. 15,708 21,585 48,559 72,908
Gross margin percentage
Telecommunications wire and cable.............................. 10.6% 17.7% 9.3% 15.9%
Data communications and electronics............................ 28.7% 21.7% 29.7% 25.2%
Refractories................................................... 17.0% 17.5% 20.1% 20.0%
---------- ---------- ---------- ----------
Consolidated................................................. 13.1% 17.8% 12.6% 17.1%
Selling, general and administrative
Telecommunications wire and cable.............................. $ 2,138 $ 2,227 $ 5,743 $ 7,199
Data communications and electronics............................ 1,346 1,335 4,428 4,587
Refractories................................................... 3,521 3,098 10,805 10,817
Corporate and other expenses................................... 1,617 1,820 3,718 6,877
---------- ---------- ---------- ----------
Consolidated................................................. 8,622 8,480 24,694 29,480
Amortization of goodwill
Telecommunications wire and cable.............................. $ 349 $ 434 $ 1,041 $ 1,297
Refractories................................................... 311 333 934 995
---------- ---------- ---------- ----------
Consolidated................................................. 660 767 1,975 2,292
Operating income
Telecommunications wire and cable.............................. $ 6,477 $ 13,786 $ 19,270 $ 43,759
Data communications and electronics............................ 591 (355) 962 (453)
Refractories................................................... 975 727 5,376 4,707
Corporate and other expenses................................... (1,617) (1,820) (3,718) (6,877)
---------- ---------- ---------- ----------
Consolidated and other expenses.............................. $ 6,426 $ 12,338 $ 21,890 $ 41,136
---------- ---------- ---------- ----------
</TABLE>
15
<PAGE>
SUPPLEMENTAL DATA FOR THE TELECOMMUNICATIONS WIRE AND CABLE SEGMENT:
Copper is a significant raw material component of Superior's finished
products. Fluctuations in the price of copper affect per unit product pricing
and related revenues. However, the cost of copper has not had a material impact
on Superior's profitability due to contractually mandated copper-based price
adjustments contained in Superior's customer sales contracts. The Company
believes that the following supplemental comparative data, which is based upon a
constant copper cost of $1.00 per pound for the indicated periods provides
additional meaningful information concerning Superior's sales and its gross
margin percentage.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY JANUARY
-------------------- ----------------------
1996 1997 1996 1997
--------- --------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales.......................................................... $ 76,658 $ 93,220 $ 254,376 $ 317,879
Gross profit....................................................... 8,964 16,447 26,054 52,255
Gross margin percentage............................................ 11.7% 17.6% 10.2% 16.4%
</TABLE>
TELECOMMUNICATIONS WIRE AND CABLE--RESULTS OF OPERATIONS
During the three months ended January 1997, which is traditionally
Superior's slowest seasonal period, Superior continued its trend of revenue
growth as compared to the comparable periods of the prior fiscal year.
For the three months ended January 1997, Superior's net sales were $92.9
million representing an increase of $8.4 million, or 10.0%, as compared to the
same period in fiscal 1996. For the nine months ended January 1997, net sales
were $327.7 million, representing a $46.3 million, or 16.4%, increase over the
nine months ended January 1996. Adjusted for the impact of lower copper prices
in fiscal 1997 (see "Supplemental Data for the Telecommunications Wire and Cable
Segment"), the increase in net sales for the three months and nine months ended
January 1997 would have been $16.6 million (a 21.6% increase) and $63.5 million
(a 25.0% increase), respectively. The increase in net sales for the three months
and nine month ended January 1997 resulted from several factors, including
increased sales volume of Superior's wire and cable products which was
attributable to (1) new multi-year supply agreements entered into in the latter
half of the 1996 fiscal year, (2) the continued increase in demand for copper
wire and cable products due to growth in new copper-based access lines and
increased maintenance spending by Superior's major telephone company customers,
and (3) the inclusion for the full nine months of fiscal 1997 of the net sales
attributable to the acquisition of the North American wire and cable operations
of Alcatel N.A. (the "Alcatel Business"), which was acquired by Superior on May
11, 1995. Also contributing to the fiscal 1997 increase in net sales was the
impact of price increases instituted in the latter half of fiscal 1996 and
higher prices on incremental sales in fiscal 1997 under new customer supply
agreements.
Superior's gross profit increased by $7.5 million, or 83.5%, to $16.4
million for the three months ended January 1997 as compared to the same period
in fiscal 1996. For the nine months ended January 1997, gross profit increased
by $26.2 million, or 100.6%, to $52.3 million as compared to the nine months
ended January 1996. Superior's gross margin, based on actual net sales, was
17.7% and 15.9%, respectively, for the three and nine months ended January 1997,
as compared to 10.6% and 9.3%, respectively, for the three and nine months ended
January 1996 (see "Supplemental Data for the Telecommunications Wire and Cable
Segment" for comparative period-to-period gross margin adjusted to reflect
constant copper prices). Superior's gross margin improvement in the current
fiscal year reflects a continuing trend of steadily improving margins that began
in fiscal 1996 after the completion of Superior's acquisition of the Alcatel
Business. Improvements in gross margin achieved during the 1996 fiscal year were
principally the result of increased selling prices instituted pursuant to a
majority of Superior's existing multi-year supply agreements and, to a lesser
degree, production efficiencies resulting from higher production levels and cost
savings from completion of the integration of the Alcatel Business with
16
<PAGE>
Superior's other operations. The continued improvement in gross margin in fiscal
1997 was primarily due to manufacturing cost reductions and other production
efficiencies (including improved cost absorption resulting from higher
production levels) that have been achieved during the first nine months of
fiscal 1997 along with the impact of higher margin and new customer contract
business in fiscal 1997.
Superior's SG&A expense for the three months ended January 1997 was $2.2
million, which was comparable to SG&A expense of $2.1 million for the same
period in fiscal 1996. For the nine months ended January 1997, SG&A expense was
$7.2 million, representing an increase of $1.5 million, or 25.4%, as compared to
the same period in fiscal 1996. The increase in SG&A expense for the nine months
ended January 1997 reflected, among other factors, the incremental sales and
marketing staff required to support the increased level of sales and the
expansion of international and other marketing activities associated with new
product lines and entering new geographic markets.
Superior's operating income for the three months ended January 1997 was
$13.8 million, representing an increase of $7.3 million, or 112.8%, as compared
to the three months ended January 1996. For the nine months ended January 1997,
operating income was $43.8 million, representing an increase of 127.1% as
compared to the nine months ended January 1996. The substantial comparative
increase in operating income in fiscal 1997 was the result of the trend of
higher revenues and higher product margins that began in fiscal 1996 after
completion of the acquisition of the Alcatel Business. During the second half of
fiscal 1996 and in fiscal 1997, Superior increased production capacity to
accommodate rising product demand and increases in market share, lowered costs
throughout its four manufacturing plants, and increased prices on its long-term
customer contractual arrangements, all of which contributed to Superior's growth
in operating income over this period.
DATA COMMUNICATIONS AND ELECTRONICS--RESULTS OF OPERATIONS
During fiscal 1997 DNE has experienced declining sales associated with a
slowdown in government procurement of DNE's military electronic products, and a
decline in DNE's contract manufacturing activities which is primarily related to
overall softness in the semiconductor equipment manufacturing sector. As a
result, DNE's net sales for the three months and nine months ended January 1997
declined $2.2 million, or 33.0%, and $1.7 million, or 9.4%, respectively, as
compared to the corresponding periods of fiscal 1996.
Lower production levels and related unfavorable fixed cost absorption, along
with the impact of a change in product mix, resulted in a decline in DNE's gross
margin to 21.7% during the three months ended January 1997, as compared to 28.7%
during the three months ended January 1996, and to 25.2% for the nine months
ended January 1997, as compared to 29.7% during the nine months ended January
1996. As a result of lower net sales and gross margin, DNE incurred an operating
loss for the three months and nine months ended January 1997 of $0.4 million and
$0.5 million, respectively.
DNE recently has taken actions to reduce its manufacturing and general and
administrative overhead by approximately $2.0 million (on an annual basis). DNE
has also reallocated engineering resources toward developing enhancements to its
multiplexer product line to provide for broader product application
opportunities. The Company expects that government procurement activity levels
will improve in the future and that the trend of lower sales will be reduced or
reversed, which, when coupled with the aforementioned overhead cost reduction,
should result in an improvement in DNE's profitability.
REFRACTORIES--RESULTS OF OPERATIONS
BMI-France experienced a decline in net sales during the three months ended
January 1997 which resulted primarily from a slow down in activities at both
BMI-France's Furnco construction division and in sales of specialty refractory
block products primarily to the plate glass industry, both of which had been
experiencing strong sales demand since the second half of fiscal 1996. A further
factor contributing to the decline in net sales was a continuing strike at one
of BMI-France's customer facilities. As a result of these factors, net sales for
the three months ended January 1997 were $23.8 million representing a decrease
of $4.5 million, or 16.0%, as compared to the same period in fiscal 1996. For
the nine months ended January 1997, net sales were $82.5 million representing a
$2.5 million, or 2.9%, decrease as compared to the nine months ended January
1996.
17
<PAGE>
BMI-France's gross profit for the three months ended January 1997 was $4.2
million representing a decrease of $0.6 million, or 13.5%, as compared to the
same period in fiscal 1996. For the nine months ended January 1997, gross profit
was $16.5 million representing a $0.6 million, or 3.5% decrease as compared to
the nine months ended January 1996. The decrease in gross profit was primarily
the result of the decline in net sales referred to above. BMI-France's gross
margin for the three and nine months ended January 1997 was 17.5% and 20.0%,
respectively, which was comparable to the gross margins of 17.0%, and 20.1%,
respectively, for the three and nine months ended January 1996.
BMI-France's SG&A expense for the three months ended January 1997 was $3.1
million representing a decrease of $0.4 million, or 12.0%, as compared to SG&A
expense of $3.5 million for the same period in fiscal 1996. For the nine months
ended January 1997, SG&A expense was $10.8 which was comparable to SG&A expense
for the same period in fiscal 1996. The decrease in SG&A expense for the three
months ended January 1997 resulted principally from savings achieved from the
recent consolidation of corporate facilities and functions as well as from
reductions associated with the lower level of revenues in the current fiscal
three month period.
BMI-France's operating income for the three months ended January 1997 was
$0.7 million, representing a decline of $0.2 million, or 25.4%, as compared to
the same period in fiscal 1996. For the nine months ended January 1997,
operating income was $4.7 million, representing a decrease of 12.4% as compared
to the nine months ended January 1996. The decrease in operating income resulted
primarily from the decline in net sales for the three months ended January 1997,
offset somewhat by lower SG&A expense.
CONSOLIDATED RESULTS OF OPERATIONS
The growth in sales of Superior's telecommunications wire and cable products
offset by the decline in net sales at DNE and BMI-France resulted in comparative
consolidated net sales increasing by 1.4% (8.8% if adjusted to a copper cost of
$1.00 per pound) to $121.2 million for the three months ended January 1997. For
the nine months ended January 1997 comparative consolidated net sales increased
by 10.9% (16.6% if adjusted to a copper cost of $1.00 per pound) to $426.6
million. The increase in sales, along with an associated increase in the
telecommunications wire and cable product gross margin, gave rise to a
consolidated increase in gross profit of 37.4% and 50.1%, respectively, for the
three months and nine months ended January 1997 as compared to the corresponding
periods of the previous fiscal year.
Consolidated SG&A expense for the three months ended January 1997 was $8.5
million, which was comparable to SG&A expense of $8.6 million for the same
period in fiscal 1997. For the nine months ended January 1997, SG&A expense was
$29.5 million representing an increase of $4.8 million, or 19.4%, as compared to
the same period in fiscal 1996. The increase in SG&A expense for the nine months
ended January 1997 reflects the increase in Superior SG&A expense discussed
above along with an increase of $3.2 million in corporate SG&A expense for the
period. The increase in corporate SG&A expense resulted principally from an
increase in variable-based accounting charges for certain stock and stock option
grants made in prior years which charges are substantially impacted by the
increase in per share market value of the Company's common stock in fiscal 1997,
along with the impact of increased personnel and other costs associated with the
Company's overall increase in operations and activities.
As a result of the increase in consolidated net sales and gross margin,
comparative consolidated operating income increased 92.0%, to $12.3 million for
the three months ended January 1997. For the nine months ended January 1997,
comparative operating income increased 87.9% to $41.1 million.
Consolidated interest expense for the three months ended January 1997 was
$4.3 million, representing a decrease of $2.4 million, or 35.8%, as compared to
consolidated interest expense of $6.8 million for the three months ended January
1996. For the nine months ended January 1997 consolidated interest expense was
$18.0 million, representing a decrease of $2.7 million, or 13.0%, as compared to
consolidated interest expense of $20.6 million for the nine months ended January
1996. The decrease in consolidated interest
18
<PAGE>
expense reflected primarily the reduction in borrowing costs resulting from the
October 1996 Reorganization and associated refinancing of a substantial portion
of the Company's outstanding debt (see Notes 5 and 6 to the accompanying
consolidated financial statements). To a lesser extent, the lower interest
expense reflected the reduction in aggregate borrowings from $220.6 million at
January 31, 1996 to $197.5 million at January 31, 1997.
In October 1996, the Company completed the sale of a total of 6,000,000
shares (amounting to 49.9% of the outstanding shares) of its Superior Telecom
subsidiary (see Note 5 to the accompanying consolidated financial statements).
Net cash proceeds from the sale amounted to approximately $88.3 million and
resulted in a pre-tax gain of $80.4 million which was recorded as non-operating
income. Current and deferred income tax expense related to this transaction of
$39.0 million has been included in the Company's provision for income taxes.
Thus, on an after tax basis, the net gain on sale of subsidiary stock amounted
to $41.4 million, or $2.23 per share, for the nine months ended January 31,
1997.
For the three months and nine months ended January 1997, provision for
income tax expense was $3.7 million and $48.2 million, respectively, as compared
to a provision for income tax expense of $0.3 million and $0.7 million for the
same periods in fiscal 1996. Included in the provision for income tax expense
for the nine months ended January 1997 was $39.0 million related to the gain on
sale of subsidiary stock. After excluding taxes associated with the gain on sale
of subsidiary stock, the effective rate for the nine months ended January 1997
was 37.1%. This compares with an effective tax rate 21.5% for the nine months
ended January 1996. The lower effective tax rate for the nine months ended
January 1996 was due to the availability of tax loss carryforwards to offset
substantially all of the Company's Federal income tax liability during such
periods, with only limited tax loss carryforwards available to reduce fiscal
1997 Federal income tax expense.
As a result of the aforementioned sale of a 49.9% interest in the common
stock of Superior Telecom, a minority interest charge of $3.1 million and $3.4
million was recorded for the three months and nine months ended January 1997,
respectively, representing the minority stockholders' interest in Superior
Telecom's net income from October 17, 1996 (date of Superior's initial public
offering), through January 31, 1997.
Net income from continuing operations was $2.3 million ($0.12 per share) for
the three months ended January 1997 as compared to net income from continuing
operations of $0.2 million for the three months ended January 1996. For the nine
months ended January 1997, net income from continuing operations was $53.5
million ($2.85 per share). However, excluding the after tax gain on sale of
subsidiary stock, net income for the period was $12.1 million ($0.62 per share)
as compared to net income from continuing operations of $2.6 million ($0.10 per
share) for the nine months ended January 1996. The comparative increase in net
income from continuing operations for the three and nine months ended January
1997 was due to the significant increase in operating income and somewhat lower
interest expense, offset partially by higher incremental tax rates.
DISCONTINUED OPERATIONS
The loss from discontinued operations recorded in the nine months ending
January 1996 related to the dividend distribution of a substantial portion of
the Company's common equity ownership in Poly
Vision Corporation. As a result of the distribution, the operations of
PolyVision Corporation were reported as discontinued operations in the
accompanying consolidated financial statements.
EXTRAORDINARY ITEM
During the three months and nine months ended January 1997, the Company
incurred an extraordinary loss of $6.0 million and $19.4 million, respectively,
on the early extinguishment of debt as compared with $4.9 million for the nine
months ended January 1996. The extraordinary losses related to major
refinancings which were completed in both fiscal 1996 and fiscal 1997. See Note
6 to the accompanying consolidated financial statements and Note 7 to the
Company's Annual Report on Form 10-K for the year ended April 30, 1996.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended January 1997, the Company generated $86.0 million
in cash flow from operating activities consisting of $77.1 million in cash flow
generated from operations (net income plus non-cash charges) plus $8.9 million
in cash flow provided by net working capital changes. Excluding the impact of
the gain on sale of subsidiary stock, cash flow from operating activities would
have been $34.9 million including cash flow generated from operations (net
income plus non cash charges) of $26.1 million. Cash provided by investing
activities amounted to $0.4 million which included $17.4 million in minority
interest in subsidiary, reduced by $8.8 million in capital expenditures and $8.1
million used by Superior Telecom to purchase 450,000 shares of its common stock.
Cash used for financing activities amounted to $53.5 million, consisting of
$137.6 million in repayments of long-term debt, largely as a result of the
redemption of $122.3 million recorded amount ($131.9 million principal amount)
of the Company's 12.25% Senior Notes (the "Senior Notes"), $5.4 million in
capitalized financing costs and $22.9 million used for repurchases of the
Company's common stock and preferred stock, offset by $112.0 million in
increased borrowings under the Company's revolving credit facilities and other
long term borrowings.
As discussed in Note 5 to the accompanying consolidated financial
statements, in October 1996, the Company completed a Reorganization involving
its two wholly owned subsidiaries, Superior and DNE. In connection with the
Reorganization, Superior Telecom, a newly created company, became the parent
company of Superior and DNE and (i) completed an initial public offering of
49.9% of its outstanding common stock for net proceeds of $88.3 million and (ii)
entered into a $150.0 million revolving credit facility of which net proceeds of
approximately $116.7 million were borrowed as of the date of completion of the
initial public offering. Proceeds from these transactions aggregating $205.0
million were paid to the Company and were applied as follows: (i) $48.5 million
was used to repay in full the Company's revolving credit facility, (ii) $116.0
million was used to redeem at a premium $105.4 million principal amount ($97.4
million recorded amount) of the Company's Senior Notes, and (iii) the balance
was added to the Company's cash reserves. In November 1996, the Underwriters of
the initial public offering exercised their overallotment option to purchase an
additional 900,000 shares of Superior Telecom common stock generating net
proceeds of $13.3 million of which $8.1 million was used by Superior Telecom to
purchase 450,000 shares of its common stock with the balance being used to
reduce the amount outstanding under its revolving credit facility. The Superior
Telecom common stock repurchased was then transferred to the Company in exchange
for $8.1 million in liquidation value of Superior 6% Cumulative Preferred Stock
("Superior Preferred Stock"). As a result of the initial public offering and
related transactions, the Company's ownership of Superior Telecom was reduced to
50.1%.
On January 31, 1997, the Company and BMI-France entered into a $50.0 million
credit facility. The facility consists of the Company's revolving credit line of
$20.0 million, a BMI-France revolving credit facility of $15.0 million and a
BMI-France term loan of $15.0 million. The BMI-France revolving credit facility
is subject to availability based upon eligible receivables and inventory. At
January 31, 1997, net proceeds of $45.0 million were drawn under the bank credit
facility. Proceeds from the loans were used by the Company to redeem $26.5
million principal amount ($24.9 million recorded amount) of the Company's Senior
Notes for $29.3 million (including accrued interest), $5.0 million was deposited
in a cash collateral account, and the balance was added to the Company's cash
reserves.
As a result of the aforementioned transactions, the Company has reduced the
outstanding Senior Notes, by $131.9 million principal amount ($122.3 million
recorded amount) and substantially reduced its cost of borrowings and its cash
interest expense. As of January 31, 1997, the remaining balance of Senior Notes
outstanding amounted to $21.1 million principal amount ($19.4 million recorded
amount).
20
<PAGE>
At January 31, 1997, the Company's consolidated long term debt was $197.5
million (versus $209.8 million at April 30, 1996) with the components of such
debt, on an entity basis, consisting of the following:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Long term debt obligation of:
Company....................................................................... $ 39.5
BMI-France.................................................................... 32.6
Superior Telecom and subsidiaries............................................. 125.4
------
$ 197.5
------
------
</TABLE>
The Company on a consolidated basis had $42.3 million in cash and marketable
securities at January 31, 1997. Of such amount $28.8 million was maintained by
the Company with the balance held by BMI-France and Superior Telecom. In
February 1997, Superior redeemed from the Company $11.3 million principal amount
of Superior Preferred Stock, resulting in an increase in the Company's cash
balance to $40.1 million.
In addition to the cash and marketable securities discussed above, the
Company also holds approximately 6,470,000 shares (representing 50.1% common
share ownership) of Superior Telecom (NYSE: SUT) which, based on the closing
price on the New York Stock Exchange on March 14, 1997, had a market value of
approximately $149.6 million and a consolidated carrying value as recorded by
the Company (net of minority interest) of $17.4 million. The Superior Telecom
common stock is pledged as collateral to secure the Company's $50.0 million
credit facility.
As of January 31, 1997, Superior Telecom had a cash balance of $12.3 million
and approximately $34.4 million in excess funds availability under its revolving
credit facility. As mentioned above, $11.3 million of the cash balance was used
to redeem an equivalent amount of Superior Preferred Stock. Superior Telecom's
principal debt service commitments over the next 12 months amount to $0.4
million and management anticipates that capital expenditures of $8.0 to $8.5
million will be required over such period. On a pro forma basis, Superior
Telecom has typically generated substantial cash flows from operating
activities. For the nine months ended January 31, 1997, Superior Telecom's pro
forma cash flows from operating activities approximated $48.8 million.
Management anticipates that Superior Telecom will be able to generate sufficient
cash flows from operating activities to meet its commitments (including
principal debt service and capital expenditures). However, should any shortfall
arise due to working capital fluctuations or other factors, funds available
under the revolving credit facility should be sufficient to cover any such
shortfall.
The balance of the Company's operations, and the commitments underlying such
operations, consist of BMI-France and Alpine's corporate activities. After
completion of the debt reduction activities discussed herein, Alpine and
BMI-France will have combined debt of $72.1 million resulting in annual
principal and interest debt service commitments over the next 12 months of $5.5
million (net of projected investment and dividend income). Further, the cash
component of Alpine's corporate expenses (net of administrative service fees
received from Superior Telecom) should approximate $4.0 to $5.0 million
annually. Management believes that BMI-France will generate sufficient cash
flows from its operations over the next 12 months to fund such commitments,
however, should any shortfall arise, the Company believes it will have
sufficient cash reserves or other available resources to fund any such
shortfall.
- ------------------------
Except for the historical information herein, the matters discussed in this
Form 10-Q include forward-looking statements that may involve a number of risks
and uncertainties. Actual results may vary significantly based on a number of
factors, including, market acceptance of new products and continuing product
demand, the impact of competitive products and pricing and, changing economic
conditions, including changes in short term interest rates and other risk
factors detailed in the Company's most recent annual report and other filings
with the Securities and Exchange Commission.
21
<PAGE>
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS ON SENIOR SECURITIES
(a) None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
(b) Reports on Form 8-K - None
22
<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.
<TABLE>
<S> <C>
THE ALPINE GROUP, INC.
Date: March 17, 1997 By: /s/ DAVID S. ALDRIDGE
------------------------------------------
- ------------------------------------------ David S. Aldridge
CHIEF FINANCIAL OFFICER
</TABLE>
23
<TABLE> <S> <C>
<PAGE>
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0
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