<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 8-K/A
AMENDMENT TO CURRENT REPORT
Filed pursuant to Section 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
THE ALPINE GROUP, INC.
(Exact name of registrant as specified in its charter)
-----------------------
Amendment No. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K, dated
January 30, 1998 filed on February 13, 1998, as set forth in the pages attached
hereto:
Item 5 Other Events
Item 7 Financial Statements, Pro Forma Financial
Information and Exhibits
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)
Commission file number 1-9078
Registrant's telephone number, including area code 212-757-3333
-----------------------
Dated:
----------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
ITEM 5. OTHER EVENTS
On March 12, 1998, Refraco Inc., a wholly-owned subsidiary of The
Alpine Group, Inc. ("Alpine"), filed an amendment to its Certificate of
Incorporation changing its name to Premier Refractories International
Inc. ("PRI"). Also on such date, Adience, Inc., a wholly-owned
subsidiary of PRI, filed an amendment to its Certificate of
Incorporation changing its name to Premier Refractories Inc.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
1. The audited consolidated balance sheets of American Premier Holdings,
Inc. ("APHI") as of December 31, 1997 and 1996 and the related
consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the years in the three-year period ended
December 31, 1997 are included in this Current Report on Form 8-K/A as
Item 7(a).
2. Pro Forma Financial Information. The pro forma financial information
included herein reflects the pro forma effects of the acquisition of
APHI (which occurred on January 30, 1998) and the acquisition of
Hepworth Refractories Limited ("Hepworth") (which occurred on April 15,
1997). Such pro forma financial statements (including appropriate pro
forma adjustments) reflect (i) the condensed historical statement of
operations of Alpine for the fiscal year ended April 30, 1997 (derived
from Alpine's Consolidated Financial Statements) combined with the
unaudited condensed historical statement of operations of Hepworth
for the 12-month period ended March 31, 1997 and the unaudited
condensed historical statement of operations of APHI for the 12-month
period ended March 31, 1997, and (ii) the unaudited condensed
historical statement of operations of Alpine as of January 31, 1998
and for the nine months then ended combined with the unaudited
condensed historical statement of operations of APHI for the nine
months ended December 31, 1997.
The unaudited condensed balance sheet of Alpine as presented in
Alpine's report on Form 10-Q filed March 12, 1998 gives effect to the
APHI and Hepworth transactions and is included herein for information
purposes only . The unaudited pro forma condensed combined statements
of operations for the twelve months ended April 30, 1997 and the nine
months ended January 31, 1998 give effect to such transactions as if
they had occurred on May 1, 1996.
The unaudited balance sheet of Alpine at January 31, 1998 and the pro
forma statements of operations are based upon preliminary estimates of
values, transaction costs, plant and product line closure, and
relocation costs and preliminary appraisals. The actual recording of
the transactions will be based on final appraisals, values, closure,
relocation costs and transaction costs. Accordingly, the actual
recording of the transactions can be expected to differ from the
financial statements presented herein.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS (Continued)
The pro forma statements of operations do not necessarily represent the
results of operations that might have occurred had the transactions
been consummated as of the dates referred to above, nor are they
necessarily indicative of future operations of Alpine. Such pro forma
statements should be read in conjunction with the Consolidated
Financial Statements of Alpine and the Consolidated Financial
Statements of APHI, together with the respective notes thereto.
(a) Financial Statements of Business Acquired
Consolidated Financial Statements of American Premier
Holdings, Inc. with report of Independent Auditors.
(b) Pro Forma Condensed Combined Financial Statements (Unaudited)
(c) Exhibits
(1) Reference is made to Exhibits 1-3 in Item 7(c) of the Current
Report on Form 8-K, dated January 30, 1998 and filed February
13, 1998, which are incorporated herein by reference.
(2) Consent of KPMG Peat Marwick LLP for the inclusion of their
report dated March 3, 1998 with respect to the consolidated
financial statements of American Premier Holdings, Inc. and
Subsidiary (exclusive of the American Minerals Division of
American Premier, Inc.).
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment to be signed on its behalf by the
undersigned hereunto duly authorized.
THE ALPINE GROUP, INC.
(Registrant)
Date: April 14, 1998 By: /s/ DAVID S. ALDRIDGE
------------------- ------------------------------
DAVID S. ALDRIDGE
Chief Financial Officer
<PAGE>
Item 7(a)
AMERICAN PREMIER HOLDINGS, INC.
AND SUBSIDIARY (Exclusive of the American
Minerals Division of American Premier, Inc.)
Consolidated Financial Statements
December 31, 1997, 1996, and 1995
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Board of Directors
American Premier Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of American Premier
Holdings, Inc. and subsidiary exclusive of the American Minerals division of
American Premier, Inc., as of December 31, 1997 and 1996, and the related
consolidated statements of operations, common stockholders' equity (deficit),
and cash flows for each of the years in the three-year period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Premier
Holdings, Inc. and subsidiary exclusive of the American Minerals division of
American Premier, Inc., as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997.
/s/ KPMG Peat Marwick LLP
-------------------------
Philadelphia, Pennsylvania
March 3, 1998
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1997 and 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Assets 1997 1996
- ------ -------- ------
<S> <C> <C>
Current assets:
Cash $ 2,326 417
Trade accounts receivable, less allowance for doubtful accounts of
$985 and $992 in 1997 and 1996, respectively 28,604 26,324
Intercompany receivable with American Minerals 5,183 2,749
Inventories 28,523 28,799
Prepaid expenses and other current assets 1,717 856
Deferred income taxes 1,383 1,283
-------- ------
Total current assets 67,736 60,428
Property, plant, and equipment, net 12,873 13,596
Intangible assets, net 441 --
Cost in excess of fair value of net assets acquired, net 1,650 1,764
Deferred income taxes 1,472 345
Equity investments 947 764
Other assets 4,441 4,886
-------- ------
$ 89,560 81,783
-------- ------
-------- ------
Liabilities and Stockholders' Deficit
Current liabilities:
Current installments of long-term debt and capitalized lease obligations $ 186 306
Trade accounts payable 14,380 10,949
Intercompany payable with American Minerals 13,445 7,870
Due to affiliate 381 1,460
Other current liabilities 18,113 12,764
-------- ------
Total current liabilities 46,505 33,349
Long-term debt, excluding current installments 34,823 45,097
Indebtedness to shareholders 23,159 16,583
Postretirement benefit liability, excluding current portion 8,586 8,522
-------- ------
Total liabilities 113,073 103,551
-------- ------
Redeemable preferred stock, par value $.01 per share, liquidating value $10,000
per share (840 shares authorized, 640 shares
issued and outstanding) 6,400
-------- ------
Commitments and contingencies Common stockholders' equity (deficit):
Common stock, $1 par value; authorized, issued and outstanding 1,000 shares 1 1
Additional paid-in capital (2,540) (2,540)
Retained earnings (deficit) (18,586) (25,097)
Minimum pension liability adjustment, net of tax (1,644) --
Cumulative translation adjustment (744) (532)
-------- ------
Total common stockholders' equity (deficit) (23,513) (28,168)
-------- ------
$ 89,560 81,783
-------- ------
-------- ------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
December 31, 1997, 1996, and 1995
(dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Net sales $178,933 171,749 170,235
Cost of goods sold 126,210 124,270 126,435
-------- ------- -------
Gross profit 52,723 47,479 43,800
-------- ------- -------
Selling, general, and administrative
expenses 40,818 33,525 32,758
Amortization expense 117 1,303 1,299
-------- ------- -------
40,935 34,828 34,057
-------- ------- -------
Income from operations 11,788 12,651 9,743
Interest expense (6,602) (6,821) (7,083)
Royalty income 2,425 2,336 564
Gain (loss) on disposal of property
and equipment 4,037 (45) (56)
Equity in earnings of affiliates 355 162 --
Other income (expense), net (118) (258) (193)
-------- ------- -------
Income before income taxes 11,885 8,025 2,975
Income tax expense (5,374) (3,258) (2,116)
-------- ------- -------
Net income 6,511 4,767 859
Preferred stock dividends -- (704) (704)
Accretion of preferred stock -- -- (90)
-------- ------- -------
Net income applicable to common stockholders $ 6,511 4,063 65
-------- ------- -------
Basic and diluted earnings per common share $ 6,511 4,063 65
-------- ------- -------
Weighted average common shares outstanding 1,000 1,000 1,000
-------- ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Common Stockholders' Equity (Deficit)
December 31, 1997, 1996, and 1995
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
Minimum
pension
Additional Retained liability Cumulative Total common
Common paid-in earnings adjustment, translation stockholders'
Shares stock capital (deficit) net of tax adjustment equity (deficit)
------ --------- ---------- --------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 1,000 $ 1 (2,540) (29,225) -- (571) (32,335)
Preferred stock dividends -- -- -- (704) -- -- (704)
Accretion of preferred stock -- -- -- (90) -- -- (90)
Cumulative translation adjustment -- -- -- -- -- 92 92
Net income -- -- -- 859 -- -- 859
----- ------- ------ ------- ------ ---- -------
Balance at December 31, 1995 1,000 1 (2,540) (29,160) -- (479) (32,178)
Preferred stock dividends -- -- -- (704) -- -- (704)
Cumulative translation adjustment -- -- -- -- -- (53) (53)
Net income -- -- -- 4,767 -- -- 4,767
----- ------- ------ ------- ------ ---- -------
Balance at December 31, 1996 1,000 1 (2,540) (25,097) -- (532) (28,168)
Minimum pension liability adjustment,
net of tax -- -- -- -- (1,644) -- (1,644)
Cumulative translation adjustment -- -- -- -- -- (212) (212)
Net income -- -- -- 6,511 -- -- 6,511
----- ------- ------ ------- ------ ---- -------
Balance at December 31, 1997 1,000 $ 1 (2,540) (18,586) (1,644) (744) (23,513)
----- ------- ------ ------- ------ ---- -------
----- ------- ------ ------- ------ ---- -------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
December 31, 1997, 1996, and 1995
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,511 4,767 859
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,979 3,080 3,197
Interest accretion 220 589 170
Equity in undistributed earnings of
unconsolidated affiliates (155) (162) --
Deferred income taxes (benefit) (1,227) (383) 362
(Gain) loss on disposal of equipment (4,037) 45 56
Changes in operating assets and liabilities:
Trade accounts receivable, net (2,280) 513 (1,366)
Inventories 276 (1,832) (5,166)
Accounts payable 339 (453) 1,793
Other, net 9,482 4,446 (1,755)
------ ------ ------
Net cash provided by (used in) operating activities 11,108 10,610 (1,850)
------ ------ ------
Cash flows from investing activities:
Capital expenditures for equipment (1,798) (1,716) (2,340)
Equity investments (28) (443) (160)
Proceeds from sale of property and equipment 1,742 22 31
------ ------ ------
Net cash used in investing activities (84) (2,137) (2,469)
------ ------ ------
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit loan (10,118) (13,602) 9,223
Changes in cash overdraft 2,013 (839) 285
Repayments of term loan -- (8,125) (2,500)
Proceeds from borrowings under senior secured notes -- 20,000 --
Payment on noncompetition agreement -- (500) (1,500)
Repayment of deferred payments -- (200) (200)
Repayments of other long-term debt (200) (4,000) --
Repayment of capital lease (106) (261) (223)
Payments of preferred stock dividends (704) (704) (723)
------ ------ ------
Net cash provided by (used in) financing activities (9,115) (8,231) 4,362
------ ------ ------
Net increase in cash 1,909 242 43
Cash at beginning of year 417 175 132
------ ------ ------
Cash at end of year $ 2,326 417 175
------ ------ ------
------ ------ ------
</TABLE>
5
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
December 31, 1997, 1996, and 1995
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
------ ----- -----
<S> <C> <C> <C>
Supplemental cash flow disclosures:
Cash paid during the year for:
Interest $5,735 5,176 7,159
Taxes 4,904 1,882 1,869
------ ----- -----
Supplemental noncash investing and
financing activities:
Exchange of redeemable preferred stock
for deferred interest bonds $6,400 -- --
Note received on sale of property
and equipment 3,000 -- --
------ ----- -----
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997, 1996, and 1995
(dollars in thousands)
(1) Business
American Premier Holdings, Inc. and subsidiary (APH or the Company),
through American Premier, Inc. and subsidiaries (API), operates
principally as a manufacturer and reseller of refractory products in
the United States and Canada. The Company produces and supplies
refractory products to industrial and steel customers worldwide and is
also engaged in the manufacturing and sale of magnesia specialty
products for applications in the agriculture and various chemical
processing industries.
(2) Basis of Presentation and Summary of Significant Accounting Policies
These financial statements reflect the consolidated financial
statements of American Premier Holdings, Inc. and subsidiary exclusive
of the American Minerals division of American Premier Inc. This
presentation includes the businesses that are subject to a plan of
merger with The Alpine Group, Inc. as described in note 17. Except as
described below, the financial statements have been prepared using the
historical basis of accounting and exclude the assets, liabilities,
revenues, and expenses of the American Minerals division of American
Premier, Inc. (American Minerals). Intercompany balances and
transactions have been eliminated. Interest expense has not been
allocated to American Minerals because the underlying debt remains an
obligation of the Company. Other direct expenses incurred by the
Company on behalf of American Minerals have been allocated to American
Minerals and are not included in these statements. Indirect expenses
incurred by the Company on behalf of American Minerals have not been
allocated to American Minerals because they have been insignificant.
Use of Estimates in the Preparation of Consolidated Financial
Statements
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of APH and
its wholly-owned subsidiary, excluding the American Minerals division.
All significant intercompany balances and transactions have been
eliminated in consolidation. Investments in affiliated companies (20%
to 50% owned) are accounted for under the equity method.
(Continued)
7
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(dollars in thousands)
(2) Continued
Translation of Foreign Currencies
Financial statement amounts related to API's Canadian subsidiary (PRCL)
and API's Mexican equity investment (Nutec - see note 7) are translated
into United States dollar equivalents at exchange rates as follows: (1)
balance sheet accounts at year-end exchange rates, and (2) statement of
operations accounts at a weighted average exchange rate for the year.
Resulting translation adjustments are recorded as a separate component
of common stockholders' equity/(deficit), Cumulative Translation
Adjustment.
Inventories
Inventories are stated primarily at the lower of cost or market.
Domestic mineral and refractory products are valued at cost using the
last-in, first-out method (LIFO). Other inventories, including Canadian
inventory, are valued principally at cost under the FIFO method.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash, accounts
receivable, accounts payable, and current portion of long-term debt
approximate fair value as of December 31, 1997 and 1996 because of the
relatively short maturity of these instruments. The carrying value of
variable rate long-term debt approximates fair value as of December 31,
1997 and 1996 based on current rates available to the Company for debt
of similar maturities and terms. The deferred interest bonds,
subordinated notes and promissory notes are held by related parties
and, accordingly, it is not practical to determine the fair value of
such financial instruments.
The Company uses interest rate swaps to hedge portions of its interest
expense and thereby allowing the Company to establish fixed rates on a
portion of its long-term debt. The differential to be paid or received
is recorded as interest rates change and recognized as an adjustment to
interest expense.
Construction Contracts
PRCL recognizes revenue from construction contracts on a completed
contract basis. Under this method, no revenue is recorded on a contract
until it is completed. Anticipated losses, if any, are recognized when
they become known. Revenue recognized in 1997, 1996, and 1995 under the
completed contract method was not significantly different than would
have been recognized under the percentage of completion method.
(Continued)
8
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(dollars in thousands)
(2) Continued
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation on
plant and equipment is calculated using the straight-line method over
the estimated useful lives. Maintenance and repair costs are expensed
as incurred.
Mineral rights are depleted at a rate based upon the cost of mineral
properties and estimated recoverable tonnage.
Deferred Financing Costs
API incurred additional financing costs of $452 and $64 during 1996 and
1995, respectively, relating to the Third Amended and Restated Loan
Agreement and the Senior Secured Note Agreement (note 9). Deferred
financing costs of $492 and $731, net of accumulated amortization, at
December 31, 1997 and 1996, respectively, are included in other assets
and are amortized on a straight-line basis over the term of the related
debt. Amortization expense for the years ended December 31, 1997, 1996,
and 1995 was $239, $177, and $148, respectively. This amortization
expense is included in interest expense.
Cost in Excess of Fair Value of Net Assets Acquired, Net
Cost in excess of fair value of net assets acquired is being amortized
on a straight-line basis over 15 to 25 year periods. Accumulated
amortization for the years ended December 31, 1997 and 1996 was $688
and $575, respectively.
Income Taxes
Income taxes are recorded based on the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109), Accounting for
Income Taxes. SFAS 109 requires the accounting for income taxes under
the asset and liability method. Under the asset and liability method of
SFAS 109, deferred tax assets and liabilities are recognized for future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered
or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(Continued)
9
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(dollars in thousands)
(2) Continued
Earnings Per Share
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, Earnings Per Share, which requires computation and
presentation of basic and dilutive earnings per share. Basic earnings
per share (EPS) is calculated by dividing net income applicable to
common stockholders by the weighted average number of common shares
outstanding during the period. Diluted EPS is the same as basic EPS
since there were no potentially dilutive common shares that were
outstanding during any of the three years.
Concentration of Labor
The Company has collective bargaining agreements covering 30% of the
total labor force. 10% of the total labor force is covered by
collective bargaining agreements that will expire within one year. The
Company does not expect any work stoppages to occur in the near future.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income (SFAS 130). SFAS 130 requires that all items that
are required to be recognized under accounting standards as components
of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The
Company plans to adopt this statement on January 1, 1998, as required.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information (SFAS 131). This statement established standards
for reporting information about operating segments in interim and
annual financial reports issued to shareholders. It also established
standards for related disclosure about products and services,
geographic areas, and major customers. The Company plans to adopt this
statement on January 1, 1998, as required.
In February 1998, the FASB issued Statement of Financial Accounting
Standard No. 132, Employers' Disclosure about Pension and Other
Postretirement Benefits (SFAS 132), which revises employers'
disclosures about pensions and other postretirement benefit plans, and
does not change the measurement or recognition of those plans. The
Company plans to adopt this statement on January 1, 1998, as required.
(Continued)
10
<PAGE>
(3) Financial Instruments
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of accounts
receivable. Approximately 41% of its sales are to customers in the
steel industry. Additionally, approximately 78% of the Company's sales
are made to domestic customers. Except for the steel industry,
concentration of credit risk with respect to accounts receivable is
limited due to the large number of customers comprising the customers'
credit base and their dispersion across different industries and
geographies. The Company generally does not require collateral or other
security to support customer receivables.
Interest Rate Swaps
On October 30, 1995, the Company entered into a $10,000 interest rate
swap transaction with Bank of America, Inc. The Company pays interest
based on a fixed rate of 5.98% and receives interest at the current
Eurodollar rate. The difference between the fixed and the floating rate
amounts was accrued as an adjustment to interest expense. Payments are
made monthly. The agreement terminates on November 27, 2000.
The Company is exposed to market risk for changes in interest rates.
The Company manages exposure to counterparty credit risk by entering
into such transactions with major financial institutions that are
expected to perform under the terms of such agreements.
The fair value of the interest rate swap is estimated based on quotes
from the market maker of this instrument and represents the estimated
amounts that the Company would expect to receive or pay to terminate
the agreement. The fair value of the interest rate swap as of December
31, 1997 and 1996 was ($23) and $72, respectively.
(4) Inventories
Inventories consisted of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Finished goods $ 8,371 8,005
Work-in-process 1,347 1,195
Raw material and supplies 18,805 19,599
------ ------
$28,523 28,799
------- ------
------- ------
</TABLE>
(Continued)
11
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(dollars in thousands)
(4) Continued
Inventories accounted for using the LIFO cost method (approximately
61% of total inventory at December 31, 1997 and 1996) are stated at
amounts that do not exceed market. If the FIFO method of accounting
of inventories had been used by the Company, inventories would have
been higher than reported at December 31, 1997 and 1996 by $902 and
$2,023, respectively.
(5) Property, Plant, and Equipment
The components of property, plant, and equipment at December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
Estimated useful
lives (years) 1997 1996
---------------- -------- -------
<S> <C> <C> <C>
Land $ 1,001 1,272
Mineral rights 523 523
Buildings and improvements 20 to 33 7,079 7,363
Machinery and equipment 3 to 12 13,712 12,555
Office furniture and equipment 3 to 12 1,937 1,862
------ ------
24,252 23,575
Less accumulated depreciation
and depletion (11,379) (9,979)
------ ------
Net property, plant, and
equipment $ 12,873 13,596
-------- ------
-------- ------
</TABLE>
Depreciation expense for 1997, 1996, and 1995 was $1,623, $1,600, and
$1,750, respectively.
Quarry Sale
On December 30, 1997, the Company sold assets located in Maple Grove,
Ohio. These assets include a quarry, lime kilns, and associated
buildings, equipment, storage bins, rail facilities, and related
assets. The purchase price was $5,500 resulting in a pre-tax gain of
$4,037. The purchaser paid $2,000 in cash, $500 previously on deposit
and the final $3,000 with a non-negotiable promissory note due in
three equal annual installments payable on December 30, 1998,
December 30, 1999 and December 30, 2000. Interest at the corporate
rate will accrue on the unpaid principal. This promissory note was
subsequently assigned to the shareholders as merger consideration
pursuant to the January 30, 1998 agreement and plan of merger (see
note 17).
In addition, pursuant to the quarry sale agreement, the Company
agreed to purchase 100% of its requirements for dolomitic lime
products from the purchaser at prevailing market rates. The term of
this commitment is 20 years beginning at December 30, 1997. The
estimated dollar amount of the yearly commitment is $1,414. There is
no minimum purchase requirement.
(Continued)
12
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(dollars in thousands)
(6) Intangible Assets
At December 31, 1997, the Company had recorded an intangible asset of
$441 related to the recognition of the minimum liability for one of the
Company's defined benefit pension plans (see note 12).
The Company has noncompetition agreements which were recorded at
present value and were amortized on a straight-line basis over five
years, their contractual life commencing December 1991. At December 31,
1996, the noncompetition agreements were fully amortized. Amortization
expense of $1,192 related to the noncompetition agreements for the
years ended December 31, 1996 and 1995.
(7) Investments in Unconsolidated Affiliates
On January 1, 1996, a 50/50 general partnership was formed between API
and Advent Process Engineering, Inc. under the name of APA Systems. APA
Systems mainly operates to manufacture, market, sell, and service a
computer enhanced device used in the manufacture of steel.
On December 13, 1995, API entered into a 50% joint venture with Groupo
Nutec, S.A. DE C.V. of Mexico which commenced operations in 1996 to
manufacture, distribute, and sell ceramic fibers, refractory and
insulating materials. The newly established company, Nutec Premier,
S.A. DE C.V. (Nutec) purchased certain assets of Industrias Penoles,
S.A. DE C.V (Penoles), a Mexican manufacturer.
(8) Other Current Liabilities
Other current liabilities consisted of the following at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Postretirement benefit liability,
current portion $ 465 435
Dividend payable -- 704
Accrued litigation 3,060 100
Accrued interest 2,678 2,085
Accrued liabilities 11,910 9,440
------- ------
$18,113 12,764
------- ------
------- ------
</TABLE>
(Continued)
13
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(dollars in thousands)
(9) Long-term Borrowings
Long-term borrowings consisted of the following at December 31, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Revolving credit bank loan, with a weighted average interest rate
of 7.15% at December 31, 1997, due May 31, 2000 $14,823 24,941
Senior secured notes, with interest at 9.31% at December 31, 1997
repayable in three equal annual installments commencing
May 31, 2001 through May 31, 2003 20,000 20,000
Present value of deferred payments discounted at 9.375% 186 356
Capital leases -- 106
------- ------
35,009 45,403
Less: current installments 186 306
------- ------
$34,823 45,097
------- ------
------- ------
</TABLE>
The aggregate contractual annual maturities of long-term debt are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 186
1999 --
2000 14,823
2001 6,667
2002 and thereafter 13,333
-------
$35,009
-------
-------
</TABLE>
Revolving Credit Bank Loan
On May 31, 1996, API entered into a Third Amended and Restated Loan
Agreement (Loan Agreement) which provides borrowings availability under
a revolving credit loan up to $46,000. There is a non-use fee of 0.25%
charged quarterly for any unused credit line.
The Loan Agreement is secured by the assets of API and its wholly-owned
subsidiaries. PRCL's portion of the revolving credit has been assigned
to a Canadian bank with provisions allowing for PRCL to maintain a
separate revolving credit facility of $6,000.
The Company had unused facilities under the revolving credit loan of
$30,332 at December 31, 1997. Borrowings under the revolving credit
loan are comprised of Reference Rate Revolving Loans and Eurodollar
Revolving Loans. The composition of these loans is determined monthly
by API. The Eurodollar Revolving Loan balance is fixed each month at
the current eurodollar rate plus an applicable margin. At December 31,
1997, the applicable margin was 1.50% and the rate was 7.44%. Revolving
credit loan balances in excess of this fixed amount are Reference Rate
Revolving Loans bearing interest at prime (8.50% at December 31, 1997).
(Continued)
14
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(dollars in thousands)
(9) Continued
At December 31, 1997, 1996, and 1995, the Company had outstanding
letters of credit amounting to $855, $1,476, and $1,103, respectively.
The Loan Agreement contains various restrictive covenants which
include, among other things, at the API level, the maintenance of
minimum tangible net worth (as defined), restrictions on dividend
payments, bonus payments, the incurrence of additional debt, and the
requirement to maintain certain financial ratios. Interest on the
subordinated notes and deferred interest bonds are dependent on API
meeting certain levels of cash flow and availability under the
revolving credit facility (as defined).
In connection with the acquisition of APH discussed in note 17, the
revolving credit bank loan was paid in full.
Senior Secured Notes
On May 15, 1996, API entered into a Note Agreement which provides for
$20,000 of borrowings under fixed rate Senior Secured Notes.
API and each of its subsidiaries has jointly and severally guaranteed
the payment of all obligations under the Loan Agreement and the Note
Agreement and API has pledged the stock of each of its subsidiaries. In
addition, APH has guaranteed payment of all obligations made under
these loan agreements and has pledged the stock of API as collateral.
In connection with the acquisition of APH discussed in note 17, the
senior secured notes were paid in full.
Deferred Payments
Prior to October 31, 1994, API was a 50% partner in American Minerals
Sales Company (AMS) which was engaged in the manufacture and sale of
refractory products. On October 31, 1994, API purchased the remaining
50% interest from SMG, Inc. The total purchase price was $1,023 of
which $1,000 was financed with noninterest-bearing subordinated
deferred payments. The deferred payments were recorded at their present
value and the remaining payments are due in annual installments of
$200, due each October 31 through 1998.
(Continued)
15
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(dollars in thousands)
(10) Industry Segment Reporting and Information About Foreign Operations
The Company is a U.S. and Canadian manufacturer of refractory and
chemical products. The Company's principal lines of business are
Alumina Specialties, Ceramic Fibers, Distributed Products, Specialty
Refractory Products, and Magnesia Specialty Chemicals. The major
geographic markets for these product lines are the United States,
Canada, and Mexico.
In accordance with the provisions of SFAS No. 14, the following tables
present information for the years 1997, 1996, and 1995 related to the
Company's results in the five industry segments described above. The
Company defines the industry segment for each product shipment by
product type. Intercompany sales are eliminated and not included in
these tables.
(Continued)
16
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(dollars in thousands)
(10) Continued
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Sales:
Alumina Specialty $ 79,262 72,526 68,409
Ceramic Fibers 23,440 23,099 20,330
Distributed Products 10,391 15,212 17,981
Specialty Refractory Products 44,518 38,811 40,313
Magnesia Specialty Chemicals 25,455 26,851 26,610
Elimination (4,133) (4,750) (3,408)
-------- ------- -------
Total $178,933 171,749 170,235
-------- ------- -------
-------- ------- -------
Operating profit:
Alumina Specialty $ 4,578 5,618 3,155
Ceramic Fibers 1,754 2,964 2,209
Distributed Products 138 875 628
Specialty Refractory Products 3,285 1,072 1,141
Magnesia Specialty Chemicals 2,033 2,122 2,610
-------- ------- -------
Total $ 11,788 12,651 9,743
-------- ------- -------
-------- ------- -------
Identifiable assets at year-end:
Alumina Specialty $ 31,281 29,060 27,287
Ceramic Fibers 8,956 8,525 8,035
Distributed Products 2,549 2,350 2,257
Specialty Refractory Products 19,013 18,268 17,652
Magnesia Specialty Chemicals 13,384 13,275 13,010
-------- ------- -------
Total $ 75,183 71,478 68,241
-------- ------- -------
-------- ------- -------
Depreciation expense:
Alumina Specialty $ 518 583 625
Ceramic Fibers 250 275 322
Distributed Products 135 129 135
Specialty Refractory Products 262 244 241
Magnesia Specialty Chemicals 458 369 427
-------- ------- -------
Total $ 1,623 1,600 1,750
-------- ------- -------
-------- ------- -------
Capital expenditures:
Alumina Specialty $ 822 667 381
Ceramic Fibers 97 329 1,163
Distributed Products 28 38 40
Specialty Refractory Products 300 355 441
Magnesia Specialty Chemicals 551 327 315
-------- ------- -------
Total $ 1,798 1,716 2,340
-------- ------- -------
-------- ------- -------
</TABLE>
(Continued)
17
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(dollars in thousands)
(10) Continued
In addition, the tables below provide information pertaining to the
Company's operations in different geographic areas, in accordance with
SFAS No. 14.
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Sales:
United States $152,911 147,348 147,146
Canada 26,022 24,401 23,089
-------- ------- -------
Total $178,933 171,749 170,235
-------- ------- -------
-------- ------- -------
Operating profit:
United States $ 10,318 11,159 8,596
Canada 1,470 1,492 1,147
-------- ------- -------
Total $ 11,788 12,651 9,743
-------- ------- -------
-------- ------- -------
Identifiable assets at year-end:
United States $ 66,878 63,480 60,218
Canada 8,305 7,998 8,023
-------- ------- -------
Total $ 75,183 71,478 68,241
-------- ------ ------
-------- ------- -------
Depreciation expense:
United States $ 1,919 3,014 3,131
Canada 60 66 66
-------- ------- -------
Total $ 1,979 3,080 3,197
-------- ------- -------
-------- ------- -------
Capital expenditures:
United States $ 1,571 1,424 2,249
Canada 227 292 91
-------- ------- -------
Total $ 1,798 1,716 2,340
-------- ------- -------
-------- ------- -------
</TABLE>
United States export sales to customers were $14,000, $13,000, and
$11,000 in 1997, 1996, and 1995, respectively.
(Continued)
18
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(dollars in thousands)
(10) Continued
Total identifiable assets at December 31, 1997, 1996 and 1995 for
segment and geographic results are reconciled below to the consolidated
total assets. General corporate assets primarily include cash, prepaid
expenses, and other assets.
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Identifiable assets $75,183 71,478 68,241
Equity investments 947 764 159
Intangible assets 2,091 1,764 3,070
Deferred income taxes 2,855 1,628 1,245
General corporate assets 8,484 6,149 4,735
------- ------ ------
Total assets at year end $89,560 81,783 77,450
------- ------ ------
------- ------ ------
</TABLE>
(11) Income Taxes
Income tax expense (benefit) consisted of the following components
for the years ended December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------ ----- -----
<S> <C> <C> <C>
Current:
Federal $5,266 3,151 1,092
State 349 212 639
Foreign 291 278 23
------ ----- -----
5,906 3,641 1,754
------ ----- -----
Deferred:
Federal (452) (279) 351
State (80) (104) 11
------ ----- -----
(532) (383) 362
------ ----- -----
$5,374 3,258 2,116
------ ----- -----
------ ----- -----
</TABLE>
(Continued)
19
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(dollars in thousands)
(11) Continued
Deferred income taxes are recorded based upon differences between the
financial statement and the tax basis of assets and liabilities, net of
a valuation allowance. The following deferred income taxes have been
recorded as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------ -----
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 539 552
Postretirement benefits other than pensions 3,621 3,577
Other liabilities and reserves 1,664 1,365
Net operating loss carryforward -- 187
Other 747 200
------ -----
Total gross deferred tax assets 6,571 5,881
Less valuation allowance 250 250
------ -----
Total gross deferred tax asset 6,321 5,631
------ -----
Deferred tax liabilities:
Property, plant, and equipment 2,078 2,488
Pension assets 338 805
Inventories 24 38
Long-term debt 361 612
Other 665 60
------ -----
Total gross deferred tax liabilities 3,466 4,003
------ -----
Net deferred tax asset $2,855 1,628
------ -----
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1995
was $750. The net change in the valuation allowance for the years ended
December 31, 1996 and 1995 was a decrease of $250. There was no change
in the valuation allowance during 1997. In assessing the realizability
of deferred tax assets, management considers whether it is more likely
than not that some portion or all of the deferred tax assets will not
be realized. The ultimate realization of the deferred tax assets is
dependent upon the future generation of taxable income during the
periods in which those temporary differences become deductible.
Based upon the level of historical taxable income and projections for
future taxable income over the periods which the deferred tax assets
are deductible, management believes it is more likely than not that the
Company will realize the benefits of these deductible differences, net
of the existing valuation allowance at December 31, 1997.
(Continue)
20
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(dollars in thousands)
(11) Continued
Income tax expense (benefit) differs from the amounts computed by
applying the U.S. federal income tax rate of 35%, 34%, and 34% to
income before income taxes of the Company for the years ended
December 31, 1997, 1996, and 1995, respectively, as a result of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income tax expense computed at statutory rate $4,160 2,809 1,041
Income tax expense (at statutory rate) on earnings of
The American Minerals division of American Premier, Inc. 975 477 1,050
Change in the valuation allowance for deferred tax assets
allocated to income tax expense (benefit) -- (250) (250)
State income taxes, net of federal income tax effect 175 71 429
Meals and entertainment 163 130 133
Taxes lower than U.S. tax rate on foreign earnings 6 (30) (64)
Percentage depletion (162) (165) (170)
Foreign sales corporation (136) -- --
Other 193 216 (53)
------ ----- -----
$5,374 3,258 2,116
------ ----- -----
</TABLE>
The Company's effective tax rates, including American Minerals' tax
expense, for the years ended December 31, 1997, 1996 and 1995 were 45%,
41% and 71%, respectively. However, had American Minerals' tax expense
been allocated directly to them and not reflected as a component of the
Company's tax expense shown above, APH's effective tax rate would have
been 37%, 35% and 36%, respectively.
(12) Employee Benefits
Defined Benefit Pension Plans
APH has two defined benefit pension plans covering certain union
employees. The benefits are based on years of service. The Company's
funding policy is to make annual contributions as required by
applicable regulations. Plan assets consist principally of marketable
equity securities and fixed income investments.
(Continued)
21
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(dollars in thousands)
(12) Continued
The Company's net pension expense for the years ended December 31,
1997, 1996, and 1995 included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost benefits earned during the year $ 118 119 85
Interest cost on projected benefit obligation 1,073 1,089 1,142
Actual return on plan assets (2,298) (1,493) (2,700)
Net amortization and deferrals 1,013 286 1,697
----- ----- -----
Net pension expense (income) $ (94) 1 224
----- ----- -----
----- ----- -----
</TABLE>
The projected benefit obligation was calculated using a discount rate
of 7.0% and 7.5% at December 31, 1997 and 1996, respectively. An
expected long-term rate of return on assets of 9.5% was used for 1997
and 1996.
The funded status of the plans at December 31, 1997 and 1996 was as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of:
Accumulated benefit obligation:
Vested $16,046 14,864
Nonvested 443 108
------ -----
Total $16,489 14,972
------ -----
Projected benefit obligation $16,489 14,972
Plan assets at fair market value 15,998 15,019
------ -----
Plans assets over (under) projected benefit
obligation (491) 47
Unrecognized net loss 2,641 2,165
Unrecognized prior service cost 460 305
Addjustment required to recognize minimum liability (2,933) --
------ -----
Prepaid (accrued) pension cost $ (323) 2,517
------ -----
------ -----
</TABLE>
In 1997, an adjustment of $2,933 was recorded to recognize the minimum
liability required for the defined benefit pension plan whose
accumulated benefits exceeded assets. A corresponding amount of $441
was recognized as an intangible asset up to the amount of the
unrecognized prior service cost and the excess minimum liability of
$2,492 resulted in an increase in the common stockholders' deficit of
$1,644, net of income taxes of $848.
(Continued)
22
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(dollars in thousands)
(12) Continued
Defined Contribution Pension Plan
The Company has a defined contribution pension plan covering all active
nonunion employees who have completed six months of service. The plan
specifies that employee contributions of up to 3% of each covered
employee's compensation are matched 100% by the Company and the Company
may contribute up to an additional 3% as a profit-sharing contribution.
The Company's contributions totaled $993, $808, and $836 for the years
ended December 31, 1997, 1996, and 1995, respectively.
Postretirement Benefits
The Company provides health care and life insurance benefits for
certain retired U.S. employees of Combustion Engineering (C-E), former
owners of a division of the Company and for certain active and retired
union employees associated with one of its facilities.
As a condition of an agreement between Cummings Point Industries, Inc.
(CPI), a previous stockholder of APH, and C-E, C-E will reimburse CPI
for two-thirds of the annual cost up to $755 (adjusted for inflation)
and at a rate of one hundred percent thereafter, for ten years
beginning June 21, 1989. CPI and API entered into an agreement which
allocates the C-E reimbursement to API based on a proportionate share
of the initial estimated postretirement liability as of June 21, 1989.
For the years ended December 31, 1997, 1996, and 1995, aggregate
benefits incurred for these retired employees was $876, $693, and $744,
of which $584, $462, and $496, respectively, has been reimbursed by
C-E.
The Company also provides postretirement health care and life insurance
benefits to certain active and retired union employees associated with
one of its facilities. The benefits are not insured and are payable by
the Company.
The Company records postretirement health care and life insurance
benefits in accordance with the provisions of Financial Accounting
Standard No. 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions.
Net periodic postretirement benefit cost for 1997, 1996, and 1995
included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost, benefits attributed to employee service during
the year $ 34 41 55
Interest cost on accumulated postretirement benefit
obligation 591 578 556
Amortization of gain (36) (32) --
Other expenses 1 7 --
---- --- ---
Net periodic postretirement benefit cost $590 594 611
---- --- ---
---- --- ---
</TABLE>
(Continued)
23
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(dollars in thousands)
(12) Continued
The following table summarizes the postretirement benefit liability at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $7,036 6,864
Active plan participants 1,465 1,226
----- -----
Total 8,501 8,090
Unrecognized prior service cost (3) (4)
Unrecognized gain 553 871
------ -----
9,051 8,957
Less current portion 465 435
------ -----
Postretirement benefit liability, excluding current portion $8,586 8,522
------ -----
</TABLE>
For measurement purposes, annual rates of increase of 5.0% to 11.5% in
the per capita cost of covered health care benefits were assumed. The
health care cost trend rate assumption has a significant effect on the
amount of the obligation and periodic cost reported. An increase in the
assumed health care cost trend rate by 1% in each year would increase
the accumulated postretirement benefit obligation as of December 31,
1997 by $543 and would increase the annual postretirement benefit
expense by $42.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.00% and 7.50% at December 31,
1997 and 1996, respectively.
(Continued)
24
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(dollars in thousands)
(13) Leases
The Company leases certain facilities and equipment under various lease
agreements. These leases expire on various dates through 2010. Future
minimum lease payments required under these operating leases that have
remaining noncancelable lease terms in excess of one year at December
31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
Year ending Operating
December 31, leases
------------ ---------
<S> <C>
1998 $1,948
1999 1,194
2000 838
2001 354
2002 80
------
Total minimum payments $4,414
------
------
</TABLE>
Total rent expense, including lease payments for the years ended
December 31, 1997, 1996, and 1995, was $2,360, $2,211, and $1,841,
respectively.
(14) Related Parties
API has entered into employment agreements with two officers of API who
are also stockholders of APH. Under the agreements, the officers are
entitled to incentive bonuses for the years 1997 and 1998 based on
earnings, as defined, and the two stockholders were each paid a sellers
fee in connection with the quarry sale (see note 5).
In 1997, the Company accrued income of $2,383 for royalties earned from
the American Minerals division of American Premier, Inc.
The Company purchases mineral products from CE Minerals. Purchases from
CE Minerals amounted to $14,095, $10,611, and $9,571 in 1997, 1996, and
1995, respectively. There was no purchase contract between CE Minerals
and the Company during any of the three years. The amount owed to CE
Minerals for mineral product purchases was $381 and $1,460 as of
December 31, 1997 and 1996, respectively.
(Continued)
25
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(dollars in thousands)
(14) Continued
Indebtedness to shareholders consisted of the following at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred interest bonds (net of unamortized discount of $1,067 and
$1,196 in 1997 and 1996, respectively),
with interest at 10%, due December 31, 2003 $12,564 12,435
Subordinated notes (net of unamortized discount of $312 and
$359 in 1997 and 1996, respectively),
with interest at 10%, due December 31, 2003 4,195 4,148
Deferred interest bonds, second issue, with interest at 10%, due
December 31, 2003 6,400 --
------ -------
$23,159 16,583
------ -------
</TABLE>
Deferred Interest Bonds
The deferred interest bonds (DIBS) bear interest at 10% which is
payable annually. The bonds are payable to the stockholders of APH. The
effective interest rate is 13%. All interest due for years ended
December 31, 1994 and thereafter will be added to principal in the
event the Company is unable to pay interest (as defined). The DIBS are
due on December 31, 2003.
In connection with the acquisition of APH discussed in note 17,
substantially all of the deferred interest bonds were repaid.
Subordinated Notes
In June 1996 the Company retired approximately $4,000 of subordinated
notes. The remaining Subordinated Notes bear interest at 10% which is
payable annually to Minerals Trading, Inc. (MTI), a stockholder of APH.
The effective interest rate is 13%. All interest due for years ended
December 31, 1994 and thereafter will be added to principal in the
event the Company is unable to pay interest (as defined). The
Subordinated Notes are due on December 31, 2003.
The Subordinated Notes are subordinate in right of payment to $11,000
of DIBS.
In connection with the acquisition of APH discussed in note 17, the
subordinated notes were paid in full.
Second Issue DIBS
On January 1, 1997, the redeemable preferred stock was exchanged into
Deferred Interest Bonds (DIBS). These DIBS have a face value of $6,400,
bear interest at 10% and mature on December 31, 2003
In connection with the acquisition of APH discussed in note 17,
substantially all of the second issue DIBS were repaid.
(Continued)
26
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(dollars in thousands)
(15) Litigation
The Company has been named as a defendant in a patent infringement suit
currently pending in the United States District Court of the District
of Delaware. The plaintiff alleges that sales by API's impact pad
products infringe upon a valid patent held by the plaintiff covering an
impact pad design. The plaintiff seeks damages for lost profits and/or
reasonable royalties of between $1,800 and $3,000, all or a portion of
which may be trebled if the court finds that API has willfully
infringed a valid patent. The Company's counsel has advised that it has
valid defenses against and counterclaims to the plaintiff's allegations
in the foregoing suit. The Company has accrued $3,000 as a reserve for
the potential costs and liabilities which it may incur arising out of
the foregoing suit. The Company has been named as a defendant in other
litigation, none of which, based upon current information, will have a
material adverse effect on the Company's consolidated financial
position.
(16) Commitments and Contingencies
The Company has identified certain environmental matters at various of
the Company's facilities which could require the Company, among other
things, to undertake further environmental investigations and,
depending upon the results of those investigations, to undertake
certain remediation, restoration, and closure activities. While the
Company is continuing to evaluate and assess the requirements
associated with those environmental matters, as of December 31, 1997,
the Company has accrued $620 as a current liability to cover the costs
associated with those environmental matters. In addition, the Company
may be required to close a historical on-site waste disposal area at
one of its facilities. However, the requirement to effect such closure
will ultimately depend upon the decision of the applicable regulatory
agency. The estimated range of exposure in connection with the closure
and cleanup at this site is between $550 and $4,100. As of December 31,
1997, the Company has accrued $550.
In August 1996, the Company entered into a tolling and option agreement
with an unrelated third party manufacturer. The agreement, which may be
terminated by either party upon twelve months prior notice to the
other, requires the Company to pay minimum tolling fees of $660 per
annum. Actual tolling fees paid by the Company in 1997 pursuant to such
agreement amounted to $922.
In 1994, the Company entered into a manufacturing agreement, which may
be terminated by the Company upon 90 days prior notice, with unrelated
third parties providing for payment by the Company of minimum annual
manufacturing fees thereunder of approximately $500 per annum through
1999. Actual manufacturing fees paid by the Company under such
agreement amounted to $798, $775, and $883 for 1997, 1996 and 1995,
respectively. The Company also entered into a consulting agreement with
the third parties to the aforesaid manufacturing agreement providing
for a consulting fee of $250 per annum payable by the Company through
October 31, 1999.
(Continued)
27
<PAGE>
AMERICAN PREMIER HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(dollars in thousands)
(16) Continued
In conjunction with the purchase of the assets of Penoles (note 7),
API's Mexican equity investee, Nutec, entered into a promissory note in
the amount of $2,372 payable in 36 installments, which was guaranteed
by the Company. The loan was paid in full at February 20, 1997. Nutec
Premier has a $2,000 credit line agreement with Bank of Boston of the
U.S. which is guaranteed by the Company. The balance of this credit
line at December 31, 1997 is $1,870. Under the terms of the joint
venture agreement, each of the partners has committed to purchase
approximately 1,300,000 pounds of material from the joint venture
annually. Total purchases under the agreement amounted to $1,646 and
$1,051 in 1997 and 1996, respectively, which exceeded the minimum
purchase requirement.
(17) Subsequent Event
On January 30, 1998, Premier Refractories International, Inc. (PRI) (a
wholly owned subsidiary of The Alpine Group, Inc.) acquired all of the
outstanding shares of APH. Concurrent with the acquisition, APH was
merged with PRI and API was merged with Premier Refractories Inc., a
wholly owned subsidiary of PRI. The total consideration was $133.1
million which was paid with a combination of cash ($98.3 million) and
the issuance of 16.6% of the Class B common stock of PRI. The remaining
83.4% of PRI common stock is owned by The Alpine Group, Inc.
At the closing, PRI assumed all shareholder and bank debt of APH as
outlined in the agreement.
Immediately prior to the merger, on January 30, 1998, API contributed
all of the assets and liabilities (excluding among other things,
certain intercompany accounts) of the business conducted by the
American Minerals division of API to a new company, American Minerals,
Inc. All equity interests in American Minerals, Inc. were distributed
to Minerals Trading, Inc. in redemption of shares of outstanding
capital stock of APH owned by Minerals Trading, Inc.
28
<PAGE>
Item 7(b)
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED APRIL 30, 1997 (ALPINE) AND MARCH 31, 1997
APHI AND HEPWORTH)
<TABLE>
<CAPTION>
Historical Historical Historical Pro Forma
AGI Hepworth APHI Adjustments Pro Forma
-------------- -------------- -------------- -------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Net sales ......................................... $579,794 $237,056 $171,252 $(8,432)(a) $979,670
Cost of goods sold................................. 477,791 194,664 123,623 (7,110)(a) 790,302
701 (b)
633 (c)
-------------- -------------- -------------- -------------- --------------
Gross profit................................... 102,003 42,392 47,629 (2,656) 189,368
Selling, general and administrative................ 40,833 28,568 34,727 (1,085)(a) 101,976
133 (b)
(1,200)(d) --
Amortization of goodwill........................... 3,054 -- 900 (b) 6,719
2,765 (c)
-------------- -------------- -------------- -------------- --------------
Operating income (loss)........................ 58,116 13,824 12,902 (4,169) 80,673
Interest income.................................... 2,023 314 - (14) 2,323
Interest (expense) ................................ (22,995) (541) (8,141) (11,432)(e) (43,109)
Gain on sale of subsidiary stock................... 80,397 -- -- -- 80,397
Other income (expense), net........................ 505 (69) 3,142 (8) 3,570
-------------- -------------- -------------- -------------- --------------
Income (loss) from continuing operations
before income taxes and minority interest
in earnings of subsidiaries .................. 118,046 13,528 7,903 (15,623) 123,854
Benefit (provision) for income taxes............... (53,103) (5,003) (3,046) 5,726 (f) (55,426)
-------------- -------------- -------------- -------------- --------------
Income before minority interest in
earnings of subsidiaries.................... 64,943 8,525 4,857 (9,897) 68,428
Minority interest in earnings of subsidiaries...... (8,097) -- -- (261)(g) (8,358)
-------------- -------------- -------------- -------------- --------------
Income (loss) from continuing operations....... 56,846 8,525 4,857 (10,158) 60,070
Preferred stock dividends.......................... (575)(h) -- -- -- (575)
-------------- -------------- -------------- -------------- --------------
Income (loss) attributable to common stock
from continuing operations.................. $56,271 $8,525 $4,857 $(10,158) $59,495
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Income (loss) per share of common stock
from continuing operations..................... $2.83 $3.00
-------------- --------------
Diluted shares outstanding......................... 19,857,081 19,857,081
-------------- --------------
</TABLE>
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JANUARY 31, 1998 (ALPINE) AND DECEMBER 31, 1997
(APHI)
<TABLE>
<CAPTION>
Historical Historical Pro Forma
AGI PRI Adjustments Pro Forma
-------------- -------------- -------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Net sales ......................................... $646,532 $139,824 $ -- $786,356
Cost of goods sold................................. 525,265 98,835 429 (c) 624,529
-------------- -------------- -------------- --------------
Gross profit................................... 121,267 40,989 (429) 161,827
Selling, general and administrative................ 52,215 27,450 79,665
Restructuring charge............................... 3,626 -- -- 3,626
Amortization of goodwill........................... 3,160 -- 2,073 (c) 5,233
-------------- -------------- -------------- --------------
Operating income (loss)........................ 62,266 13,539 (2,502) 73,303
Interest income.................................... 2,603 -- -- 2,603
Interest (expense) ................................ (21,686) (5,637) (2,921)(e) (30,244)
Other income (expense), net........................ 119 (192) -- (73)
-------------- -------------- -------------- --------------
Income (loss) from continuing operations
before income taxes and minority interest 43,302 7,710 (5,423) 45,589
in earnings of subsidiaries ..................
Benefit (provision) for income taxes............... (17,220) (4,395) 3,503 (f) (18,112)
-------------- -------------- -------------- --------------
Income (loss) from continuing operations
before minority interest in earnings of 26,082 3,315 (1,920) 27,477
subsidiaries..................................
Minority interest in earnings of subsidiaries...... (14,307) -- (66)(g) (14,373)
-------------- -------------- -------------- --------------
Income (loss) from continuing operations........ 11,775 3,315 (1,986) 13,104
Preferred stock dividends.......................... (59) -- -- (59)
-------------- -------------- -------------- --------------
Income (loss) attributable to common stock
from continuing operations.................... $11,716 $3,315 $(1,986) $13,045
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Income (loss) per share of common stock
from continuing operations..................... $0.62 $0.69
-------------- --------------
Diluted shares outstanding......................... 19,031,000 19,031,000
-------------- --------------
</TABLE>
<PAGE>
UNAUDITED CONDENSED COMBINED BALANCE SHEET
AS OF JANUARY 31, 1998 (ALPINE)
<TABLE>
<CAPTION>
ASSETS
Historical
----------------------
(dollars in thousands)
<S> <C>
Current assets:
Cash and cash equivalents............................ $ 9,321
Marketable securities................................ 14,377
Accounts receivable, net............................. 152,562
Inventories, net..................................... 140,839
Prepaid expenses, deposits and other................. 16,086
------------
Total current assets.............................. 333,185
Property, plant and equipment........................ 186,248
Goodwill, net........................................ 200,026
Other assets......................................... 38,587
------------
Total assets.................................... $758,046
------------
------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................... $ 7,416
Accounts payable..................................... 93,695
------------
Accrued expenses..................................... 93,818
Total current liabilities......................... 194,929
Long-term debt, less current portion................. 379,831
Other long-term obligations.......................... 67,062
Minority interest in subsidiaries.................... 44,968
Stockholders' equity................................. 71,256
------------
Total liabilities and stockholders' equity...... $758,046
------------
------------
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(a) Reflects the elimination of Hepworth's results of operations for the
period from the date of acquisition, April 15, 1997 through April 30,
1997.
(b) Reflects the changes to Alpine's historical depreciation and
amortization resulting from the allocation of the Hepworth purchase
price to property, plant and equipment.
(c) Reflects the changes to Alpine's historical depreciation resulting from
the allocation of the APHI purchase price to property, plant and
equipment.
(d) Reflects the elimination of parent company administrative expense
allocation incurred by Hepworth during the twelve months ended March
31, 1997 of $1.6 million, offset by an incremental selling, general and
administrative charge estimated to be incurred by Alpine of $0.4
million for the twelve months ended March 31, 1997 as a result of the
acquisition.
(e) Reflects the adjustment to interest expense resulting from debt
incurred as a result of the acquisitions.
(f) Reflects pro forma adjustments to income tax expense.
(g) Reflects the adjustment in minority interest in earnings of
subsidiaries resulting from the distribution of 16.6% of PRI common
stock as partial consideration for the acquisition.
(h) Excludes $5.2 million premium paid on the redemption by the Company of
certain of its preferred stock in October 1996.
<PAGE>
Item 7(c)
EXHIBIT 2
The Board of Directors
American Premier Holdings, Inc.:
We consent to the inclusion of our report dated March 3, 1998, with respect to
the consolidated balance sheets of American Premier Holdings, Inc. and
Subsidiary (exclusive of the American Minerals Division of American Premier,
Inc.) as of December 31, 1997 and 1996, and the related consolidated statements
of operations, stockholders' equity (deficit), and cash flows for each of the
years in the three-year period ended December 31, 1997, which report appears in
the Form 8-K/A of The Alpine Group, Inc. dated April 14, 1998.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
April 14, 1998
