<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 OCTOBER 31, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9078
---------------------
THE ALPINE GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 22-1620387
(State or other jurisdiction (I.R.S. Employer
of Identification
incorporation or organization) No.)
1790 BROADWAY 10019-1412
NEW YORK, NEW YORK (Zip code)
(Address of principal
executive offices)
</TABLE>
Registrant's telephone number, including area code 212-757-3333
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 Days. Yes X No
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT DECEMBER 11, 1998
- -------------------------------------- --------------------------------------
<S> <C>
Common Stock, $.10 Par Value 16,178,887
</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. These
financial statements should be read in conjunction with the summary of
significant accounting policies and the notes to the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the year
ended April 30, 1998.
2
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1998 1998
--------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 17,841 $ 19,989
Marketable securities.............................................. 15,672 14,238
Accounts receivable (less allowance for doubtful accounts of:
April 1998, $2,996; October 1998, $3,329)........................ 150,020 163,839
Inventories........................................................ 134,570 153,597
Other current assets............................................... 30,742 33,434
--------- -----------
Total current assets............................................. 348,845 385,097
Property, plant and equipment, net..................................... 195,513 239,361
Long-term investments and other assets................................. 40,665 48,477
Goodwill (less accumulated amortization: April 1998, $12,774;
October 1998, $16,032)............................................. 201,837 201,950
--------- -----------
Total assets..................................................... $ 786,860 $ 874,885
--------- -----------
--------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 107,820 $ 119,238
Accrued expenses................................................... 92,511 92,419
Current portion of long-term debt.................................. 8,442 15,619
--------- -----------
Total current liabilities........................................ 208,773 227,276
Long-term debt, less current portion................................... 380,868 421,746
Minority interest in subsidiaries...................................... 49,805 74,554
Other long-term liabilities............................................ 69,899 77,562
--------- -----------
Total liabilities................................................ 709,345 801,138
--------- -----------
Commitments and contingencies
Stockholders' equity:
9% cumulative convertible preferred stock at liquidation value..... 427 427
Common stock, $.10 par value; authorized 25,000,000 shares;
19,865,990 shares and 20,012,015 shares issued at April 1998 and
October 1998, respectively....................................... 1,986 2,000
Capital in excess of par value..................................... 136,598 137,774
Accumulated other comprehensive income............................. (814) (1,451)
Accumulated deficit................................................ (32,834) (20,904)
--------- -----------
105,363 117,846
Shares of common stock in treasury, at cost: April 1998, 2,704,732
shares; October 1998, 3,664,932 shares............................... (26,890) (43,160)
Receivable from stockholders........................................... (958) (939)
--------- -----------
Total stockholders' equity......................................... 77,515 73,747
--------- -----------
Total liabilities and stockholders' equity....................... $ 786,860 $ 874,885
--------- -----------
--------- -----------
</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
OCTOBER 31,
--------------------
1997 1998
--------- ---------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
--------------------
<S> <C> <C>
Net sales............................................................... $ 218,958 $ 267,651
Cost of goods sold...................................................... 177,056 206,157
--------- ---------
Gross profit.......................................................... 41,902 61,494
Selling, general and administrative expenses............................ 16,772 28,915
Amortization of goodwill................................................ 1,043 1,644
--------- ---------
Operating income...................................................... 24,087 30,935
Interest (expense)...................................................... (7,218) (10,236)
Other income, net....................................................... 1,013 365
--------- ---------
Income before income tax expense and minority interest................ 17,882 21,064
Provision for income taxes.............................................. (7,055) (8,311)
--------- ---------
Income before minority interest....................................... 10,827 12,753
Minority interest in earnings of subsidiaries........................... (5,241) (7,045)
--------- ---------
Income before extraordinary (loss).................................... 5,586 5,708
Extraordinary (loss) on early extinguishment of debt.................... (832) --
--------- ---------
Net income............................................................ 4,754 5,708
Preferred stock dividends............................................... (15) (8)
--------- ---------
Net income applicable to common stock................................. $ 4,739 $ 5,700
--------- ---------
--------- ---------
Net income per share of common stock:
Basic:
Income before extraordinary (loss).................................. $ 0.33 $ 0.34
Extraordinary (loss) on early extinguishment of debt................ (0.05) --
--------- ---------
Net income per basic share of common stock........................ $ 0.28 $ 0.34
--------- ---------
--------- ---------
Diluted:
Income before extraordinary (loss).................................. $ 0.29 $ 0.30
Extraordinary (loss) on early extinguishment of debt................ (0.04) --
--------- ---------
Net income per diluted share of common stock...................... $ 0.25 $ 0.30
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31,
--------------------
1997 1998
--------- ---------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Net sales............................................................... $ 440,028 $ 556,604
Cost of goods sold...................................................... 356,188 430,791
--------- ---------
Gross profit.......................................................... 83,840 125,813
Selling, general and administrative expenses............................ 34,356 58,500
Amortization of goodwill................................................ 2,093 3,316
--------- ---------
Operating income...................................................... 47,391 63,997
Interest (expense)...................................................... (14,727) (20,616)
Other income, net....................................................... 1,604 359
--------- ---------
Income before income tax expense and minority interest................ 34,268 43,740
Provision for income taxes.............................................. (13,720) (17,519)
--------- ---------
Income before minority interest....................................... 20,548 26,221
Minority interest in earnings of subsidiaries........................... (10,095) (14,273)
--------- ---------
Income before extraordinary (loss).................................... 10,453 11,948
Extraordinary (loss) on early extinguishment of debt.................... (1,221) --
--------- ---------
Net income............................................................ 9,232 11,948
Preferred stock dividends............................................... (53) (18)
--------- ---------
Net income applicable to common stock................................. $ 9,179 $ 11,930
--------- ---------
--------- ---------
Net income per share of common stock:
Basic:
Income before extraordinary (loss).................................. $ 0.61 $ 0.70
Extraordinary (loss) on early extinguishment of debt................ (0.07) --
--------- ---------
Net income per basic share of common stock........................ $ 0.54 $ 0.70
--------- ---------
--------- ---------
Diluted:
Income before extraordinary (loss).................................. $ 0.55 $ 0.62
Extraordinary (loss) on early extinguishment of debt................ (0.07) --
--------- ---------
Net income per diluted share of common stock...................... $ 0.49 $ 0.62
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED OCTOBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
9% CUMULATIVE
CONVERTIBLE ACCUMULATED
COMMON STOCK CAPITAL PREFERRED STOCK OTHER
---------------------- IN EXCESS ------------------------ COMPREHENSIVE
SHARES AMOUNT OF PAR SHARES AMOUNT INCOME
--------- ----------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE DATA)
Balance at April 30, 1998............... 19,865,990 $ 1,986 $ 136,598 427 $ 427 $ (814)
Effect of subsidiaries' equity
transactions.......................... 238
Exercise of stock options............... 59,622 6 94
Employee stock purchase plan............ 22,348 2 328
Exercise of warrants.................... 32,378 3 (3)
Purchase of treasury stock..............
Compensation expense related to stock
options and grants.................... 22,168 2 330
Dividends on preferred stock............
Total comprehensive income (Note 3)..... (637)
Other................................... 9,509 1 189
--------- ----------- ----------- --- ----- -------
Balance at October 31, 1998............. 20,012,015 $ 2,000 $ 137,774 427 $ 427 $ (1,451)
--------- ----------- ----------- --- ----- -------
--------- ----------- ----------- --- ----- -------
<CAPTION>
TREASURY STOCK RECEIVABLE
ACCUMULATED -------------------- FROM
DEFICIT SHARES AMOUNT STOCKHOLDERS TOTAL
------------ --------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1998............... $ (32,834) (2,704,732) $ (26,890) $ (958) $ 77,515
Effect of subsidiaries' equity
transactions.......................... 238
Exercise of stock options............... 100
Employee stock purchase plan............ 330
Exercise of warrants.................... --
Purchase of treasury stock.............. (960,200) (16,270) (16,270)
Compensation expense related to stock
options and grants.................... 19 351
Dividends on preferred stock............ (18) (18)
Total comprehensive income (Note 3)..... 11,948 11,311
Other................................... 190
------------ --------- --------- ----- ---------
Balance at October 31, 1998............. $ (20,904) (3,664,932) $ (43,160) $ (939) $ 73,747
------------ --------- --------- ----- ---------
------------ --------- --------- ----- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31,
--------------------
1997 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Income before extraordinary (loss).......................................................... $ 10,453 $ 11,948
Adjustments to reconcile income before extraordinary (loss) to net cash provided by
operating activities:
Depreciation and amortization............................................................. 10,648 14,929
Amortization of deferred debt issuance costs and accretion of debt discount............... 1,158 1,487
Compensation expense related to stock options and grants.................................. 931 386
Minority interest in earnings of subsidiaries............................................. 10,095 14,273
Other, net................................................................................ 10 (469)
Change in assets and liabilities, net of effects from companies acquired:
Accounts receivable..................................................................... (10,717) 4,914
Inventories............................................................................. 6,166 (5,104)
Other current and non-current assets.................................................... (2,142) (1,349)
Accounts payable and accrued expenses................................................... 2,711 (15,775)
Other long-term liabilities............................................................. 971 1,570
--------- ---------
Cash provided by operating activities......................................................... 30,284 26,810
--------- ---------
Cash flows from investing activities:
Acquisition, net of cash acquired........................................................... -- (22,625)
Capital expenditures........................................................................ (9,453) (17,547)
Net proceeds from the sale of assets........................................................ 5,028 1,739
Other....................................................................................... 1,102 (47)
--------- ---------
Cash used for investing activities............................................................ (3,323) (38,480)
--------- ---------
Cash flows from financing activities:
(Repayments) borrowings under revolving credit facilities, net.............................. (10,893) 35,397
Repayments of long-term borrowings.......................................................... (16,494) (1,638)
Proceeds from exercise of stock options..................................................... 1,973 763
Purchase of treasury shares................................................................. (8,433) (16,270)
Subsidiary treasury stock purchases......................................................... -- (6,117)
Dividends on subsidiary common stock........................................................ -- (1,028)
Other....................................................................................... (283) 2,711
--------- ---------
Cash (used for) provided by financing activities.............................................. (34,130) 13,818
--------- ---------
Net (decrease) increase in cash and cash equivalents.......................................... (7,169) 2,148
Cash and cash equivalents at beginning of period.............................................. 21,606 17,841
--------- ---------
Cash and cash equivalents at end of period.................................................... $ 14,437 $ 19,989
--------- ---------
--------- ---------
Supplemental disclosures:
Cash paid for interest...................................................................... $ 14,528 $ 20,154
--------- ---------
--------- ---------
Cash paid for income taxes.................................................................. $ 19,086 $ 18,994
--------- ---------
--------- ---------
Non cash financing activity:
Exchange of preferred stock for common stock:
Common stock issued..................................................................... $ 1,000
---------
---------
Preferred stock redeemed................................................................ $ 1,000
---------
---------
Acquisition of business:
Assets, net of cash acquired.............................................................. $ 83,636
Liabilities assumed....................................................................... (44,728)
Minority equity interest in net assets of subsidiary...................................... (16,283)
---------
Net cash (paid)........................................................................... $ (22,625)
---------
---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of The Alpine Group, Inc. and its majority-owned
subsidiaries ("Alpine" or "the Company"). Certain reclassifications have been
made to the prior period presentation to conform to the current period
presentation.
2. INVENTORIES
At April 30, 1998 and October 31, 1998, the components of inventories were
as follows:
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1998 1998
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.......................................... $ 48,543 $ 52,209
Work in process........................................ 19,214 24,931
Finished goods......................................... 66,813 76,457
--------- -----------
$ 134,570 $ 153,597
--------- -----------
--------- -----------
</TABLE>
3. COMPREHENSIVE INCOME
As of May 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." The adoption of
this Statement had no impact on the Company's net income or stockholders'
equity. SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components. SFAS 130 requires that all changes in
equity during a period (except those resulting from investment by shareholders
and distribution to shareholders) be reported in the Company's financial
statements, and displayed with the same prominence as other financial statement
presentations. Financial statements for prior periods will be reclassified as
required.
The components of comprehensive income for the six months ended October 31,
1997 and 1998 were as follows:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net income................................................ $ 9,232 $ 11,948
Foreign currency translation adjustment................... 2,016 (637)
--------- ---------
Comprehensive income...................................... $ 11,248 $ 11,311
--------- ---------
</TABLE>
8
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
(UNAUDITED)
4. ACQUISITION
On May 5, 1998, Superior TeleCom Inc. ("Superior Telecom"), Alpine's 50.4%
owned subsidiary, acquired 51% of the common stock of Cables of Zion United
Works Ltd. ("Cables of Zion"), an Israel-based cable and wire manufacturer whose
common stock is traded on the Tel Aviv Stock Exchange, for approximately $25
million. Superior TeleCom has a two-year option to purchase an additional 19%
ownership interest in Cables of Zion at the same purchase price per share paid
for its initial 51% investment (as adjusted for inflation). The acquisition was
accounted for using the purchase method, and accordingly, the results of
operations of Cables of Zion are included in the Company's consolidated
financial statements on a prospective basis from the date of acquisition. The
purchase price was allocated based upon the estimated fair values of assets and
liabilities at the date of acquisition and is subject to adjustment. The excess
of the purchase price over the net assets acquired was $2.2 million and is being
amortized on a straight-line basis over 30 years.
PRO FORMA FINANCIAL DATA
Unaudited condensed pro forma results of operations for the six months ended
October 31, 1997, which give effect to the Cables of Zion acquisition and the
American Premier Holdings, Inc. acquisition (see Note 6 to the Company's Annual
Report on Form 10-K for the year ended April 30, 1998) as if the transactions
had occurred on May 1, 1997, are presented below. The pro forma results of
operations for the six months ended October 31, 1998 are not presented below
since the results of operations of Cables of Zion for the five-day period from
May 1, 1998 through the acquisition date are not material to the Company's
consolidated results of operations. The pro forma amounts reflect
acquisition-related purchase accounting adjustments, including adjustments to
depreciation and amortization expense and interest expense on acquisition debt
and certain other adjustments, together with related income tax effects. The pro
forma financial information does not purport to be indicative of either the
results of operations that would have occurred if the acquisition had taken
place at the beginning of the period presented or of the future results of
operations.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31, 1997
PRO FORMA
-----------------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C>
Net sales................................................................. $ 573,827
Income before income tax expense and minority interest.................... 36,012
Income before extraordinary (loss)........................................ 9,798
Extraordinary (loss) on early extinguishment of debt...................... (1,221)
Net income applicable to common stock..................................... 8,524
Net income (loss) per diluted share of common stock:
Income before extraordinary (loss)...................................... $ 0.51
Extraordinary (loss) on early extinguishment of debt.................... (0.07)
--------
Net income per diluted share.......................................... $ 0.44
--------
--------
</TABLE>
9
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
(UNAUDITED)
5. EARNINGS PER SHARE
The computation of basic and diluted earnings per share for the three and
six months ended October 31, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 31,
--------------------------------------------------------------------
1997 1998
--------------------------------- ---------------------------------
NET PER SHARE NET PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
--------- --------- ----------- --------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Income attributable to common stock before
extraordinary (loss)........................ $ 5,586 $ 5,708
Less: preferred stock dividends............... (15) (8)
--------- ---------
Basic earnings per common share before
extraordinary (loss)........................ $ 5,571 16,922 $ 0.33 $ 5,700 16,924 $ 0.34
----- -----
----- -----
Dilutive impact of stock options, warrants and
grants...................................... -- 1,642 -- 1,475
Dilution in subsidiary earnings from
subsidiary stock options.................... (121) -- (236) --
Assumed conversion of preferred stock......... 15 117 8 50
--------- --------- --------- ---------
Diluted earnings per common share before
extraordinary (loss)........................ $ 5,465 18,681 $ 0.29 $ 5,472 18,449 $ 0.30
--------- --------- ----- --------- --------- -----
--------- --------- ----- --------- --------- -----
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED OCTOBER 31,
--------------------------------------------------------------------
1997 1998
--------------------------------- ---------------------------------
NET PER SHARE NET PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
--------- --------- ----------- --------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Income attributable to common stock before
extraordinary (loss)........................ $ 10,453 $ 11,948
Less: preferred stock dividends............... (53) (18)
--------- ---------
Basic earnings per common share before
extraordinary (loss)........................ $ 10,400 16,987 $ 0.61 $ 11,930 17,024 $ 0.70
----- -----
----- -----
Dilutive impact of stock options, warrants and
grants...................................... -- 1,480 -- 1,563
Dilution in subsidiary earnings from
subsidiary stock options.................... (238) -- (419) --
Assumed conversion of preferred stock......... 53 180 18 52
--------- --------- --------- ---------
Diluted earnings per common share before
extraordinary (loss)........................ $ 10,215 18,647 $ 0.55 $ 11,529 18,639 $ 0.62
--------- --------- ----- --------- --------- -----
--------- --------- ----- --------- --------- -----
</TABLE>
10
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
(UNAUDITED)
6. SUBSEQUENT EVENT
On October 21, 1998, Superior TeleCom entered into a definitive merger
agreement with Essex International Inc. ("Essex"), a New York Stock Exchange
listed company, pursuant to which Superior TeleCom committed to acquire all of
the outstanding common shares and options of Essex for an aggregate
consideration of approximately $936 million. The consideration consists of
approximately $769 million in cash and approximately $167 million in liquidation
value of a new series of 8 1/2% trust convertible exchangeable preferred
securities. In addition, Superior TeleCom will assume or refinance approximately
$405 million of Essex's existing debt.
On November 27, 1998, the first stage of the acquisition was completed with
the funding of a cash tender offer for approximately 81% of the outstanding
Essex common shares. Upon completion of the second stage of the acquisition, the
remaining 19% of Essex common shares will be converted into the right to receive
0.64 of a share of Superior Telecom's 8 1/2% trust convertible exchangeable
preferred securities with a per share liquidation value of $50.
In connection with the transaction, Superior TeleCom entered into a $1.15
billion amended and restated senior credit facility and a $200 million senior
subordinated credit facility. Proceeds from the financing were used to (i) pay
the cash portion of the aforementioned purchase price, (ii) repay certain Essex
indebtedness, (iii) refinance Superior TeleCom's existing outstanding bank debt,
and (iv) pay related transaction expenses.
The acquisition will be accounted for using the purchase method with the
purchase price being allocated based upon the estimated fair value of assets and
liabilities at the date of acquisition. The excess of the purchase price over
the net assets acquired will be amortized on a straight line basis over 35
years.
7. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
This Statement, which will be effective for the Company as of April 30, 1999,
establishes standards for the way enterprises report information about operating
segments in annual financial statements and requires that enterprises report
selected information about operating segments in interim financial reports.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement, which will be effective for
the Company's fiscal year beginning May 1, 2000, establishes accounting and
reporting standards for derivative instruments and requires recognition of all
derivatives as either assets or liabilities in the statement of financial
position and measurement of those instruments at fair value. The Company does
not believe the effect of adoption will be material.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Alpine Group, Inc. (the "Company" or "Alpine"), through its
subsidiaries, Superior TeleCom Inc. ("Superior TeleCom") and Premier
Refractories International Inc. ("Premier"), operates in three industry
segments. Superior TeleCom, a 50.1% owned subsidiary, operates in the following
industry segments: (i) copper wire and cable products for the telecommunications
industry through its subsidiary, Superior Telecommunications Inc. ("Superior")
and (ii) data communications and electronics products and systems for defense,
governmental and commercial applications through its subsidiary, DNE Systems,
Inc. ("DNE"). The results of operations of Superior for the three and six months
ended October 31, 1998 include the operations of Cables of Zion United Works
Ltd. ("Cables of Zion"), an Israeli-based cable and wire manufacturer, a 51%
interest of which was acquired by Superior TeleCom on May 5, 1998 (see Note 4 to
the accompanying unaudited Condensed Consolidated Financial Statements).
Premier, an 83.4% owned subsidiary, provides refractory products and services
for the iron and steel, glass, aluminum, cement and co-generation industries.
Premier includes the operations of Premier North America and Premier Europe. The
results of operations of Premier North America for the three and six months
ended October 31, 1998 include the operations of American Premier Holdings, Inc.
("American Premier") which was acquired on January 30, 1998 (see Note 6 to the
Company's consolidated financial statements in the Company's Annual Report on
Form 10-K for the year ended April 30, 1998).
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 six months ended October 31, 1997
and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
-------------------- --------------------
1997 1998 1997 1998
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales:
Telecommunications wire and cable................. $ 131,394 $ 141,603 $ 258,114 $ 293,438
Data communications and electronics............... 7,818 4,494 12,331 9,533
Refractories...................................... 79,746 121,554 169,583 253,633
--------- --------- --------- ---------
Consolidated.................................... 218,958 267,651 440,028 556,604
Gross profit:
Telecommunications wire and cable................. $ 22,976 $ 31,520 $ 46,011 $ 64,097
Data communications and electronics............... 2,366 1,952 3,673 3,671
Refractories...................................... 16,560 28,022 34,156 58,045
--------- --------- --------- ---------
Consolidated.................................... 41,902 61,494 83,840 125,813
Gross profit percentage:
Telecommunications wire and cable................. 17.5% 22.3% 17.8% 21.8%
Data communications and electronics............... 30.3 43.4 29.8 38.5
Refractories...................................... 20.8 23.1 20.1 22.9
Consolidated.................................... 19.1 23.0 19.1 22.6
</TABLE>
12
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
-------------------- --------------------
1997 1998 1997 1998
--------- --------- --------- ---------
(DOLLARS IN (DOLLARS IN
THOUSANDS) THOUSANDS)
<S> <C> <C> <C> <C>
Selling, general and administrative expenses:
Telecommunications wire and cable..................... $ 3,250 $ 5,638 $ 6,401 $ 11,358
Data communications and electronics................... 1,482 1,374 2,853 2,853
Refractories.......................................... 9,873 19,304 20,653 38,348
Corporate and other expenses.......................... 2,167 2,599 4,449 5,941
--------- --------- --------- ---------
Consolidated........................................ 16,772 28,915 34,356 58,500
Amortization of goodwill:
Telecommunications wire and cable..................... $ 430 $ 438 $ 860 $ 884
Refractories.......................................... 613 1,206 1,233 2,432
--------- --------- --------- ---------
Consolidated........................................ 1,043 1,644 2,093 3,316
Operating income:
Telecommunications wire and cable..................... $ 19,296 $ 25,444 $ 38,750 $ 51,855
Data communications and electronics................... 884 578 820 818
Refractories.......................................... 6,074 7,512 12,270 17,265
Corporate and other expenses.......................... (2,167) (2,599) (4,449) (5,941)
--------- --------- --------- ---------
Consolidated........................................ $ 24,087 $ 30,935 $ 47,391 $ 63,997
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
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 are based upon
a constant copper cost of $1.00 per pound for the indicated periods, provide
additional meaningful information concerning Superior's sales and its gross
profit percentage.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
-------------------- --------------------
1997 1998 1997 1998
--------- --------- --------- ---------
(DOLLARS IN (DOLLARS IN
THOUSANDS) THOUSANDS)
<S> <C> <C> <C> <C>
Net sales........................................... $ 126,467 $ 151,886 $ 249,809 $ 312,287
Gross profit........................................ 22,976 31,520 46,011 64,097
Gross profit percentage............................. 18.2% 20.8% 18.4% 20.5%
</TABLE>
TELECOMMUNICATIONS WIRE AND CABLE--RESULTS OF OPERATIONS
SUPERIOR--RESULTS OF OPERATIONS
Superior's net sales for the quarter ended October 1998 were $141.6 million,
representing an increase of $10.2 million, or 7.8%, as compared to the same
period in the prior fiscal year. For the six months ended October 1998,
Superior's net sales were $293.4 million, representing an increase of $35.3
million, or 13.7%, as compared to the same period in the prior fiscal year.
Adjusted to a constant copper value of $1.00 per pound, Superior's comparative
percentage increase in net sales for the quarter and six months ended
13
<PAGE>
October 1998 was 20.1% and 25.0%, respectively (see "Superior Supplemental Data"
included in the industry segment operating statement data). The increase in net
sales on a constant copper value basis for the quarter and six months ended
October 1998 included $16.6 million and $39.5 million, respectively, in net
sales contributed by Cables of Zion. Additionally, Superior's North American
operations experienced a comparative increase in net sales for the quarter and
six months ended October 1998 of $8.8 million and $23.0 million, respectively,
(representing an increase of 6.9% and 9.2%, respectively). The comparative
increase in Superior's North American net sales for both the three month and six
month periods ended October 1998 is due to continued increased demand for copper
wire and cable products resulting from the growth in copper-based telephone
access lines and increased maintenance spending by several of Superior's major
telephone company customers.
Superior's gross profit increased by $8.5 million, or 37.2%, to $31.5
million for the quarter ended October 1998 as compared to the same period in the
prior fiscal year. For the six months ended October 1998, Superior's gross
profit increased by $18.1 million, or 39.3%, to $64.1 million as compared to the
same period in the prior fiscal year. The comparative increase in gross profit
for the quarter and six months ended October 1998 included $2.5 million and $6.3
million, respectively, in incremental gross profit contribution by Cables of
Zion, as well as an increase of $6.1 million and $11.8 million, respectively, in
the comparative gross profit generated by Superior's North American operations.
Superior's gross margin, based on actual sales, was 22.3% for the quarter ended
October 1998 and 21.8% for the six months ended October 1998, as compared to
17.5% and 17.8%, respectively, for the quarter and six months ended October
1997. Adjusted to a constant copper sales value of $1.00 per pound, Superior's
gross margin increased to 20.8% and 20.5%, respectively, for the quarter and six
months ended October 1998, as compared to 18.2% and 18.4%, respectively, for the
quarter and six months ended October 1997. The increase in gross margin was
attributable to manufacturing cost reductions resulting from production
efficiencies, lower raw material prices, product and customer mix and improved
cost absorption resulting from increased production volumes. The increase in
gross margin was partially offset by lower margin product sales at Cables of
Zion.
Superior's SG&A expense for the quarter ended October 1998 was $5.6 million,
representing an increase of $2.4 million, or 73.5%, as compared to the same
period in the prior fiscal year. For the six months ended October 1998,
Superior's SG&A expense was $11.4 million, representing an increase of $5.0
million, or 77.4%, as compared to the same period in the prior fiscal year. The
increase for the quarter and six months ended October 1998 was due primarily to
the inclusion of $1.5 million and $3.3 million, respectively, in SG&A expense
from Cables of Zion and an increase of $0.9 million and $1.6 million,
respectively, in Superior's North American SG&A expense. The increase in
Superior's North American SG&A expense resulted from the expansion of product
development activities and incremental staff required to support the increased
level of activity.
Superior's operating income for the quarter ended October 1998 was $25.4
million, representing an increase of $6.1 million, or 31.9%, as compared to the
same period in the prior fiscal year. For the six months ended October 1998,
Superior's operating income was $51.9 million, representing an increase of $13.1
million, or 33.8%, as compared to the same period in the prior fiscal year. The
substantial comparative increase in operating income resulted from higher net
sales, improved margins, and the inclusion of the results of operations of
Cables of Zion beginning in the first quarter of fiscal 1999, partially offset
by higher Superior North American SG&A expenses.
DNE--RESULTS OF OPERATIONS
For the quarter ended October 1998, DNE's net sales were $4.5 million,
representing a decrease of $3.3 million, or 42.5%, as compared to the same
period in the prior fiscal year. For the six months ended October 1998, DNE's
net sales were $9.5 million, representing a decrease of $2.8 million, or 22.7%,
as compared to the same period in the prior fiscal year. The comparative
decrease in net sales in the current fiscal year resulted from the completion of
a substantial commercial multiplexer contract during the
14
<PAGE>
comparable period in the prior fiscal year, partially offset by an increase in
shipments to various government agencies of a new generation multiplexer during
the current fiscal year.
DNE's gross profit decreased by $0.4 million, or 17.5%, to $2.0 million for
the quarter ended October 1998 as compared to the same period in the prior
fiscal year. For the six months ended October 1998, DNE's gross profit was
unchanged compared to the same period in the prior fiscal year. DNE's gross
margin increased to 43.4% for the quarter ended October 1998 and to 38.5% for
the six months ended October 1998, as compared to 30.3% and 29.8%, respectively,
for the quarter and six months ended October 1997. The increase in gross margin
was attributable to favorable product mix resulting from the increase in
government related shipments, as well as the benefit of manufacturing cost
reductions.
DNE's SG&A expense for the quarter and six months ended October 1998 was
comparable to the same periods in the prior fiscal year.
DNE generated operating income of $0.6 million and $0.8 million,
respectively, during the quarter and six months ended October 1998, as compared
to $0.9 million and $0.8 million, respectively, for the same periods in the
prior fiscal year. The comparative decline in operating income in the current
year fiscal periods was attributable to reduced net sales, partially offset by
improving gross margins.
REFRACTORIES--RESULTS OF OPERATIONS
Premier's net sales for the quarter ended October 1998 were $121.6 million,
representing an increase of $41.8 million, or 52.4%, as compared to the same
period in the prior fiscal year. For the six months ended October 1998,
Premier's net sales were $253.6 million, representing an increase of $84.1
million, or 49.6%, as compared to the same period in the prior fiscal year. The
increase in net sales for the quarter and six months ended October 1998 was
attributable to the inclusion of the operations of American Premier as well as
to continued strength in Premier's construction, industrial and chemicals
sectors. Partially offsetting the aforementioned factors favorably impacting net
sales, was a significant decline in shipments to U.S. and European steel
industry customers during recent months, whose production levels have been
reduced due to the impact of increasing imports from Japan, Russia, Korea, and
Brazil. The Company expects shipments to the steel industry (which represents
50% of Premier's total sales) to continue to be negatively impacted by these
factors, at least through the remainder of fiscal 1999.
Premier's gross profit for the quarter ended October 1998 was $28.0 million,
representing an increase of $11.5 million, or 69.2%, as compared to the same
period in the prior fiscal year. For the six months ended October 1998,
Premier's gross profit was $58.0 million, representing an increase of $23.9
million, or 69.9%, as compared to the same period in the prior fiscal year. The
combined gross profit percentages for the quarter and six months ended October
1998 was 23.1% and 22.9%, respectively, as compared to 20.8% and 20.1%,
respectively, for the same periods in the prior fiscal year. The comparative
increase in gross profit percentages resulted from: (i) the inclusion of
American Premier's higher margin product lines, (ii) strong margins generated in
the Company's construction division, and (iii) cost reductions resulting from
the integration of the American Premier acquisition. These positive factors were
partially offset by a decline in selling prices resulting primarily from the
competitive environment in the steel industry and reduced absorption of overhead
due to production volumes declines.
Premier's SG&A expense for the quarter ended October 1998 was $19.3 million,
representing an increase of $9.4 million, or 95.5%, as compared to the same
period in the prior fiscal year. For the six months ended October 1998,
Premier's SG&A expense was $38.3 million, representing an increase of $17.7
million, or 85.7%, as compared to the same period in the prior fiscal year. The
increase in Premier's SG&A expense was attributable to the inclusion of American
Premier, offset by a comparative reduction in SG&A expense in Premier's European
operations for the quarter and six months ended October 1998. The reduction in
SG&A expense at Premier Europe resulted from cost reduction initiatives
implemented subsequent to the acquisition of Premier Europe in April 1997.
Notwithstanding the increase in Premier's
15
<PAGE>
SG&A expense resulting from the American Premier acquisition, Premier North
America has effected a restructuring plan that includes the consolidation of
certain administrative and sales functions. Management anticipates that this
restructuring plan will result in a progressive reduction in selected SG&A
expense components of Premier throughout the remainder of fiscal 1999.
Premier's operating income for the quarter ended October 1998 was $7.5
million, representing an increase of $1.4 million, or 23.7%, as compared to the
same period in the prior fiscal year. For the six months ended October 1998,
Premier's operating income was $17.3 million, representing an increase of $5.0
million, or 40.7%, as compared to the same period in the prior fiscal year. The
increase in operating income resulted from the inclusion of American Premier for
the periods ended October 1998, offset by the impact of lower shipment volumes
and selling prices to the Company's steel industry customers.
CONSOLIDATED RESULTS OF OPERATIONS
The acquisitions of American Premier and Cables of Zion and the growth in
Superior's North American telecommunications wire and cable sales resulted in
comparative consolidated net sales increasing by $48.7 million, or 22.2%, for
the quarter ended October 1998 and by $116.6 million, or 26.5%, for the six
months ended October 1998, as compared to the same periods in the prior fiscal
year. The growth in net sales and an increase in both the telecommunications
wire and cable and refractories products' gross margin, gave rise to a
consolidated comparative increase in gross profit of $19.6 million, or 46.8%,
for the quarter ended October 1998 and by $42.0 million, or 50.1%, for the six
months ended October 1998, as compared to the same periods in the prior fiscal
year.
Consolidated SG&A expense for the quarter ended October 1998 was $28.9
million, representing an increase of $12.1 million, or 72.4%, as compared to the
same period in the prior fiscal year. For the six months ended October 1998,
consolidated SG&A expense was $58.5 million, representing an increase of $24.1
million, or 70.3%, as compared to the same period in the prior fiscal year. The
increase in consolidated SG&A expense resulted primarily from the inclusion of
American Premier and Cables of Zion for the current fiscal periods, along with
higher corporate expense attributable to the increased scale and breadth of the
Company's operations and activities.
Consolidated operating income for the quarter ended October 1998 was $30.9
million, representing an increase of $6.8 million, or 28.4%, as compared to the
same period in the prior fiscal year. For the six months ended October 1998,
consolidated operating income was $64.0 million, representing an increase of
$16.6 million, or 35.0%, as compared to the same period in the prior fiscal
year. The increase in operating income was primarily the result of the
contribution from American Premier and the growth in net sales and gross profit
in Superior's North American telecommunications wire and cable operations.
Consolidated interest expense for the quarter ended October 1998 was $10.2
million, representing an increase of $3.0 million, or 41.8%, as compared to the
same period in the prior fiscal year. For the six months ended October 1998,
consolidated interest expense was $20.6 million, representing an increase of
$5.9 million, or 40.0%, as compared to the same period in the prior fiscal year.
The increase in consolidated interest expense reflected the increase in
consolidated debt resulting from the acquisitions of American Premier and Cables
of Zion, offset by a decrease in debt at Superior North America, due to strong
operating cash flows generated during the past twelve months, and the impact of
lower interest rates.
Consolidated other income (net) for the quarter ended October 1998 was $0.4
million, representing a decrease of $0.6 million as compared to the same period
in the prior fiscal year. For the six months ended October 1998, consolidated
other income (net) was $0.4 million, representing a decrease of $1.2 million as
compared to the same period in the prior fiscal year. The major components of
other income (net) for the six months ended October 31, 1998 included investment
losses on marketable securities and currency translation losses (related to
Cables of Zion) of $2.2 million, offset by a $1.0 million receipt representing a
16
<PAGE>
return of prior year insurance premiums and the recognition of $1.6 million in
interest income primarily related to advances to PolyVision Corporation.
Provision for income taxes for the quarter and six months ended October 1998
was $8.3 million and $17.5 million, respectively, as compared to the provision
for income taxes of $7.1 million and $13.7 million, respectively, for the same
periods in the prior fiscal year. The effective tax rate for the quarter and six
months ended October 1998 was 39.5% and 40.1%, respectively, which compares with
an effective tax rate of 39.5% and 40.0%, respectively, for the quarter and six
months ended October 1997.
A minority interest charge of $7.0 million and $14.3 million, respectively,
was recorded for the quarter and six months ended October 1998 as compared to
$5.2 million and $10.1 million, respectively, for the same periods in the prior
fiscal year; such charge representing minority stockholders' interest in net
income of Superior TeleCom, Premier and Cables of Zion.
Net income attributable to common stock was $5.7 million, or $0.30 per
diluted share, for the quarter ended October 1998, as compared to net income
attributable to common stock before extraordinary loss of $5.6 million, or $0.29
per diluted share, for the same period in the prior fiscal year. For the six
months ended October 1998, net income attributable to common stock was $11.9
million, or $0.62 per diluted share, as compared to net income attributable to
common stock before extraordinary loss of $10.4 million, or $0.55 per diluted
share, for the same period in the prior fiscal year. The comparative increase in
net income was due to the increase in operating income, partially offset by
higher interest charges (associated with acquisition related debt at Premier and
Cables of Zion) and the increase in the aforementioned minority interest charge.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended October 31, 1998, the Company generated $26.8
million in cash flow from operating activities consisting of $42.6 million in
cash flow generated from operations (net income plus non-cash charges) reduced
by $15.7 million in cash flow used for net working capital changes. The major
working capital changes included a $5.1 million increase in inventories, a $15.8
million reduction in accounts payable and accrued expenses, offset by a $4.9
million decrease in accounts receivable. Cash used for investing activities
amounted to $38.5 million consisting principally of $25.0 million in cash paid
for the acquisition of Cables of Zion and $17.5 million in capital expenditures.
Cash provided by financing activities amounted to $13.8 million consisting
principally of $35.3 million in net borrowings under revolving credit facilities
and $22.4 million used for the purchase of Company and subsidiary common stock.
At October 31, 1998, the Company's consolidated long-term debt was $437.4
million, with the components of such debt, on an entity basis, consisting of the
following (in millions):
<TABLE>
<S> <C>
Long-term debt obligations of:
Premier and subsidiaries.......................................... $ 296.8
Superior TeleCom and subsidiaries................................. 103.1
Alpine corporate.................................................. 37.5
---------
$ 437.4
---------
---------
</TABLE>
The Company, on a consolidated basis, had $34.2 million in cash, cash
equivalents and marketable securities at October 31, 1998. Of such amount, $6.7
million was maintained by Premier and its subsidiaries, $12.8 million by
Superior TeleCom and its subsidiaries, and $14.7 million at the Alpine corporate
level.
At October 31, 1998, Superior Telecom had $83.6 million outstanding under
its existing Credit Facility. On November 27, 1998, Superior Telecom, in
conjunction with the Essex acquisition (See Note 6 to the accompanying
consolidated financial statement), entered into a $1.15 billion amended and
restated credit
17
<PAGE>
agreement ("Credit Agreement") and a $200 million senior subordinated credit
agreement ("Senior Notes"). The Credit Agreement consists of a $500 million term
loan A, a $425 million term loan B, and a $225 million revolving credit
facility. Proceeds from the financing were used to (i) pay $769 million,
representing the cash portion of the Essex acquisition purchase price, (ii)
refinance approximately $84 million under Superior's existing Credit Facility,
(iii) refinance approximately $280 million of Essex's existing credit
facilities, and (iv) pay related transaction expenses. Subsequent to the
acquisition and refinancing, Superior TeleCom expects to have approximately $150
million of undrawn availability under the revolving credit facility. Obligations
under the Credit Agreement and the Senior Notes are secured by substantially all
of the assets of Superior TeleCom and its subsidiaries and by the stock of
Superior TeleCom's subsidiaries. The Credit Agreement and Senior Notes contain
customary performance and financial covenants.
As of October 31, 1998, Premier had $28.5 million in availability under its
revolving credit facility and an additional $6.7 million in cash and cash
equivalents. Premier's principal debt service commitments for the next 12 months
amount to $8.7 million and capital expenditures are expected to approximate
$10-$15 million. Alpine anticipates that Premier will generate sufficient cash
flows from its operating activities to meet its annual principal debt service
and capital expenditure commitments. However, should any shortfall arise due to
working capital fluctuations or other factors, funds available under Premier's
revolving credit facility should be sufficient to cover such shortfall.
Alpine holds, in addition to corporate cash, cash equivalents and marketable
securities, approximately 8.1 million common shares (representing 50.1% of the
outstanding common shares) of Superior TeleCom (NYSE:SUT) which, based on the
closing price on December 10, 1998, had a market value of approximately $311.6
million and a consolidated carrying value as recorded by Alpine (net of minority
interest) of approximately $49.9 million. Superior TeleCom common stock owned by
Alpine with a market value of approximately $95 million is pledged as collateral
to secure certain debt of Alpine and Premier.
The Superior TeleCom and Premier credit arrangements include restrictions
and/or limitations on dividends or other payments by such subsidiaries to
Alpine. For the next 12 month period, Alpine expects to fund its corporate
activities (which includes approximately $11-12 million in estimated cash
corporate overhead and interest expense) from allowable management fees payable
by its subsidiaries to Alpine, cash dividends received from Superior TeleCom and
from interest income, with any shortfall funded from Alpine's existing corporate
cash, cash equivalents and marketable securities reserves.
YEAR 2000
During fiscal 1998 and 1997, the Company established project teams
responsible for identifying and resolving Year 2000 issues. These efforts
include identification and review of internal operating systems and
applications, and customer projects and services, as well as discussions with
information providers and other key suppliers to the business. Remediation costs
for problems identified thus far are not expected to be material to the
Company's consolidated financial position, liquidity or results of operations.
The Company has established a timetable for resolving Year 2000 issues so as not
to interrupt ongoing operations.
- ------------------------
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, BUT NOT LIMITED TO, RISKS IN PRODUCT AND TECHNOLOGY
DEVELOPMENT, MARKET ACCEPTANCE OF NEW PRODUCTS AND CONTINUING PRODUCT DEMAND,
THE IMPACT OF COMPETITIVE PRODUCTS AND PRICING, CHANGING ECONOMIC CONDITIONS,
INCLUDING CHANGES IN SHORT-TERMS INTEREST RATES AND FOREIGN EXCHANGE RATES AND
OTHER RISK FACTORS DETAILED IN THE COMPANY'S MOST RECENT FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
THE MERGER AGREEMENT AND THE OFFER
On October 21, 1998, Superior TeleCom entered into an Agreement and Plan of
Merger (the "Merger Agreement") with SUT Acquisition Corp., a newly formed
Delaware corporation and a subsidiary of Superior TeleCom ("SUT Acquisition"),
and Essex International Inc., a Delaware corporation ("Essex"). Under the terms
of the Merger Agreement, SUT Acquisition commenced a cash tender offer (the
"Offer"), on October 28, 1998, to acquire up to 22,562,135 shares of common
stock of Essex (the "Shares") at a price of $32.00 per Share. On November 27,
1998, following the expiration of the Offer, Superior TeleCom, through SUT
Acquisition, accepted for purchase 22,562,135 Shares (representing approximately
81% of the Shares outstanding as of October 20, 1998), on a pro rata basis, that
had been validly tendered and not withdrawn in the Offer.
In accordance with the Merger Agreement, a special meeting of Essex's
stockholders will be convened to vote to adopt the Merger Agreement, which
provides that SUT Acquisition will be merged with and into Essex (the "Merger"),
with the result that Essex will be an indirect, wholly-owned subsidiary of
Superior TeleCom. It is expected that, following the Merger, the business and
operations of Essex will continue to be conducted substantially as they are
currently conducted.
THE CREDIT AGREEMENT
In connection with the Offer, on November 27, 1998, Superior/Essex Corp., a
newly formed Delaware corporation and a wholly-owned subsidiary of Superior
TeleCom ("Superior/Essex"), Essex Group, Inc., a Michigan corporation and a
subsidiary of Essex ("Essex Group"), and Superior TeleCom and certain
subsidiaries of Superior TeleCom and Essex, as guarantors (collectively, the
"Guarantors"), entered into an Amended and Restated Credit Agreement (the
"Credit Agreement") among Superior/Essex and Essex Group, as borrowers, the
Guarantors, various lenders, Merrill Lynch & Co., as documentation agent
("Merrill"), Fleet National Bank, as syndication agent ("Fleet"), and Bankers
Trust Company, as administrative agent ("Bankers Trust"). The Credit Agreement
provides for total borrowings of up to $1.15 billion. Total borrowings of
approximately $948.0 million under the Credit Agreement were used to pay a
portion of the consideration required to consummate the Offer (including the
refinancing of certain indebtedness of Superior TeleCom and Essex Group) and to
pay related fees and expenses
The Credit Agreement is comprised of two tranches of term loans and a
revolving credit facility. Interest on amounts outstanding under the Credit
Agreement is based upon either (i) the Federal Funds Rate, Bankers Trust's prime
lending rate or an adjusted certificate of deposit rate or (ii) the rate in the
Eurodollar market for deposits in dollars or the rate in the London market for
deposits in pounds sterling plus, in each case, an applicable margin, a variable
component which, in certain circumstances, is subject to adjustment based on the
leverage ratio maintained by Superior/Essex and its subsidiaries. The two
tranches of term loans have five and one-half and seven year terms and the
revolving credit facility has a five and one-half year term. Each of the term
loans requires periodic mandatory amortization payments.
The obligations of each of Superior/Essex and Essex Group under the Credit
Agreement are unconditionally guaranteed by the other party and their respective
obligations are guaranteed by certain of their respective subsidiaries as well
as by Superior TeleCom. The indebtedness incurred under the Credit Agreement is
secured by a first priority lien on substantially all the assets of Superior
TeleCom, Superior/ Essex, Essex Group and their subsidiaries.
19
<PAGE>
THE SUBORDINATED CREDIT AGREEMENT
Concurrently with the execution of the Credit Agreement, Superior/Essex also
entered into the $200,000,000 Senior Subordinated Credit Agreement (the
"Subordinated Credit Agreement") among Superior/Essex, as borrower, Superior
TeleCom and certain subsidiaries of Superior TeleCom (including Essex and Essex
Group), as guarantors, various lenders, Fleet, as syndication agent, and Bankers
Trust, as administrative agent. Proceeds of the Subordinated Credit Agreement
were used to finance the Offer, to refinance certain existing indebtedness of
Superior TeleCom and Essex and to pay related fees and expenses.
The Subordinated Credit Agreement is a general unsecured obligation of
Superior/Essex which ranks PARI PASSU in right of payment with all future senior
subordinated indebtedness and senior to all other subordinated indebtedness. The
Subordinated Credit Agreement is guaranteed by Superior TeleCom and by certain
subsidiaries of Superior TeleCom (including Essex Group) on a joint and several
basis. The Subordinated Credit Agreement matures in 2006 and is prepayable at
the option of Superior/Essex at any time. Mandatory prepayments are required
from: (i) the net proceeds from issuances of debt to the extent not required to
repay senior indebtedness (i.e., the Credit Agreement) and (ii) the net proceeds
from equity issuances (with certain exceptions).
Interest on the Subordinated Credit Agreement is payable quarterly. For the
first six months after the borrowing date, interest is based upon LIBOR plus
4.25% and, if LIBOR rate loans are not available, the alternate base rate (the
higher of prime or 1/2 of 1% over the Federal Funds Rate) plus 3.25%. Upon the
six month anniversary of the borrowing date, interest is based upon LIBOR plus
4.50% and, if LIBOR rate loans are not available, the alternate base rate plus
3.50%. Upon the 12 month anniversary of the borrowing date, interest is based
upon LIBOR plus 5.00% and, if LIBOR rate loans are not available, the alternate
base rate plus 4.00%. After the 12 month anniversary of the borrowing date, the
interest rate will increase by 0.25% per quarter, but the maximum interest rate
will be LIBOR plus 5.50% and, if LIBOR rate loans are not available, the
alternate base rate plus 4.50%.
Financial statements required by Item 7 of Form 8-K will be filed on Form
8-K/A not later than 60 days after the date hereof.
20
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- ----------------- -------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of October 21, 1998, by and among Superior TeleCom Inc.,
SUT Acquisition Corp. and Essex International Inc. (incorporated herein by reference to Exhibit
(c)(1) to the Tender Offer Statement on Schedule 14D-1 filed by Superior TeleCom Inc. and SUT
Acquisition Corp. on October 28, 1998).
10.1 Amended and Restated Credit Agreement, dated as of November 27, 1998, among Superior/Essex Corp.,
Essex Group, Inc., the guarantors named therein, various lenders, Merrill Lynch & Co., as
documentation agent, Fleet National Bank, as syndication agent, and Bankers Trust Company, as
administrative agent (incorporated herein by reference to Exhibit 99.7 to the Schedule 13D/A
filed by The Alpine Group, Inc., Superior TeleCom Inc., Superior/Essex Corp. and SUT Acquisition
Corp. on December 7, 1998 (the "Schedule 13D")).
10.2 Senior Subordinated Credit Agreement, dated as of November 27, 1998, among Superior/ Essex Corp.,
as borrower, Superior TeleCom Inc., as Parent, the subsidiary guarantors named therein, various
lenders, Fleet Corporate Finance, Inc., as syndication agent, and Bankers Trust Company, as
administrative agent (incorporated herein by reference to Exhibit 99.8 to the Schedule 13D).
27* Financial Data Schedule
</TABLE>
(B) REPORTS ON FORM 8-K
None.
- ------------------------
* Filed herewith
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE ALPINE GROUP, INC.
By: /s/ DAVID S. ALDRIDGE
-----------------------------------------
David S. Aldridge
Date: December 14, 1998 CHIEF FINANCIAL OFFICER
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 19,989
<SECURITIES> 14,238
<RECEIVABLES> 167,168
<ALLOWANCES> 3,329
<INVENTORY> 153,597
<CURRENT-ASSETS> 385,097
<PP&E> 298,261
<DEPRECIATION> 58,900
<TOTAL-ASSETS> 874,885
<CURRENT-LIABILITIES> 227,276
<BONDS> 0
0
427
<COMMON> 2,000
<OTHER-SE> 71,320
<TOTAL-LIABILITY-AND-EQUITY> 874,885
<SALES> 556,604
<TOTAL-REVENUES> 556,604
<CGS> 430,791
<TOTAL-COSTS> 430,791
<OTHER-EXPENSES> (359)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,616
<INCOME-PRETAX> 43,740
<INCOME-TAX> 17,519
<INCOME-CONTINUING> 11,948
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,948
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.62
</TABLE>
