<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 JULY 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)
DELAWARE 22-1620387
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
1790 BROADWAY 10019-1412
NEW YORK, NEW YORK (Zip code)
(Address of principal executive offices)
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>
OUTSTANDING AT SEPTEMBER 11,
CLASS 1998
- ------------------------------ ------------------------------
<S> <C>
Common Stock, $.10 Par Value 16,974,578
</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, JULY 31,
1998 1998
---------- -----------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................................. $ 17,841 $ 17,422
Marketable securities.................................................................. 15,672 14,972
Accounts receivable (less allowance for doubtful accounts of:
April 1998, $2,996; July 1998 $3,140)................................................ 150,020 177,502
Inventories............................................................................ 134,570 137,426
Other current assets................................................................... 30,742 32,410
---------- -----------
Total current assets................................................................. 348,845 379,732
Property, plant and equipment, net....................................................... 195,513 237,040
Long-term investments and other assets................................................... 40,665 46,481
Goodwill (less accumulated amortization: April 1998, $12,774; July 1998,$14,395)......... 201,837 201,687
---------- -----------
Total assets......................................................................... $ 786,860 $ 864,940
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................................... $ 107,820 $ 123,438
Accrued expenses....................................................................... 92,511 96,602
Current portion of long-term debt...................................................... 8,442 15,380
---------- -----------
Total current liabilities............................................................ 208,773 235,420
Long-term debt, less current portion..................................................... 380,868 402,041
Minority interest in subsidiary.......................................................... 49,805 71,774
Other long-term liabilities.............................................................. 69,899 77,899
---------- -----------
Total liabilities.................................................................... 709,345 787,134
---------- -----------
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
19,964,801 shares issued as of April 1998 and July 1998, respectively................ 1,986 1,996
Capital in excess of par value......................................................... 136,598 136,995
Accumulated other comprehensive income................................................. (814) (2,553)
Accumulated deficit.................................................................... (32,834) (26,604)
---------- -----------
105,363 110,261
Shares of common stock in treasury, at cost: April 1998, 2,704,732 shares; July 1998,
2,934,732 shares....................................................................... (26,890) (31,497)
Receivable from stockholders............................................................. (958) (958)
---------- -----------
Total stockholders' equity............................................................. 77,515 77,806
---------- -----------
Total liabilities and stockholders' equity........................................... $ 786,860 $ 864,940
---------- -----------
---------- -----------
</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
JULY 31,
----------------------
<S> <C> <C>
1997 1998
---------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net sales................................................................................. $ 221,070 $ 288,953
Cost of goods sold........................................................................ 179,132 224,634
---------- ----------
Gross profit............................................................................ 41,938 64,319
Selling, general and administrative expenses.............................................. 17,584 29,585
Amortization of goodwill.................................................................. 1,050 1,672
---------- ----------
Operating income........................................................................ 23,304 33,062
Interest (expense)........................................................................ (7,509) (10,590)
Other income, net......................................................................... 591 204
---------- ----------
Income before income tax expense and minority interest.................................. 16,386 22,676
Provision for income taxes................................................................ (6,665) (9,208)
---------- ----------
Income before minority interest......................................................... 9,721 13,468
Minority interest in earnings of subsidiaries............................................. (4,854) (7,228)
---------- ----------
Income before extraordinary (loss)...................................................... 4,867 6,240
Extraordinary (loss) on early extinguishment of debt...................................... (389) --
---------- ----------
Net income.............................................................................. 4,478 6,240
Preferred stock dividends................................................................. (38) (10)
---------- ----------
Net income applicable to common stock..................................................... $ 4,440 $ 6,230
---------- ----------
---------- ----------
Net income (loss) per share of common stock:
Basic:
Income before extraordinary (loss).................................................... $ 0.28 $ 0.36
Extraordinary (loss) on early extinguishment of debt.................................. (0.02) --
---------- ----------
Net income per basic share of common stock.......................................... $ 0.26 $ 0.36
---------- ----------
---------- ----------
Diluted:
Income before extraordinary (loss).................................................... $ 0.26 $ 0.32
Extraordinary (loss) on early extinguishment of debt.................................. (0.02) --
---------- ----------
Net income per diluted share of common stock........................................ $ 0.24 $ 0.32
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JULY 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
9% CUMULATIVE
CONVERTIBLE
PREFERRED STOCK ACCUMULATED
COMMON STOCK CAPITAL 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)
Exercise of stock options................ 55,249 6 125
Employee stock purchase plan............. 11,184 1 191
Exercise of warrants..................... 32,378 3 (3)
Purchase of treasury stock...............
Compensation expense related to stock
options and grants..................... 84
Dividends on preferred stock.............
Total comprehensive income (Note 3)...... (1,739)
------------ --------- ---------- --- ----- -------
Balance at July 31, 1998................. 19,964,801 $ 1,996 $ 136,995 427 $ 427 $ (2,553)
------------ --------- ---------- --- ----- -------
------------ --------- ---------- --- ----- -------
<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
Exercise of stock options................ 131
Employee stock purchase plan............. 192
Exercise of warrants..................... --
Purchase of treasury stock............... (230,000) (4,607) (4,607)
Compensation expense related to stock
options and grants..................... 84
Dividends on preferred stock............. (10) (10)
Total comprehensive income (Note 3)...... 6,240 4,501
------------ ----------- ---------- ----- ---------
Balance at July 31, 1998................. $ (26,604) (2,934,732) $ (31,497) $ (958) $ 77,806
------------ ----------- ---------- ----- ---------
------------ ----------- ---------- ----- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
JULY 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Income before extraordinary (loss)......................................................... $ 4,867 $ 6,240
Adjustments to reconcile income before extraordinary (loss) to net cash provided by
operating activities:
Depreciation and amortization............................................................ 5,274 7,389
Amortization of deferred debt issuance costs and accretion of debt
discount............................................................................... 551 686
Compensation expense related to stock options and grants................................. 441 175
Minority interest in earnings of subsidiary.............................................. 4,854 7,228
Other, net............................................................................... 46 300
Change in assets and liabilities, net of effects from companies acquired:
Accounts receivable.................................................................... (15,499) (8,357)
Inventories............................................................................ 3,055 9,621
Other current and non-current assets................................................... (1,220) 266
Accounts payable and accrued expenses.................................................. 14,770 (2,744)
Other long-term liabilities............................................................ (311) 439
--------- ---------
Cash provided by operating activities........................................................ 16,828 21,243
--------- ---------
Cash flows from investing activities:
Acquisition, net of cash acquired.......................................................... -- (22,625)
Capital expenditures....................................................................... (4,014) (8,201)
Net proceeds from the sale of assets....................................................... 4,441 --
Other...................................................................................... (482) 700
--------- ---------
Cash used for investing activities........................................................... (55) (30,126)
--------- ---------
</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 (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
JULY 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Cash flows from financing activities:
Borrowings (repayments) under revolving credit facilities, net............................. $ (2,761) $ 15,177
Repayments of long-term borrowings......................................................... (9,242) (628)
Proceeds from exercise of stock options.................................................... 619 408
Purchase of treasury shares................................................................ (5,308) (4,607)
Subsidiary treasury stock purchases........................................................ -- (1,271)
Dividends on subsidiary common stock....................................................... -- (504)
Other...................................................................................... 15 (111)
--------- ---------
Cash (used for) provided by financing activities............................................. (16,677) 8,464
--------- ---------
Net increase (decrease) in cash and cash equivalents......................................... 96 (419)
Cash and cash equivalents at beginning of period............................................. 21,606 17,841
--------- ---------
Cash and cash equivalents at end of period................................................... $ 21,702 $ 17,422
--------- ---------
--------- ---------
Supplemental disclosures:
Cash paid for interest..................................................................... $ 8,012 $ 9,746
--------- ---------
--------- ---------
Cash paid for income taxes................................................................. $ 4,448 $ 4,551
--------- ---------
--------- ---------
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
JULY 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 July 31, 1998, the components of inventories were as
follows:
<TABLE>
<CAPTION>
APRIL 30, JULY 31,
1998 1998
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Raw materials......................................................... $ 48,543 $ 49,072
Work in process....................................................... 19,214 25,639
Finished goods........................................................ 66,813 62,715
---------- ----------
$ 134,570 $ 137,426
---------- ----------
---------- ----------
</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 three months ended July 31,
1997 and 1998 were as follows:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Net income................................................................. $ 4,478 $ 6,240
Foreign currency translation adjustment.................................... 1,668 (1,739)
--------- ---------
Comprehensive income....................................................... $ 6,146 $ 4,501
--------- ---------
--------- ---------
</TABLE>
4. ACQUISITION
On May 5, 1998, Superior TeleCom Inc., Alpine's 50.1% 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 in cash. 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
8
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1998
(UNAUDITED)
4. ACQUISITION (CONTINUED)
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 three months
ended July 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 three months ended July 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>
THREE MONTHS ENDED
JULY 31, 1997
PRO FORMA
-------------------
<S> <C>
(IN THOUSANDS,
EXCEPT PER
SHARE DATA)
Net sales................................................................ $ 288,142
Income before income tax expense and minority interest................... 16,901
Income before extraordinary (loss)....................................... 4,465
Extraordinary (loss) on early extinguishment of debt..................... (389)
Net income applicable to common stock.................................... 4,038
Net income (loss) per diluted share of common stock:
Income before extraordinary (loss)..................................... $ 0.24
Extraordinary (loss) on early extinguishment of debt................... (0.02)
--------
Net income per diluted share......................................... $ 0.22
--------
--------
</TABLE>
9
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1998
(UNAUDITED)
5. EARNINGS PER SHARE
The computation of basic and diluted earnings per share for the three months
ended July 31, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
1997 1998
--------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
PER
SHARE
INCOME SHARES AMOUNT INCOME SHARES
--------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income attributable to common stock before extraordinary
(loss)........................................................ $ 4,867 $ 6,240
Less: preferred stock dividends................................. (38) (10)
--------- ---------
Basic earnings per common share before extraordinary (loss)..... $ 4,829 17,052 $ 0.28 $ 6,230 17,123
-----
-----
Dilutive impact of stock options warrants and grants............ -- 1,318 -- 1,651
Dilution in subsidiary earnings from subsidiary stock options... (117) -- (184) --
Assumed conversion of preferred stock........................... 38 243 10 54
--------- --------- --------- ---------
Diluted earnings per common share before extraordinary (loss)... $ 4,750 18,613 $ 0.26 $ 6,056 18,828
--------- --------- ----- --------- ---------
--------- --------- ----- --------- ---------
<CAPTION>
<S> <C>
PER
SHARE
AMOUNT
-----------
<S> <C>
Income attributable to common stock before extraordinary
(loss)........................................................
Less: preferred stock dividends.................................
Basic earnings per common share before extraordinary (loss)..... $ 0.36
-----
-----
Dilutive impact of stock options warrants and grants............
Dilution in subsidiary earnings from subsidiary stock options...
Assumed conversion of preferred stock...........................
Diluted earnings per common share before extraordinary (loss)... $ 0.32
-----
-----
</TABLE>
6. 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.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 quarter ended July
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 quarter ended July 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 months ended July 31, 1997 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JULY 31,
----------------------
<S> <C> <C>
1997 1998
---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net sales:
Telecommunications wire and cable....................................................... $ 126,720 $ 151,835
Data communications and electronics..................................................... 4,513 5,039
Refractories............................................................................ 89,837 132,079
---------- ----------
Consolidated........................................................................ 221,070 288,953
Gross profit:
Telecommunications wire and cable....................................................... $ 23,035 $ 32,577
Data communications and electronics..................................................... 1,307 1,719
Refractories............................................................................ 17,596 30,023
---------- ----------
Consolidated........................................................................ 41,938 64,319
Gross profit percentage:
Telecommunications wire and cable....................................................... 18.2% 21.5%
Data communications and electronics..................................................... 29.0 34.1
Refractories............................................................................ 19.6 22.7
Consolidated........................................................................ 19.0 22.3
Selling, general and administrative expenses:
Telecommunications wire and cable....................................................... $ 3,151 $ 5,720
Data communications and electronics..................................................... 1,371 1,479
Refractories............................................................................ 10,780 19,044
Corporate and other expenses............................................................ 2,282 3,342
---------- ----------
Consolidated........................................................................ 17,584 29,585
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JULY 31,
----------------------
1997 1998
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Amortization of goodwill:
Telecommunications wire and cable....................................................... $ 430 $ 446
Refractories............................................................................ 620 1,226
---------- ----------
Consolidated........................................................................ 1,050 1,672
Operating income:
Telecommunications wire and cable....................................................... $ 19,454 $ 26,411
Data communications and electronics..................................................... (64) 240
Refractories............................................................................ 6,196 9,753
Corporate and other expenses............................................................ (2,282) (3,342)
---------- ----------
Consolidated........................................................................ $ 23,304 $ 33,062
---------- ----------
---------- ----------
</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
JULY 31,
----------------------
<S> <C> <C>
1997 1998
---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net sales................................................................................. $ 123,344 $ 160,406
Gross profit.............................................................................. 23,035 32,577
Gross profit percentage................................................................... 18.7% 20.3%
</TABLE>
TELECOMMUNICATIONS WIRE AND CABLE--RESULTS OF OPERATIONS
Superior's net sales for the quarter ended July 1998 were $151.8 million,
representing an increase of $25.1 million, or 19.8%, as compared to the same
period in the prior fiscal year. Adjusted to a constant copper value of $1.00
per pound, the comparative increase in net sales was $37.1 million, or 30.0%
(see "Supplemental Data for the Telecommunications Wire and Cable Segment"
included in the industry segment operating statement data). Superior's current
period increase in net sales was due to the inclusion of $21.9 million in net
sales contributed by Cables of Zion and continuing strong demand for copper wire
and cable products in Superior's North America operations ("Superior North
America"). On a constant copper value basis, Superior North America's net sales
increased by $14.2 million, or 11.5%, as compared to the same period in the
prior fiscal year. The increase in Superior North America's net sales resulted
primarily from the ongoing growth in copper-based telephone access lines and
increased maintenance spending by several major telephone company customers. To
keep pace with the growth in demand and increased market share, Superior has
been increasing its internal production capacity. During the prior fiscal year,
Superior North America increased its production capacity by approximately 10%.
During the July 1998 fiscal quarter, Superior North America achieved further
production capacity expansion, with total planned capacity expansions during
fiscal 1999 of approximately 15% as compared to the end of fiscal 1998.
Notwithstanding these recent production capacity expansions, demand levels have
exceeded available
12
<PAGE>
capacity and, as a result, Superior has, and will continue to purchase product
from third party suppliers to meet such demand.
Superior's gross profit increased by $9.5 million, or 41.4%, to $32.6
million for the quarter ended July 1998 as compared to the same period in the
prior fiscal year. The comparative increase in gross profit included $3.8
million in incremental gross profit contribution by Cables of Zion, as well as a
$5.8 million, or 25.0%, increase in the comparative gross profit generated by
Superior North America. Superior's gross margin, based on actual sales, was
21.5% for the quarter ended July 1998 as compared to 18.2% for the same period
in the prior fiscal year. Adjusted to a constant copper sales value of $1.00 per
pound, gross margin increased from 18.7% in the prior year's quarter to 20.3% in
the quarter ended July 1998. 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 July 1998 was $5.7 million
representing an increase of $2.6 million as compared to the same period in the
prior fiscal year. The increase was due primarily to the inclusion of $1.9
million in SG&A expense from Cables of Zion and an increase of $0.7 million in
Superior North America SG&A expense associated with 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 July 1998 was $26.4
million representing an increase of $7.0 million, or 35.8%, 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 operation of Cables of Zion beginning in the quarter
ended July 1998.
DNE--RESULTS OF OPERATIONS
For the quarter ended July 1998, DNE's net sales were $5.0 million,
representing an increase of $0.5 million, or 11.7%, as compared to the same
period in the prior fiscal year. The increase in net sales resulted from an
increase in DNE's contract manufacturing activities and an improvement in
government-related sales of multiplexer products.
DNE's gross margin increased to 34.1% for the quarter ended July 1998 as
compared to 29.0% for the quarter ended July 1997. The increase in gross margin
was attributable to improved pricing in the contract manufacturing business and
favorable product mix in the government-related business.
DNE's SG&A expense for the quarter ended July 1998 was comparable to prior
periods, increasing by $0.1 million as compared to the same period in the prior
fiscal year.
As a result of the increase in net sales and gross margin, DNE generated
operating income of $0.2 million during the quarter ended July 1998 as compared
to an operating loss of $0.1 million in the same period of the prior fiscal
year.
REFRACTORIES--RESULTS OF OPERATIONS
Premier's net sales for the quarter ended July 1998 were $132.1 million,
representing an increase of $42.2 million, or 47.0%, as compared to the same
period in the prior fiscal year. The increase in net sales was due to the
inclusion of the operations of American Premier acquired in January 1998, offset
by a comparative decline of $4.0 million, or 6.5%, in revenues attributable to
Premier Europe. The decline in Premier Europe's revenues primarily reflected the
competitive environment in Europe, which has been accentuated by the strength of
the British Pound, as well as somewhat weaker demand levels from Premier
Europe's major U.K.-based customers.
13
<PAGE>
Premier's gross profit for the quarter ended July 1998 was $30.0 million,
representing an increase of $12.4 million, or 70.6%, as compared to the same
period in the prior fiscal year. The increase in gross profit was attributable
to the inclusion of the operations of American Premier in the current fiscal
quarter ended July 1998, offset by a decline of $2.3 million, or 19.1%, in gross
profit at Premier Europe. The combined gross margin for the quarter ended July
1998 was 22.7% as compared to 19.6% for the same period in the prior fiscal
year. The increase in gross margin resulted from the inclusion of American
Premier's higher margin product lines, cost reductions resulting from the
integration of the American Premier operation, and an increase in higher margin
revenues from Premier's construction services division. The decline in gross
profit and gross margin at Premier Europe resulted primarily from the
aforementioned competitive pricing pressures in the European market.
Premier's SG&A expense for the quarter ended July 1998 was $19.0 million,
representing an increase of $8.3 million, as compared to the same period in the
prior fiscal year. The increase in SG&A expense was attributable to the
inclusion of the operations of American Premier in the current fiscal period,
offset by a $0.8 million reduction in SG&A expense at Premier Europe. 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 SG&A expense resulting from the American
Premier acquisition, since the date of the 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 throughout the remainder of fiscal 1999.
Premier's operating income for the quarter ended July 1998 was $9.8 million,
representing an increase of $3.6 million, or 57.4%, as compared to the same
period in the prior fiscal year. The increase in operating income resulted from
the inclusion of the operations of American Premier for the quarter ended July
1998 and the comparative growth in higher margin construction related revenues,
offset by a decline in operating income at Premier Europe.
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 $67.9 million, or 30.7%, for
the quarter ended July 1998. The acquisitions, along with the organic 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 $22.4 million, or 53.4%, for the quarter ended July
1998 as compared to the quarter ended July 1997.
Consolidated SG&A expense for the quarter ended July 1998 was $29.6 million,
representing an increase of $12.0 million, or 68.2%, as compared to the same
period in the prior fiscal year. The increase in consolidated SG&A expense
resulted primarily from the inclusion of the operations of American Premier and
Cables of Zion for the current fiscal period, 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 July 1998 was $33.1
million, representing an increase of $9.8 million, or 41.9%, as compared to the
same period in the prior fiscal year. The increase in operating income was
primarily the result of the contribution from the American Premier operations
and from the growth in net sales and gross profit in Superior's
telecommunications wire and cable operations.
Consolidated interest expense for the quarter ended July 1998 was $10.6
million, representing an increase of $3.1 million, or 41.0%, as compared to
consolidated interest expense of $7.5 million for 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 in part by a $52 million decrease in debt at
Superior North America at July 31, 1998 as compared to July 31, 1997.
14
<PAGE>
Consolidated other income (net) for the quarter ended July 1998 was $0.2
million, representing a decrease of $0.4 million, as compared to the same period
in the prior fiscal year. The major components of other income (net) for the
quarter ended July 1998 included an investment loss on marketable securities of
$0.7 million, offset by a $1.0 million receipt representing a return of prior
year insurance premiums.
For the quarter ended July 1998, the provision for income taxes was $9.2
million, as compared to a provision for income taxes of $6.7 million for the
same period in the prior fiscal year. The effective tax rate for the quarter
ended July 1998 was 40.6% which compares with an effective tax rate of 40.7% for
the quarter ended July 1997.
For the quarter ended July 1998, a minority interest charge of $7.2 million
was recorded, as compared to $4.9 million for the same period in the prior
fiscal year; with such charge representing minority stockholders' interest in
net income of Superior TeleCom, Premier and Cables of Zion.
Net income attributable to common stock was $6.2 million, or $0.32 per
diluted share, for the quarter ended July 1998, as compared to net income
attributable to common stock before extraordinary loss of $4.9 million, or $0.26
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 three months ended July 31, 1998, the Company generated $21.2
million in cash flow from operating activities consisting of $22.0 million in
cash flow generated from operations (net income plus non-cash charges) reduced
by $0.8 million in cash flow used for net working capital changes. The major
working capital changes included an $8.4 million increase in accounts
receivable, a $2.7 million reduction in accounts payable and accrued expenses,
offset by a $9.6 million reduction in inventories. Cash used for investing
activities amounted to $30.1 million consisting principally of $25.0 million in
cash paid for the acquisition of Cables of Zion and $8.2 million in capital
expenditures. Cash provided by financing activities amounted to $8.5 million
consisting principally of $15.2 million in net borrowings under revolving credit
facilities and $5.9 million used for the purchase of Company and subsidiary
common stock.
At July 31, 1998, the Company's consolidated long-term debt was $417.4
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.......................................... $ 301.5
Superior TeleCom and subsidiaries................................. 91.8
Alpine corporate.................................................. 24.1
---------
$ 417.4
---------
---------
</TABLE>
The Company, on a consolidated basis, had $32.4 million in cash, cash
equivalents and marketable securities at July 31, 1998. Of such amount, $6.7
million was maintained by Premier and its subsidiaries, $10.8 million by
Superior TeleCom and its subsidiaries, and $14.9 million at the Alpine corporate
level.
As of July 31, 1998, Superior TeleCom had approximately $76.4 million in
availability under its revolving credit facility and an additional $10.8 million
in cash and cash equivalents. Over the next 12 months, Superior TeleCom expects
to invest approximately $20--$25 million in capital expenditures and has
principal debt service commitments of $6.9 million. Superior TeleCom has
typically generated substantial operating cash flows. During the quarter ended
July 31, 1998, Superior TeleCom generated $27.6 million in cash flows from
operating activities and management anticipates that Superior TeleCom will
continue to generate more than adequate cash flows from operating activities to
meet its annual
15
<PAGE>
commitments. However, should any shortfall arise due to working capital
fluctuations or other factors, funds available under Superior TeleCom's
revolving credit facility should be sufficient to cover such shortfall.
As of July 31, 1998, Premier had $24.8 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 $8.4 million and capital expenditures are expected to approximate
$15--$17 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 September 11, 1998, had a market value of approximately $326.0
million and a consolidated carrying value as recorded by Alpine (net of minority
interest) of approximately $46.2 million. Superior TeleCom common stock owned by
Alpine with a market value of approximately $80.5 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 $7.0-8.0 million in estimated cash
corporate overhead expenses and $2.8 million in cash 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.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27--FINANCIAL DATA SCHEDULE
(b) Reports on Form 8-K
During the first quarter of 1999, the Company filed a Report on Form 8-K
on May 19, 1998 and a report on 8-K/A on July 20, 1998. The Reports
provided relevant financial and other data related to the acquisition of
Cables of Zion.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
THE ALPINE GROUP, INC.
By: /s/ DAVID S. ALDRIDGE
-----------------------------------------
David S. Aldridge
DATE: SEPTEMBER 14, 1998 CHIEF FINANCIAL OFFICER
</TABLE>
18
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> JUL-31-1998
<EXCHANGE-RATE> 1
<CASH> 17,422
<SECURITIES> 14,972
<RECEIVABLES> 180,642
<ALLOWANCES> 3,140
<INVENTORY> 137,426
<CURRENT-ASSETS> 379,732
<PP&E> 281,962
<DEPRECIATION> 44,922
<TOTAL-ASSETS> 864,940
<CURRENT-LIABILITIES> 235,420
<BONDS> 0
0
427
<COMMON> 1,996
<OTHER-SE> 75,383
<TOTAL-LIABILITY-AND-EQUITY> 864,940
<SALES> 288,953
<TOTAL-REVENUES> 288,953
<CGS> 224,634
<TOTAL-COSTS> 31,257
<OTHER-EXPENSES> (204)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,590
<INCOME-PRETAX> 22,676
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