<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, 1999
/ / 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 (I.R.S. Employer
incorporation of organization) Identification 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 14,
CLASS 1999
- ----------------------------------- --------------------------------
<S> <C>
Common Stock, $.10 Par Value 14,879,940
</TABLE>
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- --------------------------------------------------------------------------------
<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, 1999.
2
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30, JULY 31,
1999 1999
------------ ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 33,000 $ 23,879
Marketable securities................................................................ 14,957 16,330
Accounts receivable (less allowance for doubtful accounts of: April 30, 1999, $5,029;
July 31, 1999, $4,891)............................................................. 261,318 274,596
Inventories.......................................................................... 337,122 314,525
Net assets of discontinued operations................................................ 34,557 40,114
Other current assets................................................................. 42,464 47,201
------------ ------------
Total current assets............................................................... 723,418 716,645
Property, plant and equipment, net..................................................... 511,577 517,284
Long-term investments and other assets................................................. 67,695 84,223
Goodwill (less accumulated amortization: April 30, 1999, $14,871; July 31, 1999,
$20,098)............................................................................. 806,343 791,410
------------ ------------
Total assets....................................................................... $ 2,109,033 $ 2,109,562
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short-term borrowings................................................................ $ 142,645 $ 160,000
Current portion of long-term debt.................................................... 65,080 71,988
Accounts payable..................................................................... 138,665 133,805
Accrued expenses..................................................................... 129,584 101,602
------------ ------------
Total current liabilities.......................................................... 475,974 467,395
Long-term debt, less current portion................................................... 1,237,353 1,241,835
Minority interest in subsidiary........................................................ 58,980 62,399
Other long-term liabilities............................................................ 146,981 148,306
------------ ------------
Total liabilities.................................................................. 1,919,288 1,919,935
------------ ------------
Subsidiary-obligated Mandatorily Redeemable Trust Convertible Preferred Securities of
Superior Trust I holding solely convertible debentures of Superior (net of
discount)............................................................................ 133,362 133,580
Commitments and contingencies
Stockholders' equity:
9% cumulative convertible preferred stock at liquidation value 427 427
Common stock, $.10 par value; 25,000,000 shares authorized; 20,096,479 shares and
20,213,182 shares issued at April 30, 1999 and July 31, 1999, respectively......... 2,009 2,021
Capital in excess of par value....................................................... 138,860 139,860
Accumulated other comprehensive deficit.............................................. (5,222) (5,615)
Accumulated deficit.................................................................. (19,304) (14,137)
------------ ------------
116,770 122,556
Shares of common stock in treasury, at cost: April 30, 1999, 4,923,932 shares; July
31, 1999, 5,290,432 shares......................................................... (59,398) (65,539)
Receivable from stockholders........................................................... (989) (970)
------------ ------------
Total stockholders' equity........................................................... 56,383 56,047
------------ ------------
Total liabilities and stockholders' equity......................................... $ 2,109,033 $ 2,109,562
------------ ------------
------------ ------------
</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>
1998 1999
--------- ---------
<CAPTION>
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Net sales................................................................................... $ 156,874 $ 515,189
Cost of goods sold.......................................................................... 122,578 418,590
--------- ---------
Gross profit.............................................................................. 34,296 96,599
Selling, general and administrative expenses................................................ 9,976 38,381
Nonrecurring and unusual charges............................................................ -- 911
Amortization of goodwill.................................................................... 446 5,135
--------- ---------
Operating income.......................................................................... 23,874 52,172
Interest expense............................................................................ (3,159) (30,352)
Other (expense) income, net................................................................. (810) 2,949
--------- ---------
Income from continuing operations before income taxes, distributions on preferred
securities of subsidiary trust, minority interest, equity in earnings of affiliate and
extraordinary (loss).................................................................... 19,905 24,769
Provision for income taxes.................................................................. (8,238) (9,935)
--------- ---------
Income from continuing operations before distributions on preferred securities of
subsidiary trust, minority interest, equity in earnings of affiliate and extraordinary
(loss).................................................................................. 11,667 14,834
Distributions on preferred securities of subsidiary trust................................... -- (3,758)
--------- ---------
Income from continuing operations before minority interest, equity in earnings of
affiliate and extraordinary (loss)...................................................... 11,667 11,076
Minority interest in earnings of subsidiaries............................................... (6,930) (6,064)
Equity in earnings of affiliate............................................................. -- 1,000
--------- ---------
Income from continuing operations before extraordinary (loss)............................. 4,737 6,012
Income from discontinued operations, net of tax............................................. 1,503 --
--------- ---------
Income before extraordinary (loss)........................................................ 6,240 6,012
Extraordinary (loss) on early extinguishment of debt........................................ -- (836)
--------- ---------
Net income................................................................................ 6,240 5,176
Preferred stock dividends................................................................... (10) (9)
--------- ---------
Net income applicable to common stock..................................................... $ 6,230 $ 5,167
--------- ---------
--------- ---------
Net income per share of common stock:
Basic:
Income from continuing operations....................................................... $ 0.28 $ 0.40
Income from discontinued operations..................................................... 0.08 --
Extraordinary (loss) on early extinguishment of debt.................................... -- (0.06)
--------- ---------
Net income per basic share of common stock............................................ $ 0.36 $ 0.34
--------- ---------
--------- ---------
Diluted:
Income from continuing operations....................................................... $ 0.24 $ 0.34
Income from discontinued operations..................................................... 0.08 --
Extraordinary (loss) on early extinguishment of debt.................................... -- (0.05)
--------- ---------
--------- ---------
Net income per diluted share of common stock.......................................... $ 0.32 $ 0.29
--------- ---------
--------- ---------
</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, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
CAPITAL 9% CUMULATIVE
IN CONVERTIBLE
COMMON STOCK EXCESS PREFERRED STOCK
COMPREHENSIVE ---------------------- OF PAR ------------------------ ACCUMULATED
INCOME SHARES AMOUNT VALUE SHARES AMOUNT DEFICIT
--------------- --------- ----------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1999......... 20,096,479 $ 2,009 $ 138,860 427 $ 427 $ (19,304)
Receivable from stockholders......
Exercise of stock options......... 58,761 6 294
Employee stock purchase plan...... 29,859 3 253
Purchase of treasury stock........
Compensation expense related to
stock options and grants........ 28,083 3 453
Dividends on preferred stock...... (9)
Comprehensive income:
Net income........................ $ 5,176 5,176
Foreign currency translation
adjustment...................... (393)
------
Total comprehensive income........ $ 4,783
------
------
Balance at July 31, 1999.......... 20,213,182 $ 2,021 $ 139,860 427 $ 427 $ (14,137)
--------- ----------- --------- --- ----- ------------
--------- ----------- --------- --- ----- ------------
<CAPTION>
ACCUMULATED RECEIVABLE
OTHER TREASURY STOCK FROM
COMPREHENSIVE -------------------- STOCK-
DEFICIT SHARES AMOUNT HOLDERS TOTAL
--------------- --------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1999......... $ (5,222) (4,923,932) $ (59,398) $ (989) $ 56,383
Receivable from stockholders...... 19 19
Exercise of stock options......... 300
Employee stock purchase plan...... 256
Purchase of treasury stock........ (366,500) (6,141) (6,141)
Compensation expense related to
stock options and grants........ 456
Dividends on preferred stock...... (9)
Comprehensive income:
Net income........................ 5,176
Foreign currency translation
adjustment...................... (393) (393)
Total comprehensive income........
Balance at July 31, 1999.......... $ (5,615) (5,290,432) $ (65,539) $ (970) $ 56,047
------- --------- --------- ----- ---------
------- --------- --------- ----- ---------
</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>
1998 1999
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations.......................................................... $ 4,737 $ 6,012
Adjustments to reconcile income from continuing operations to net cash provided by
operating activities:
Depreciation and amortization.......................................................... 3,144 14,673
Amortization of deferred debt issuance costs and accretion of debt discount............ 316 1,553
Compensation expense related to stock options and grants............................... 175 588
Provision for deferred income taxes.................................................... -- 1,730
Foreign exchange gain.................................................................. -- (2,069)
Minority interest in earnings of subsidiary............................................ 6,930 6,064
Equity in earnings of unconsolidated subsidiaries...................................... -- (1,000)
Other, net............................................................................. (88) --
Change in assets and liabilities, net of effects from companies acquired:
Accounts receivable.................................................................. (3,555) (12,390)
Inventories.......................................................................... 8,683 22,049
Other current and non-current assets................................................. 2 (6,764)
Accounts payable and accrued expenses................................................ 2,706 (25,140)
Other long-term liabilities.......................................................... 21 (1,074)
--------- ---------
Cash flows provided by continuing operations................................................. 23,071 4,232
--------- ---------
Cash flows (used for) provided by discontinued operations.................................... (1,828) 1,439
--------- ---------
Cash flows provided by operating activities.................................................. 21,243 5,671
--------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired......................................................... (22,625) --
Capital expenditures....................................................................... (5,454) (16,686)
(Investment in) proceeds from marketable securities........................................ 700 (1,373)
Customer loans............................................................................. -- (14,377)
Other...................................................................................... -- 357
--------- ---------
Cash flows (used for) continuing operations.................................................. (27,379) (32,079)
--------- ---------
Cash flows (used for) discontinued operations................................................ (2,747) (2,526)
--------- ---------
Cash flows used for investing activities..................................................... (30,126) (34,605)
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
<S> <C> <C>
JULY 31,
---------------------
<CAPTION>
1998 1999
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from financing activities:
Borrowings under revolving credit facilities, net........................................ $ 4,878 $ 21,320
Short-term borrowings, net............................................................... -- 17,355
Repayment of long-term borrowings........................................................ (19) (222,404)
Long-term borrowings..................................................................... -- 214,377
Proceeds from exercise of stock options.................................................. 408 360
Purchase of treasury shares.............................................................. (4,607) (6,141)
Subsidiary treasury stock purchases...................................................... (1,271) (1,179)
Dividends on subsidiary common stock..................................................... (504) (593)
Dividends on preferred stock............................................................. (10) (9)
Debt issuance costs...................................................................... -- (6,225)
Other.................................................................................... 457 1,865
--------- ----------
Cash flows (used for) provided by continuing operations.................................... (668) 18,726
Cash flows provided by discontinued operations............................................. 9,157 3,034
--------- ----------
Cash flows provided by financing activities................................................ 8,489 21,760
--------- ----------
Cash flows provided by discontinued operations............................................. 4,582 1,947
Net increase in discontinued operations cash and cash equivalents.......................... (4,582) (1,947)
Net decrease in continuing operations cash and cash equivalents............................ (4,976) (9,121)
Cash and cash equivalents at beginning of period........................................... 15,670 33,000
--------- ----------
Cash and cash equivalents at end of period................................................. $ 10,694 $ 23,879
--------- ----------
--------- ----------
Supplemental disclosures:
Cash paid for interest..................................................................... $ 2,822 $ 39,474
--------- ----------
--------- ----------
Cash paid for income taxes............................................................... $ 3,483 $ 12,809
--------- ----------
--------- ----------
Non cash financing activity:
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, 1999
(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.
Alpine's operations are carried out through Superior TeleCom Inc.
("Superior"), a 51.7% owned subsidiary, which manufactures a broad portfolio of
wire and cable products with primary applications in the communications,
original equipment manufacturer ("OEM") and electrical markets. Superior is a
manufacturer and supplier of communications wire and cable products to telephone
companies, distributors and system integrators; magnet wire and insulation
materials for motors, transformers and electrical controls, as well as
automotive and specialty wiring assemblies for automobiles and trucks; and
building and industrial wire for applications in commercial and residential
construction and industrial facilities. Superior operates manufacturing and
distribution facilities in the United States, Canada, the United Kingdom and
Israel.
On August 6, 1999, Alpine sold its subsidiary, Premier Refractories
International Inc. ("Premier"), to Cookson Group plc (see Note 4). Accordingly,
Premier has been accounted for as a discontinued operation in the accompanying
consolidated financial statements.
2. INVENTORIES
At April 30, 1999 and July 31, 1999, the components of inventories were as
follows:
<TABLE>
<CAPTION>
APRIL 30, JULY 31,
1999 1999
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Raw materials............................................................................. $ 46,008 $ 43,613
Work in process........................................................................... 43,889 46,791
Finished goods............................................................................ 241,275 231,715
---------- ----------
331,172 322,119
LIFO reserve.............................................................................. 5,950 (7,594)
---------- ----------
$ 337,122 $ 314,525
---------- ----------
---------- ----------
</TABLE>
Inventories of communications wire and cable products are primarily stated
at the lower of cost or market, using the first-in, first-out ("FIFO") cost
method. Inventories of OEM and electrical wire and cable products are stated at
the lower of cost or market, using the last-in, first-out ("LIFO") cost method.
Inventories valued using the LIFO method amounted to $224.7 million at April 30,
1999 and $206.3 million at July 31, 1999. An actual valuation of inventory under
the LIFO method can be made only at the end of each year based on the inventory
levels and costs at that time. Accordingly, interim LIFO calculations must
necessarily be based on management's estimates of expected year-end inventory
levels and costs, which are subject to many factors beyond management's control.
Interim LIFO inventory valuations are therefore subject to final year-end
adjustment.
8
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1999
(UNAUDITED)
3. COMPREHENSIVE INCOME
The components of comprehensive income for the three months ended July 31,
1998 and 1999 were as follows:
<TABLE>
<CAPTION>
JULY 31,
--------------------
<S> <C> <C>
1998 1999
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Net income..................................................................................... $ 6,240 $ 5,176
Foreign currency translation adjustment........................................................ (1,739) (393)
--------- ---------
Comprehensive income........................................................................... $ 4,501 $ 4,783
--------- ---------
--------- ---------
</TABLE>
4. DISCONTINUED OPERATIONS
On August 6, 1999, Alpine completed the disposition of Premier (the "Premier
Disposition") through the merger of a wholly-owned subsidiary of Cookson Group
plc, a London Stock Exchange listed company ("Cookson"), with Premier. In
connection with the Premier Disposition, Cookson assumed all of Premier's
existing indebtedness, issued to Alpine approximately 32.3 million ordinary
shares of Cookson and paid to Alpine $15.6 million in cash (subject to
adjustment based on working capital levels of Premier). The approximate fair
market value of Cookson common stock received by Alpine was $123 million at
August 6, 1999 (based on closing market value as quoted on the London Stock
Exchange). In connection with the Premier Disposition, Alpine retained the right
to receive a contingent cash payment of up to $6.6 million based upon future
earnings of the American Minerals business, which was spun-off concurrently with
Premier's acquisition of American Premier Holdings, Inc. in January 1998. Prior
to the Premier Disposition, Alpine purchased the 16.6% minority interest in
Premier for a purchase price of approximately $31.1 million.
The Company has accounted for Premier as a discontinued operation. The net
assets of Premier, totaling $34.6 million and $40.1 million at April 30, 1999
and July 31, 1999, respectively, are included as current assets on the
accompanying consolidated balance sheets. The operating results of Premier for
the quarter ended July 31, 1998 have been segregated from the Company's
continuing operations and are reported as a separate line item on the statement
of operations as discontinued operations. For the quarter ended July 31, 1999,
the estimated operating loss of Premier from May 1, 1999 (the measurement date)
through August 6, 1999 (the closing date) has been classified as a component of
net assets of discontinued operations and will be included in determination of
the gain on sale, which pretax gain is estimated to be approximately $67 million
(subject to post closing adjustment based on certain balance sheet accounts) and
will be recognized in the Company's operating results for the quarter ended
October 31, 1999. Premier's results of operations for the three months ended
July 31, 1998 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
JULY 31,
----------------------
<S> <C> <C>
1998 1999
---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Net sales................................................................................. $ 132,079 $ 124,260
Income (loss) from discontinued operations before income tax.............................. 2,771 (3,959)
Income (loss) before extraordinary loss................................................... 1,503 (2,402)
</TABLE>
5. ACQUISITIONS
On November 27, 1998, Superior completed a cash tender offer for 81% of the
outstanding common shares of Essex International Inc. ("Essex"), at an aggregate
cash tender value of $770 million (the "Essex
9
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1999
(UNAUDITED)
5. ACQUISITIONS (CONTINUED)
Acquisition"). On March 31, 1999, Superior acquired the remaining outstanding
common shares of Essex through the merger of a newly formed wholly-owned
subsidiary of Superior into Essex and the resulting issuance to the remaining
stockholders of Essex of $167 million in 8 1/2% Company-obligated Manditorily
Redeemable Trust Convertible Preferred Securities of Superior Trust I holding
solely convertible debentures of Superior.
In connection with the Essex Acquisition, Superior entered into a $1.15
billion amended and restated credit facility and a $200 million senior
subordinated credit facility (the "Superior Credit Facilities"). Proceeds from
the Superior Credit Facilities were used to (i) pay the cash portion of the
purchase price, (ii) repay $275 million of Essex indebtedness, (iii) refinance
Superior's existing outstanding bank debt and (iv) pay related transaction
expenses.
In connection with the Essex Acquisition, Superior accrued as part of the
purchase price a $29.7 million provision relating to the consolidation and
integration of manufacturing, corporate and distribution functions of Essex. The
accrual includes $11.8 million of employee termination and relocation costs,
$11.9 million of facility consolidation costs, $4.4 million of management
information system project termination costs, and $1.6 million of other
miscellaneous costs. As of July 31, 1999, $11.8 million, $0.4 million, $2.8
million and $1.5 million have been incurred and paid related to employee
termination and relocation costs, facility consolidation costs, management
information system project costs and other miscellaneous costs, respectively.
The provision for employee termination and relocation costs was primarily
associated with selling, general and administrative functions within Essex. The
provision for facility consolidation costs included both manufacturing and
distribution facility rationalization and the related costs associated with the
severence of approximately 145 employees.
In addition to the amounts discussed above, the Company wrote off $10.4
million of previously capitalized costs related to a discontinued management
information system project at Essex. These costs have been reflected as an
increase to goodwill.
The Essex Acquisition was accounted for using the purchase method and,
accordingly, the results of operations of Essex have been included in the
consolidated financial statements on a prospective basis from the date of
acquisition. The purchase price was allocated based upon preliminary assessments
of the fair values of assets and liabilities at the date of acquisition, which
includes accruals for planned consolidations, overhead rationalization and loss
contingencies. The allocation and related accruals are subject to adjustment.
The excess of the purchase price over the net assets acquired is being amortized
on a straight-line basis over 40 years.
PRO FORMA FINANCIAL DATA
Unaudited condensed pro forma results of operations for the three months
ended July 31, 1998, which give effect to the Essex Acquisition as if the
transaction had occurred on May 1, 1998, are presented below. 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
10
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1999
(UNAUDITED)
5. ACQUISITIONS (CONTINUED)
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, 1998
PRO FORMA
(IN THOUSANDS, EXCEPT
PER
SHARE DATA)
-----------------------
<S> <C>
Net sales................................................................................ $ 526,475
Income from continuing operations before income taxes, distribution on preferred
securities of subsidiary trust and minority interest................................... 23,576
Income from continuing operations........................................................ 3,835
Income from discontinued operations...................................................... 1,503
Net income applicable to common stock.................................................... 5,328
Net income per diluted share of common stock:
Income from continuing operations........................................................ $ 0.20
Income from discontinued operations...................................................... 0.08
--------
Net income per diluted share of common stock............................................. $ 0.28
--------
--------
</TABLE>
CVALIM
On December 31, 1998, Superior Cables Limited (a 51% owned subsidiary of
Superior) acquired the business and certain assets of Cvalim Limited ("Cvalim").
Included in the allocated purchase price was a $3.5 million provision for the
consolidation and integration of Cvalim's manufacturing and corporate functions.
The provision included $2.6 million of employee termination and severance costs
and $0.9 million of other miscellaneous costs. As of July 31, 1999, $0.9 million
has been incurred related to employee termination and severance costs. The
provision for employee termination and severance costs was primarily associated
with manufacturing, selling, general and administrative functions within Cvalim,
and included the elimination of approximately 44 positions.
The aforementioned liabilities for both the Essex Acquisition and the
acquisition of Cvalim were established in accordance with the provision of the
Emerging Issue Task Force No. 95-3 and contain estimates of costs under the
current plans, which although continually being refined, are expected to be
completed within one year of the respective acquisition dates.
6. NONRECURRING AND UNUSUAL CHARGES
During the three months ended July 31, 1999, the Company recorded
nonrecurring and unusual charges of $0.9 million, which were primarily
associated with the evaluation of a management information system at Essex. As
of July 31, 1999, all of these charges have been paid, and the project has been
discontinued.
During the prior year, Superior Cables Limited recorded a $2.9 million
restructuring charge, which included a provision for the consolidation of seven
manufacturing facilities into five and two headquarters facilities into one.
Management expects to complete all parts of the restructuring plan during the
year 2000. The restructuring actions will result in the elimination of
approximately 200 positions, most of which are manufacturing related employees.
As of July 31, 1999, approximately $1.0 million has been incurred and paid and
66 positions have been eliminated related to the restructuring plan.
11
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1999
(UNAUDITED)
7. EXTRAORDINARY ITEM
On May 26, 1999, Superior refinanced its $200 million senior subordinated
notes. In connection with the refinancing, the Company recognized an
extraordinary charge on the early extinguishment of debt of $0.8 million (net of
income taxes and minority interest impact) for the three months ended July 31,
1999. The new subordinated notes include a $120 million term loan A and an $80
million term loan B, which are due May 26, 2007. Interest for the term loan A
for the first 270 days ranges from LIBOR plus 2.5% to LIBOR plus 4.0%. Interest
on the term loan B for the first 270 days ranges from LIBOR plus 3.625% to LIBOR
plus 4.0%. After the nine month anniversary of the borrowing date through
maturity, interest on term loan A and B is LIBOR plus 5.0%.
8. EARNINGS PER SHARE
The computation of basic and diluted earnings per share for the three months
ended July 31, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 1999
--------------------------------- ---------------------------------
<CAPTION>
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 from continuing
operations before extraordinary (loss)..................... $ 4,737 $ 6,012
Less: preferred stock dividends.............................. (10) (9)
--------- ---------
Basic earnings per common share from continuing operations... 4,727 17,123 $ 0.28 6,003 14,982 $ 0.40
----- -----
Dilutive impact of stock options, warrants and grants........ -- 1,651 -- 1,618
Dilution in subsidiary and affiliate earnings from subsidiary
stock dilutive securities.................................. (184) -- (392) --
Assumed conversion of preferred stock........................ 10 54 9 50
--------- --------- --------- ---------
Diluted earnings per common share from continuing
operations................................................. $ 4,553 18,828 $ 0.24 $ 5,620 16,650 $ 0.34
--------- --------- ----- --------- --------- -----
--------- --------- ----- --------- --------- -----
</TABLE>
9. BUSINESS SEGMENTS
The Company's reportable segments are strategic businesses that manufacture
and sell different lines of wire and cable products to different customer bases.
These segments are communications, original equipment manufacturer ("OEM") and
electrical. The communications segment includes (i) outside plant ("OSP") wire
and cable for voice and data transmission in the local loop portion of the
telecommunications infrastructure and (ii) datacom or premise wire and cable for
use within homes and offices for local area networks ("LANs"), Internet
connectivity and other applications. The communications segment includes the
Company's North American and Israeli operations. The OEM segment is involved
principally in the production and sale of magnet and automotive wire products.
The electrical segment includes the production and sale of building and
industrial wire and cable products.
The accounting policies of these businesses are the same as those described
in the summary of significant accounting policies included in Note 1 of the
Company's Annual Report on Form 10-K for the year ended April 30, 1999. The
Company evaluates segment performance based on a number of factors,
12
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1999
(UNAUDITED)
9. BUSINESS SEGMENTS (CONTINUED)
with operating income and return on net assets being the most critical factors.
Intersegment sales are generally recorded at cost, and are not significant.
Operating results for each of the Company's three reportable segments are
presented below. Corporate and other items shown below are provided to reconcile
to the Company's condensed consolidated statements of operations and balance
sheets.
<TABLE>
<CAPTION>
THREE MONTHS
----------------------
<S> <C> <C>
ENDED JULY 31,
----------------------
<CAPTION>
1998 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Net sales:
Communications........................................................................ $ 156,874 $ 196,159
OEM................................................................................... -- 162,966
Electrical............................................................................ -- 156,064
---------- ----------
$ 156,874 $ 515,189
---------- ----------
---------- ----------
Operating income (loss):
Communications........................................................................ $ 27,097 $ 36,298
OEM................................................................................... -- 23,562
Electrical............................................................................ -- 5,573
Corporate and other................................................................... (2,777) (7,215)
Amortization of goodwill.............................................................. (446) (5,135)
Nonrecurring and unusual charges...................................................... -- (911)
---------- ----------
$ 23,874 $ 52,172
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, JULY 31,
1999 1999
------------ ------------
<S> <C> <C>
Total assets:
Communications.................................................................... $ 443,593 $ 472,284
OEM............................................................................... 321,854 318,776
Electrical........................................................................ 316,866 317,496
Corporate and other............................................................... 992,163 960,892
------------ ------------
2,074,476 2,069,448
Discontinued operations........................................................... 34,557 40,114
------------ ------------
$ 2,109,033 $2,109,562
------------ ------------
------------ ------------
</TABLE>
Total assets under the caption "corporate and other" include net goodwill
and deferred financing fees totaling $836.6 million and $823.3 million as of
April 30, 1999 and July 31, 1999, respectively.
10. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In July 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of Effective Date of FASB Statement No. 133-an amendment of
FASB Statement No. 133", which delayed SFAS No. 133's effective date for one
year. This Statement, which will be effective
13
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1999
(UNAUDITED)
10. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
for the Company beginning May 1, 2001, 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 has not yet
quantified the impact of adopting SFAS No. 133, nor the timing of, or method of
adoption; however, the Company believes the effect of adoption will not be
material.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Alpine Group, Inc. (together with its subsidiaries, unless the context
otherwise requires, "Alpine" or the "Company") is an industrial holding company
which, through its 51.7% owned subsidiary, Superior TeleCom Inc. (together with
its subsidiaries, unless the context otherwise requires, "Superior"), is
principally engaged in the manufacture and sale of wire and cable products,
including communications, electrical and magnet wire and cable. Superior
conducts its operations through three operating groups covering the following
primary industry segments: (i) communications, (ii) original equipment
manufacturer ("OEM") and (iii) electrical. The communications segment includes
communications wire and cable products sold to telephone companies, distributors
and systems integrators. The OEM segment includes magnet wire and insulation
materials for motors, transformers and electrical controls sold primarily to
OEM's, as well as automotive and specialty wiring assemblies for automobiles and
trucks. The electrical segment includes building and industrial wire for
application in commercial and residential construction and industrial
facilities.
Prior to the acquisition of Essex International Inc. ("Essex") (see Note 5
to the condensed consolidated financial statements), Superior's operations
consisted principally of its North American communications wire and cable
business and, to a lesser degree, its 51% owned Israeli operations (including
the operations of Superior Cables Limited, which was acquired in May 1998, and
Cvalim Limited, which was acquired by Superior Cables Limited in December
1998--collectively referred to as Superior Israel). The Essex acquisition, which
occurred on November 27, 1998, resulted in the addition of the OEM and
electrical segment product lines as well as incremental sales of communications
wire and cable.
The aforementioned Essex acquisition was accounted for under the purchase
method of accounting; accordingly, the results of operations included herein
(including the related segment data) reflect the impact of the Essex operations
for the three month period ended July 31, 1999, but not for the three month
period ended July 31, 1998.
On August 6, 1999, Alpine completed the sale of its subsidiary, Premier
Refractories International Inc. ("Premier"), to Cookson Group plc ("Cookson")
(the "Premier Disposition"). As a result of this transaction, the Company has
classified Premier as a discontinued operation (see Note 4 to the condensed
consolidated financial statements).
15
<PAGE>
RESULTS OF CONTINUING OPERATIONS
The following comparative table includes sales and operating income data for
Alpine on a segment basis. Such segment data is presented on an historical
reporting basis for the three months ended July 31, 1998 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JULY 31,
----------------------
<S> <C> <C>
1998 1999
---------- ----------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C>
Net sales:
Communications Group................................................ $ 156,874 $ 196,159
OEM Group........................................................... -- 162,966
Electrical Group.................................................... -- 156,064
---------- ----------
Combined net sales................................................ $ 156,874 $ 515,189
---------- ----------
---------- ----------
Operating income (loss):
Communications Group................................................ $ 27,097 $ 36,298
OEM Group........................................................... -- 23,562
Electrical Group.................................................... -- 5,573
Corporate and other................................................. (2,777) (7,215)
Amortization of goodwill............................................ (446) (5,135)
Nonrecurring and unusual charges.................................... -- (911)
---------- ----------
Combined operating income......................................... $ 23,874 $ 52,172
---------- ----------
---------- ----------
</TABLE>
Copper is one of the principal raw materials used in manufacturing the
Company's wire and cable 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 profitability due to the ability of the Company, in
most cases, to adjust prices billed for its products in order to match the
copper cost component of its inventory shipped.
Net sales for the quarter ended July 31, 1999 were $515.2 million,
representing an increase of $358.3 million, or 228.4%, as compared to net sales
of $156.9 million for the quarter ended July 31, 1998. The comparative growth in
net sales for the quarter ended July 31, 1999 was largely attributable to the
acquisition of Essex in November 1998. The Essex acquisition has also resulted
in a more diversified product offering and customer base with the addition of
the OEM (principally magnet wire) and electrical wire business segments.
The Company's Communications Group generated net sales growth of
approximately 25.0% for the quarter ended July 31, 1999, as compared to the
prior year. This increase in net sales was principally the result of the
incremental impact of communications wire and cable related revenues from the
Essex acquisition and the comparative growth in net sales of fiber optic and
datacom/premise wire and cable products.
Net sales for the Company's OEM Group (which was acquired in the Essex
acquisition) amounted to $163.0 million for the quarter ended July 31, 1999.
Sales of magnet wire, which comprise nearly two-thirds of the OEM Group's
revenues, reflected comparative volume and copper adjusted sales growth of 5%--
6% during the current quarter as compared to pro forma net sales for the
comparative period of the prior year.
Net sales for the Company's Electrical Group amounted to $156.1 million for
the quarter ended July 31, 1999. While overall demand levels for electrical wire
and cable products were generally strong during the quarter ended July 31, 1999,
net sales were negatively impacted by lower pricing levels resulting from
extremely competitive market conditions.
16
<PAGE>
Gross profit increased by $62.3 million, or 181.7%, during the quarter ended
July 31, 1999 as compared to the quarter ended July 31, 1998, with such increase
being largely attributable to the acquired Essex operations. The consolidated
gross margin was 18.8% for the quarter ended July 31, 1999, as compared to 21.9%
for the same period in the prior year. The reduction in gross margin percentage
was attributable to a significant change in product mix, including the addition
of net sales of lower margin electrical wire and cable products (which margins
were negatively impacted by the aforementioned competitive pricing pressures)
and lower margin product sales of Superior Israel.
Selling, general and administrative expenses increased to $38.4 million
during the quarter ended July 31, 1999 as compared to $10.0 million during the
quarter ended July 31, 1998. The increase is primarily related to incremental
expenses associated with the acquired Essex operations. Since the completion of
the Essex acquisition, the Company has substantially completed the consolidation
and integration of manufacturing, corporate and distribution functions of Essex
into Superior. In that regard, the Company implemented a restructuring plan in
April 1999 that is expected to result in annual reductions of approximately
$15.0-$20.0 million in Essex general and administrative expenses. For the
quarter ended July 31, 1999, the impact of such restructuring resulted in a
reduction in general and administrative expenses of approximately $4.5 million.
Goodwill amortization increased to $5.1 million during the quarter ended
July 31, 1999, as compared to $0.4 million for the same period in the prior
year. The comparative increase in goodwill amortization was primarily associated
with the Essex acquisition.
During the quarter ended July 31, 1999, the Company incurred nonrecurring
and unusual charges of $0.9 million ($0.02 per diluted share, after the impact
of income taxes and minority interest), which was primarily associated with
evaluation of management information systems at Essex. This project has been
discontinued and the Company does not anticipate incurring any additional
related charges.
Operating income for the quarter ended July 31, 1999 was $52.2 million
($53.1 million before nonrecurring and unusual charges), an increase of $28.3
million ($29.2 million before nonrecurring and unusual charges) as compared to
the quarter ended July 31, 1998. The increase in operating income was
attributable primarily to the impact of the acquired Essex operations and the
comparative expansion of operating margins in the Company's existing
communications wire and cable operations.
Consolidated interest expense increased from $3.2 million during the quarter
ended July 31, 1998 to $30.4 million during the same period in 1999. This
comparative increase was attributable to debt incurred for the acquisition of
Essex.
For the quarter ended July 31, 1999, other income amounted to $3.0 million,
which included $1.6 million in investment and interest income as well as $1.6
million related to foreign currency conversion gains associated with the
operations of Superior Israel.
Distributions on preferred securities of subsidiary trust amounted to $3.8
million for the quarter ended July 31, 1999 and reflects dividends accrued under
$167 million (face amount) of 8 1/2% Redeemable Trust Convertible Preferred
Securities of Superior Trust I issued in connection with the Essex acquisition
(see Note 5 to the consolidated financial statements).
Equity in earnings of affiliate for the quarter ended July 31, 1999 was $1.0
million, which represents the Company's preferred and common equity interest in
the earnings of PolyVision Corporation for such period.
A charge for minority interest in earnings of subsidiaries of $6.9 million
and $6.1 million was recorded during the quarters ended July 31, 1998 and 1999,
respectively. This charge represents the minority interest in the net income of
Superior for the respective quarterly periods.
Net income from continuing operations for the quarter ended July 31, 1999
was $6.0 million, or $0.34 per diluted share. Excluding the impact of
nonrecurring and unusual charges, net income from continuing
17
<PAGE>
operations was $6.3 million, or $0.36 per diluted share, which represented a
comparative increase (based on per share earnings) of 50% over net income from
continuing operations of $4.7 million, or $0.24 per diluted share, recorded in
the quarter ended July 31, 1998.
Income from discontinued operations, net of tax, for the quarter ended July
31, 1998 was $1.5 million, or $0.08 per diluted share.
During the quarter ended July 31, 1999, the Company recognized an
extraordinary charge of $0.8 million, or $0.05 per diluted share (after the
impact of income taxes and minority interest), in connection with refinancing
Superior's $200.0 million senior subordinated notes.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
For the quarter ended July 31, 1999, the Company generated $4.2 million in
cash flow from continuing operating activities, consisting of $27.5 million in
cash generated from operations (net income plus non-cash charges) reduced by
$23.3 million in cash flow used for net working capital changes. Cash used by
investing activities for continuing operations amounted to $32.1 million,
consisting principally of $16.7 million in capital expenditures. Cash provided
by financing activities for continuing operations amounted to $18.7 million,
consisting principally of $30.7 million in borrowings (net of repayments),
partially offset by $6.1 million used for treasury share repurchases, $6.2
million in debt issuance costs and $1.2 million used for subsidiary stock
purchases.
ALPINE CORPORATE
As of July 31, 1999, Alpine had corporate cash, cash equivalents and
marketable securities (excluding its investment in Superior common stock) of
approximately $25.8 million. Alpine also owns approximately 10.2 million common
shares (representing 51.7% common share ownership) of Superior (NYSE:SUT) which,
based on the closing price on September 9, 1999, had a market value of
approximately $182 million and a consolidated carrying value as recorded by the
Company (net of minority interest) of approximately $63.5 million. Superior
common stock owned by Alpine with a market value of approximately $87.1 million
is pledged as collateral to secure certain debt of Alpine. Additionally, after
the completion of the Premier disposition in August 1999, Alpine owned
approximately 32.3 million ordinary shares of Cookson which, based on current
trading values on the London Stock Exchange, has a fair market value of
approximately $124 million.
Alpine's primary commitments over the next twelve month period include
funding of corporate overhead expenses and interest payments on approximately
$81 million in Alpine corporate debt (of which $20 million was incurred in
August 1999 to complete the acquisition of the minority interest of Premier--
see Note 4 to the consolidated financial statements). Total annual funding for
Alpine corporate overhead and interest expense is expected to approximate
$14--$15 million.
For the next 12 month period, Alpine expects to fund its aforementioned
annual commitments from allowable management fees payable by Superior to Alpine,
cash dividends from Superior and Cookson, interest income, and from existing
corporate cash, cash equivalents and marketable securities reserves.
SUPERIOR TELECOM
As of July 31, 1999, Superior had approximately $1.4 billion in outstanding
debt and approximately $161 million in availability under its revolving credit
facility. In addition, Superior had approximately $14.4 million in cash and cash
equivalents. Over the next 12 months, Superior expects to invest approximately
$60--$70 million in capital expenditures and has principal debt service
commitments of $71.9 million. Superior has typically generated substantial
operating cash flows. During the six months ended June 30, 1999, Superior
generated $54 million in operating cash flows (net income plus noncash charges)
18
<PAGE>
and management anticipates that Superior will generate adequate cash flows from
operating activities to meet its annual commitments. However, should any
shortfall arise due to working capital fluctuations or other factors, funds
available under Superior's revolving credit facility should be sufficient to
cover such shortfall. Superior's credit arrangements include limitations on
dividends or other payment to Alpine.
DERIVATIVE FINANCIAL INSTRUMENTS
To a limited extent, the Company uses forward fixed price contracts and
derivative financial instruments to manage foreign currency exchange and
commodity price risks. To protect the Company's anticipated cash flows from the
risk of adverse foreign currency exchange fluctuations for firm sales and
purchase commitments, the Company enters into foreign currency forward exchange
contracts. Superior's principal raw material, copper, experiences marked
fluctuations in market prices, thereby subjecting the Company to copper price
risk with respect to copper repurchases on fixed customer sales contracts.
Forward fixed price contracts and derivative financial instruments in the form
of copper futures contracts are utilized by the Company to reduce those risks.
The Company does not hold or issue financial instruments for financial or
trading purposes. The Company is exposed to credit risk in the event of
nonperformance by counterparties for foreign exchange forward contracts, metal
forward price contracts and metals futures contracts; however, the Company does
not anticipate nonperformance by any of these counterparties. The amount of such
exposure is generally the unrealized gains with respect to the underlying
contracts.
YEAR 2000 OVERVIEW
The year 2000 problem is the result of computer programs having been written
using two digits (rather than four) to define the applicable year, thus not
properly recognizing dates after December 31, 1999. The six-digit date (YYMMDD)
has become the standard for date representations and is embedded in a multitude
of computer programs and computer chips. Information Technology (IT) hardware,
"embedded" technology, such as microprocessors, or software that is
date-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000, which could result in miscalculations or system and mechanical
failures. The Company does not manufacture or sell products with embedded
technology.
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. At this time,
based upon the efforts taken to date and those yet to be taken, the Company does
not expect any serious disruptions in its business operations and, therefore,
does not anticipate any material negative effect upon its revenues or earnings
as a result of the Year 2000 issue. 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.
THE COMPANY'S STATE OF READINESS
The Year 2000 project plan, including assessment, improvement, testing and
implementation, has been established. The assessment phase is 99% complete.
Assessment of the Year 2000 compliance of third parties with whom the
Company has material relationships is in process. The Company's material third
party relationships include the following:
(a) Raw material vendors: The Company's raw material purchases are through third
party raw material vendors. All mission critical raw material vendors have
responded favorably to the Company's Year 2000 readiness inquiry;
19
<PAGE>
(b) Equipment vendors: The response to the Year 2000 readiness inquiries from
equipment vendors, which include all embedded chip equipment, is at 95%;
(c) Service providers: The response to the Year 2000 readiness inquiries from
third; party service providers, which include utilities, phone service and
all facility related services, is at 95%;
(d) Software vendors: The Company has upgraded all purchased software to Year
2000 compliant versions and is in the testing phase.
The responses received, thus far, from the Company's third party vendors and
suppliers indicate compliance on or before September 1999. The preliminary
assessment of internal IT and non-IT systems has been completed. Internal
non-compliant items have been identified and prioritization of internal
non-compliant items is in process. A system for tracking remediation has been
established and non-compliant items identified are expected to be addressed and
remediated by September 1999. Based on the findings of the planning and
assessment phases completed to date, the Company does not believe independent
verification or validation processes will be necessary.
COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The current estimate of the cost of remediation and equipment and software
replacement ranges between $7 million and $7.25 million, and is summarized
below. Of that amount, approximately 70% has been incurred to date.
Approximately one-half of the remaining $2.1 million is to be paid to external
parties for purchases of new systems and equipment.
Code modification and testing: $5.95M--$6.16M
Personal computer, software and other upgrades $1.05M--$1.09M
Approximately 12% of the IT budget for 1998 and 1999 has been allocated for
code modification. Such costs are funded through cash flows from operations and
are expensed as incurred. The personal computer and purchased software upgrades
are costs incurred in the ordinary course of business and are, therefore,
typically capitalized costs.
RISKS OF THE COMPANY'S YEAR 2000 ISSUES AND THE COMPANY'S CONTINGENCY PLANS
A most reasonably worst case Year 2000 scenario is not known at this time.
This determination will be made after the receipt of the remaining material
third party questionnaires. However, the shipment of product to customers is
expected to continue with minimal interruption and no material loss of revenues
is anticipated. The Year 2000 project has had minimal impact on the schedule of
other major IT projects.
The Company has not completed a contingency plan; however, it will by
September 30, 1999. Each manufacturing facility will incorporate Year 2000 into
its existing disaster contingency plan. The contingency plan will ensure that:
(i) adequate levels of inventory will be on hand to mitigate the impact of any
potential short-term disruptions in production; (ii) adequate supply of raw
materials will be available from alternate sources; and (iii) the necessary
backup measures for computer processing are identified.
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,
PREDICTION AND TIMING OF CUSTOMER ORDERS, THE IMPACT OF COMPETITIVE PRODUCTS AND
PRICING, CHANGING ECONOMIC CONDITIONS, INCLUDING CHANGES IN SHORT-TERM INTEREST
RATES AND FOREIGN CURRENCY FLUCTUATIONS AND OTHER RISK FACTORS DETAILED IN THE
COMPANY'S MOST RECENT ANNUAL REPORT AND OTHER FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION.
20
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk primarily relates to interest rates on
long-term debt. For example, a one percent increase in interest rates affecting
the Company's $1.15 billion credit agreement and its $200 million subordinate
notes would increase annual interest expense by approximately 11.5%, or $9.8
million. In addition, the Company has interest rate swaps on $400 million
principal amount, with a fixed LIBOR rate of 4.97%, expiring December 10, 1999
and on $200 million principal amount, with a fixed LIBOR rate of 5.07%, expiring
December 10, 2001.
21
<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
A Form 8-K with respect to Item 2 was filed on August 23, 1999 with respect
to the disposition of Premier Refractories International Inc. No financial
statements were required to be filed.
- ------------------------
* Filed herewith
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
THE ALPINE GROUP, INC.
Date: September 14, 1999 By: /s/ DAVID S. ALDRIDGE
----------------------------------------
David S. Aldridge
Chief Financial Officer
</TABLE>
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JUL-31-1999
<EXCHANGE-RATE> 1
<CASH> 23,879
<SECURITIES> 16,330
<RECEIVABLES> 279,487
<ALLOWANCES> (4,891)
<INVENTORY> 314,525
<CURRENT-ASSETS> 716,645
<PP&E> 581,342
<DEPRECIATION> (64,058)
<TOTAL-ASSETS> 2,109,562
<CURRENT-LIABILITIES> 467,395
<BONDS> 0
133,580
427
<COMMON> 2,021
<OTHER-SE> 56,047
<TOTAL-LIABILITY-AND-EQUITY> 2,109,562
<SALES> 515,189
<TOTAL-REVENUES> 515,189
<CGS> 418,590
<TOTAL-COSTS> 418,590
<OTHER-EXPENSES> 2,949
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,352
<INCOME-PRETAX> 24,769
<INCOME-TAX> 9,935
<INCOME-CONTINUING> 6,012
<DISCONTINUED> 0
<EXTRAORDINARY> (836)
<CHANGES> 0
<NET-INCOME> 5,176
<EPS-BASIC> 0.34
<EPS-DILUTED> 0.29
</TABLE>
