<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 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
of incorporation or 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>
CLASS OUTSTANDING AT MARCH 16, 1999
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Common Stock, $.10 Par Value 15,552,339
</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
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1998 1999
---------- ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 17,841 $ 32,524
Marketable securities................................................................. 15,672 14,594
Accounts receivable (less allowance for doubtful accounts of: April 1998, $2,996;
January 1999, $8,603)............................................................... 150,020 320,092
Inventories........................................................................... 134,570 446,333
Other current assets.................................................................. 30,742 67,471
---------- ------------
Total current assets................................................................ 348,845 881,014
Property, plant and equipment, net...................................................... 195,513 626,218
Long-term investments and other assets.................................................. 40,665 90,614
Goodwill (less accumulated amortization: April 1998, $12,774; January 1999, $20,180).... 201,837 850,074
---------- ------------
Total assets........................................................................ $ 786,860 $ 2,447,920
---------- ------------
---------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................................... $ 107,820 $ 180,596
Accrued expenses...................................................................... 92,511 172,553
Short-term borrowings................................................................. -- 109,402
Current portion of long-term debt..................................................... 8,442 71,632
---------- ------------
Total current liabilities........................................................... 208,773 534,183
Long-term debt, less current portion.................................................... 380,868 1,552,649
Minority interest in subsidiaries....................................................... 49,805 119,438
Other long-term liabilities............................................................. 69,899 175,890
---------- ------------
Total liabilities................................................................... 709,345 2,382,160
---------- ------------
Commitments and contingencies
Stockholders' equity:
9% cumulative convertible preferred stock at liquidation value........................ 427 427
Common stock, $.10 par value; authorized 25,000,000 shares; 19,865,990 shares and
20,050,045 shares issued at April 1998 and January 1999, respectively............... 1,986 2,005
Capital in excess of par value........................................................ 136,598 138,224
Accumulated other comprehensive income (loss)......................................... (814) (2,536)
Accumulated deficit................................................................... (32,834) (20,522)
---------- ------------
105,363 117,598
Shares of common stock in treasury, at cost: April 1998, 2,704,732 shares; January 1999,
4,165,932 shares...................................................................... (26,890) (50,830)
Receivable from stockholders............................................................ (958) (1,008)
---------- ------------
Total stockholders' equity.......................................................... 77,515 65,760
---------- ------------
Total liabilities and stockholders' equity........................................ $ 786,860 $ 2,447,920
---------- ------------
---------- ------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
----------------------
<S> <C> <C>
1998 1999
---------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net sales................................................................................. $ 206,504 $ 440,753
Cost of goods sold........................................................................ 169,077 353,019
---------- ----------
Gross profit............................................................................ 37,427 87,734
Selling, general and administrative expenses.............................................. 17,859 50,673
Nonrecurring and unusual charges.......................................................... 3,626 3,167
Amortization of goodwill.................................................................. 1,067 4,171
---------- ----------
Operating income........................................................................ 14,875 29,723
Interest (expense)........................................................................ (6,959) (30,912)
Other income, net......................................................................... 1,118 989
---------- ----------
Income (loss) before income tax expense and minority interest........................... 9,034 (200)
Provision for income taxes................................................................ (3,500) (1,214)
---------- ----------
Income (loss) before minority interest.................................................. 5,534 (1,414)
Minority interest in (earnings) losses of subsidiaries.................................... (4,212) 2,439
---------- ----------
Income before extraordinary (loss)...................................................... 1,322 1,025
Extraordinary (loss) on early extinguishment of debt...................................... -- (634)
---------- ----------
Net income.............................................................................. 1,322 391
Preferred stock dividends................................................................. (9) (9)
---------- ----------
Net income applicable to common stock................................................... $ 1,313 $ 382
---------- ----------
---------- ----------
Net income per share of common stock:
Basic:
Income before extraordinary (loss).................................................... $ 0.08 $ 0.06
Extraordinary (loss) on early extinguishment of debt.................................. -- (0.04)
---------- ----------
Net income per basic share of common stock.......................................... $ 0.08 $ 0.02
---------- ----------
---------- ----------
Diluted:
Income before extraordinary (loss).................................................... $ 0.07 $ 0.06
Extraordinary (loss) on early extinguishment of debt.................................. -- (0.04)
---------- ----------
Net income per diluted share of common stock........................................ $ 0.07 $ 0.02
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JANUARY 31,
----------------------
<S> <C> <C>
1998 1999
---------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net sales................................................................................. $ 646,532 $ 997,357
Cost of goods sold........................................................................ 525,265 783,810
---------- ----------
Gross profit............................................................................ 121,267 213,547
Selling, general and administrative expenses.............................................. 52,215 109,173
Nonrecurring and unusual charges.......................................................... 3,626 3,167
Amortization of goodwill.................................................................. 3,160 7,487
---------- ----------
Operating income........................................................................ 62,266 93,720
Interest (expense)........................................................................ (21,686) (51,528)
Other income, net......................................................................... 2,722 1,348
---------- ----------
Income before income tax expense and minority interest.................................. 43,302 43,540
Provision for income taxes................................................................ (17,220) (18,733)
---------- ----------
Income before minority interest......................................................... 26,082 24,807
Minority interest in (earnings) of subsidiaries........................................... (14,307) (11,834)
---------- ----------
Income before extraordinary (loss)...................................................... 11,775 12,973
Extraordinary (loss) on early extinguishment of debt...................................... (1,221) (634)
---------- ----------
Net income.............................................................................. 10,554 12,339
Preferred stock dividends................................................................. (59) (27)
---------- ----------
Net income applicable to common stock................................................... $ 10,495 $ 12,312
---------- ----------
---------- ----------
Net income per share of common stock:
Basic:
Income before extraordinary (loss).................................................... $ 0.69 $ 0.77
Extraordinary (loss) on early extinguishment of debt.................................. (0.07) (0.04)
---------- ----------
Net income per basic share of common stock................................................ $ 0.62 $ 0.74
---------- ----------
---------- ----------
Diluted:
Income before extraordinary (loss).................................................... $ 0.62 $ 0.69
Extraordinary (loss) on early extinguishment of debt.................................. (0.06) (0.03)
---------- ----------
Net income per diluted share of common stock........................................ $ 0.55 $ 0.65
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JANUARY 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
9% CUMULATIVE
CONVERTIBLE ACCUMULATED
COMMON STOCK CAPITAL PREFERRED STOCK OTHER
----------------------- IN EXCESS ------------------------ COMPREHENSIVE ACCUMULATED
SHARES AMOUNT OF PAR SHARES AMOUNT INCOME DEFICIT
------------ --------- ---------- ----------- ----------- -------------- ------------
<S> <C> <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) $ (32,834)
Effect of subsidiaries' equity
transactions....................... 238
Exercise of stock options............ 84,759 9 210
Employee stock purchase plan......... 34,928 4 452
Exercise of warrants................. 32,691 3 (3)
Purchase of treasury stock...........
Compensation expense related to stock
options and grants................. 22,168 2 540
Dividends on preferred stock......... (27)
Total comprehensive income (Note
3)................................. (1,722) 12,339
Other................................ 9,509 1 189
------------ --------- ---------- --- ----- ------- ------------
Balance at January 31, 1999.......... 20,050,045 $ 2,005 $ 138,224 427 $ 427 $ (2,536) $ (20,522)
------------ --------- ---------- --- ----- ------- ------------
------------ --------- ---------- --- ----- ------- ------------
<CAPTION>
TREASURY STOCK RECEIVABLE
----------------------- FROM
SHARES AMOUNT STOCKHOLDERS TOTAL
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Balance at April 30, 1998............ (2,704,732) $ (26,890) $ (958) $ 77,515
Effect of subsidiaries' equity
transactions....................... 238
Exercise of stock options............ 219
Employee stock purchase plan......... 456
Exercise of warrants................. --
Purchase of treasury stock........... (1,461,200) (23,940) (23,940)
Compensation expense related to stock
options and grants................. 38 580
Dividends on preferred stock......... (27)
Total comprehensive income (Note
3)................................. 10,617
Other................................ (88) 102
----------- ---------- ------------ ----------
Balance at January 31, 1999.......... (4,165,932) $ (50,830) $ (1,008) $ 65,760
----------- ---------- ------------ ----------
----------- ---------- ------------ ----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JANUARY 31,
------------------------
<S> <C> <C>
1998 1999
----------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Income before extraordinary (loss)................................................... $ 11,775 $ 12,973
Adjustments to reconcile income before extraordinary (loss) to net cash provided by
operating activities:
Depreciation and amortization.................................................... 15,950 29,096
Amortization of deferred debt issuance costs and accretion of debt discount...... 1,651 2,940
Compensation expense related to stock options and grants......................... 1,176 635
Minority interest in earnings of subsidiaries.................................... 14,307 11,834
Provision for deferred taxes..................................................... 6 1,964
Other, net....................................................................... -- (616)
Change in assets and liabilities, net of effects from companies acquired:
Accounts receivable............................................................ (8,109) 29,690
Inventories.................................................................... 6,580 (27,530)
Other current and non-current assets........................................... (879) 1,619
Accounts payable and accrued expenses.......................................... 1,362 (22,158)
Other long-term liabilities.................................................... (90) 2,746
----------- -----------
Cash provided by operating activities.................................................. 43,729 43,193
----------- -----------
Cash flows from investing activities:
Acquisitions, net of cash acquired................................................... (101,424) (1,109,679)
Capital expenditures................................................................. (15,379) (40,021)
Investment in marketable securities.................................................. 1,430 1,078
Advances to PolyVision Corporation................................................... (140) (6,501)
Net proceeds from the sale of assets................................................. 5,726 2,087
----------- -----------
Cash used for investing activities..................................................... (109,787) (1,153,036)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JANUARY 31,
------------------------
<S> <C> <C>
1998 1999
---------- ------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Cash flows from financing activities:
(Repayments) borrowings under revolving credit facilities, net........................ $ (28,083) $ 45,219
Repayment of short-term borrowings.................................................... -- (23,602)
Long-term borrowings.................................................................. 115,000 1,166,200
Repayment of long-term borrowings..................................................... (17,696) (550)
Proceeds from exercise of stock options............................................... 2,137 1,145
Purchase of treasury shares........................................................... (13,180) (30,057)
Dividends on subsidiary common stock.................................................. (1,011) (1,776)
Capitalized financing costs........................................................... (3,335) (31,306)
Other................................................................................. (59) (747)
---------- ------------
Cash provided by financing activities................................................... 53,773 1,124,526
---------- ------------
Net (decrease) increase in cash and cash equivalents.................................... (12,285) 14,683
Cash and cash equivalents at beginning of period........................................ 21,606 17,841
---------- ------------
Cash and cash equivalents at end of period.............................................. $ 9,321 $ 32,524
---------- ------------
---------- ------------
Supplemental disclosures:
Cash paid for interest................................................................ $ 21,496 $ 35,962
---------- ------------
---------- ------------
Cash paid for income taxes............................................................ $ 21,910 $ 28,986
---------- ------------
---------- ------------
Non cash financing activity:
Exchange of preferred stock for common stock:
Common stock issued............................................................... $ 1,500
----------
----------
Preferred stock redeemed.......................................................... $ 1,500
----------
----------
Acquisition of business:
Assets, net of cash acquired........................................................ $ 186,920 $ 1,599,305
Liabilities assumed................................................................. (50,704) (423,097)
Minority equity interest in net assets of subsidiary................................ (34,792) (66,529)
---------- ------------
Net cash paid....................................................................... $ 101,424 $ 1,109,679
---------- ------------
---------- ------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
8
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 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 its subsidiaries, Superior
TeleCom Inc. ("Superior TeleCom") and Premier Refractories International Inc.
("Premier"). Alpine operates in two primary industry segments: (i) wire and
cable products, including communication, electrical, and magnet wire and cable
and (ii) refractories, which include refractory products and services for the
iron and steel, glass, aluminum, cement and co-generation industries. The
results of operations of the wire and cable industry segment include the
operations of Superior TeleCom's subsidiaries: Superior Telecommunications, Inc.
("Superior"), and its 51% owned subsidiary Cables of Zion United Works Ltd.
("Cables of Zion"), an Israeli-based wire and cable manufacturer acquired on May
5, 1998 (see Note 4) and Essex International Inc. ("Essex"), a U.S.-based wire
and cable manufacturer, an 81% interest of which was acquired on November 27,
1998 (see Note 4). The results of operations of the refractory products segment
include the Company's 83.4% owned subsidiary Premier, which includes 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).
2. INVENTORIES
At April 30, 1998 and January 31, 1999, the components of inventories were
as follows:
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1998 1999
---------- -----------
<S> <C> <C>
(IN THOUSANDS)
Raw materials........................................................ $ 48,543 $ 87,324
Work in process...................................................... 19,214 56,227
Finished goods....................................................... 66,813 304,464
---------- -----------
134,570 448,015
LIFO reserve......................................................... -- (1,682)
---------- -----------
$ 134,570 $ 446,333
---------- -----------
---------- -----------
</TABLE>
Inventories (with the exception of inventories at Essex) are stated at the
lower of cost or market, using the first-in, first-out ("FIFO") cost method.
Inventories at Essex are stated at the lower of cost or market, using
principally the last-in, first-out ("LIFO") cost method. Inventories valued
using the LIFO method amounted to $221.3 million at January 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. Because these are subject to many
forces beyond management's control, interim results are subject to the final
year-end LIFO inventory valuation.
9
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999
(UNAUDITED)
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 have been reclassified as
required.
The components of comprehensive income for the nine months ended January 31,
1998 and 1999 were as follows:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Net income.............................................................. $ 10,554 $ 12,339
Foreign currency translation adjustment................................. 1,146 (1,722)
--------- ---------
Comprehensive income.................................................... $ 11,700 $ 10,617
--------- ---------
--------- ---------
</TABLE>
4. ACQUISITIONS
ESSEX ACQUISITION
On November 27, 1998, Superior TeleCom 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 Acquisition"). Superior
TeleCom will acquire the remaining 19% of the Essex common stock through the
issuance of $167 million in Superior TeleCom 8 1/2% trust convertible
exchangeable preferred securities for the remaining outstanding Essex common
shares.
In connection with the Essex Acquisition, Superior TeleCom entered into a
$1.15 billion amended and restated credit facility and a $200 million senior
subordinate credit facility (the "Superior TeleCom Credit Facilities"). Proceeds
from the Superior TeleCom Credit Facilities were used to (i) pay the cash
portion of the purchase price, (ii) repay certain Essex indebtness, (iii)
refinance Superior TeleCom's existing outstanding bank debt, and (iv) pay
related transaction expenses (See Note 6 for a further description of the
Superior TeleCom Credit Facilities).
The 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 has been allocated based upon preliminary
assessments of the 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 will be amortized on a straight-line basis over 40
years. The acquisition of 81% of the Essex common shares resulted in
approximately $651 million of goodwill being recorded.
10
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999
(UNAUDITED)
4. ACQUISITIONS (CONTINUED)
CABLES OF ZION AND CVALIM ACQUISITION
On May 5, 1998, Superior TeleCom acquired 51% of the common stock of Cables
of Zion United Works Ltd. ("Cables of Zion"), an Israel-based cable and wire
manufacturer whose common stock is traded on the Tel Aviv Stock Exchange, for
approximately $25 million. Superior TeleCom has an option through May 5, 2000 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). This acquisition (the "Cables of Zion Acquisition") was accounted
for using the purchase method, and accordingly, the results of operations of
Cables of Zion are included in the Company's consolidated financial statements
on a prospective basis from the date of acquisition. The purchase price was
allocated based upon the estimated fair values of assets and liabilities at the
date of acquisition and is subject to adjustment. The excess of the purchase
price over the net assets acquired was $2.2 million and is being amortized on a
straight-line basis over 30 years.
On December 30, 1998, Superior TeleCom, through its 51% owned subsidiary
Cables of Zion, acquired the business and certain operating assets of Cvalim-The
Electric Wire and Cable Company of Israel Ltd. ("Cvalim") for an adjusted
purchase price of $41.2 million in cash. In connection with the acquisition,
Cables of Zion entered into an $83.0 million credit facility (the "Cables of
Zion Credit Facility") consisting of a $53.0 million term loan and $30.0 million
revolving line of credit. Proceeds from the Cables of Zion Credit Facility were
used to finance the acquisition, pay related fees and expenses and provide for
working capital requirements. The purchase price has been allocated based upon
estimates of the fair value of assets acquired and is subject to adjustment.
PRO FORMA FINANCIAL DATA
Unaudited condensed pro forma results of operations for the nine months
ended January 31, 1998 and 1999, which give effect to the Essex Acquisition,
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 do not present the results of
operations of Cvalim, as they 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
11
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999
(UNAUDITED)
4. ACQUISITIONS (CONTINUED)
of either the results of operations that would have occurred if the acquisition
had taken place at the beginning of the periods presented or of the future
results of operations.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JANUARY 31,
PRO FORMA
--------------------------
1998 1999
------------ ------------
<S> <C> <C>
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net sales...................................................... $ 2,141,310 $ 1,862,345
Gross profit................................................... 424,044 378,673
Nonrecurring and unusual charges............................... 3,626 10,999
Income before income tax expense and minority interest......... 88,250 38,612
Income before extraordinary (loss)............................. 17,847 6,899
Extraordinary (loss) on early extinguishment of debt........... (1,221) (634)
Net income applicable to common stock.......................... 16,567 6,238
Net income (loss) per diluted share of common stock:
Income before extraordinary (loss)........................... $ 0.93 $ 0.36
Extraordinary (loss) on early extinguishment of debt......... (0.06) (0.03)
------------ ------------
Net income per diluted share of common stock............... $ 0.87 $ 0.33
------------ ------------
------------ ------------
</TABLE>
5. NONRECURRING AND UNUSUAL CHARGES
During the quarter ended January 31, 1999, the Company recorded nonrecurring
and unusual charges (net) of $3.2 million, consisting of (1) a $2.9 million
restructuring charge recorded by Cables of Zion relating to planned
manufacturing plant consolidations and overhead rationalization associated with
the acquisition of Cvalim, (2) $1.6 million in charges associated with the
review and evaluation of a planned implementation of a new enterprise resource
information system at Superior TeleCom and (3) $1.3 million in nonrecurring
income relating to the favorable resolution of certain statutory claims in the
Company's European refractories operations.
In connection with the acquisition of American Premier Holdings, Inc., the
Company recorded a nonrecurring restructuring charge of $3.6 million during the
quarter ended January 31, 1998. The charge related to costs incurred at the
Company's existing refractory facilities in connection with the consolidation of
duplicative manufacturing capacity and administrative functions.
12
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999
(UNAUDITED)
6. DEBT
At April 30, 1998 and January 31, 1999, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1998 1999
---------- ------------
<S> <C> <C>
(IN THOUSANDS)
Superior TeleCom revolving credit facility (a)...................... $ 69,350 $ 78,650
Superior TeleCom term loan A (a).................................... -- 500,000
Superior TeleCom term loan B (a).................................... -- 425,000
Superior TeleCom senior subordinated notes(a)....................... -- 200,000
Cables of Zion term loan (b)........................................ -- 40,000
Cables of Zion revolving credit facility (b)........................ -- 1,200
Premier revolving credit facility (c)............................... 14,896 22,239
Premier term loan A (c)............................................. 61,209 58,743
Premier term loan B (c)............................................. 74,454 73,827
Premier term loan C (c)............................................. 74,812 74,250
Premier floating rate note (d)...................................... 60,000 60,000
Alpine revolving credit facility (e)................................ -- 28,066
Alpine term loan (e)................................................ 10,000 10,000
Other............................................................... 24,589 52,306
---------- ------------
Total debt........................................................ 389,310 1,624,281
Less current portion of long-term debt.............................. 8,442 71,632
---------- ------------
$ 380,868 $ 1,552,649
---------- ------------
---------- ------------
</TABLE>
At January 31, 1999, the fair value of Alpine's debt, based on the quoted
market prices for the same or similar issues or on the current rates offered to
Alpine for debt of the same remaining maturities, approximated its recorded
value. The Company has entered into a number of interest rate swap and interest
rate cap agreements in order to limit the effect of changes in interest rates on
the Company's floating rate long-term obligations. Amounts currently due to or
from interest rate swap counterparties are recorded in interest expense in the
period in which they accrue. The Company does not enter into financial
instruments for trading or speculative purposes. The fair value of the interest
rate caps or swaps was not material at January 31, 1999.
13
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999
(UNAUDITED)
6. DEBT (CONTINUED)
The aggregate maturities of long-term debt for the five years subsequent to
January 31, 1999 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ------------------------------------------------------------------------------- -------------
<S> <C>
(IN
THOUSANDS)
2000........................................................................... $ 71,632
2001........................................................................... 91,412
2002........................................................................... 144,534
2003........................................................................... 136,888
2004........................................................................... 242,063
Thereafter..................................................................... 937,752
-------------
$ 1,624,281
-------------
-------------
</TABLE>
- ------------------------
(a) In connection with the November 27, 1998 acquisition of Essex (see Note 4),
Superior TeleCom amended and restated its existing credit facilities. The
amended and restated Superior TeleCom credit facilities provide for total
borrowing availability of up to $1.35 billion, consisting of a $225.0
million revolving facility, a $500.0 million term loan A facility, a $425.0
million term loan B facility and $200.0 million in senior subordinated
notes.
The revolving credit facility provides working capital financing for
Superior TeleCom's principal subsidiaries. Borrowings under the facility are
allowable up to $225 million in the aggregate. Interest on the outstanding
balance is based upon LIBOR plus 3.0% or the base rate (prime) plus 2.0% and
is payable quarterly. The facility terminates on May 27, 2004.
The Superior TeleCom term loan A is repayable in varying installments over
five and one-half years with interest payable quarterly based upon LIBOR
plus 3.0% or the base rate (prime) plus 2.0%.
The Superior TeleCom term loan B is repayable in varying installments over
seven years with interest payable quarterly based upon LIBOR plus 3.75% or
the base rate (prime) plus 2.75%.
The Superior TeleCom senior subordinated notes are due in November 2006.
Interest for the initial six months is LIBOR plus 4.25% or base rate (prime)
plus 3.25%. On the six month anniversary of the borrowing date the interest
rate will increase to LIBOR plus 4.5% or base rate (prime) plus 3.50%, and
on the 12 month anniversary of the borrowing date the interest rate will
increase to LIBOR plus 5.00% or base rate (prime) plus 4.00%. After the 12
month anniversary of the borrowing date the interest rate will increase at
the end of each three month period by 0.25% until reaching the maximum
interest rate of LIBOR plus 5.5% or base rate (prime) plus 4.5%.
All the borrowings under the above described credit arrangements are
guaranteed by each of Superior TeleCom's domestic subsidiaries. The common
stock of all domestic subsidiaries of Superior TeleCom and 65% of the common
stock of its foreign subsidiaries have been pledged to secure the
guarantees. The obligations under these credit arrangements are secured by
substantially all of the assets of Superior TeleCom and its domestic
subsidiaries.
14
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999
(UNAUDITED)
6. DEBT (CONTINUED)
(b) In connection with the December 30, 1998 acquisition of Cvalim, Cables of
Zion entered into an $83.0 million credit facility consisting of a $53.0
million term loan and a $30.0 million revolving credit facility. Proceeds
from these facilities were used to finance the acquisitions of Cvalim, pay
related transaction expenses and provide for ongoing working capital
requirements. The term loan is repayable on December 31, 2008. Interest on
the term loan is based upon LIBOR plus 1.0%; or the average of the gross
yield to maturity of a series of State of Israel fixed rate bonds with a
maturity of 18 - 30 months, plus 1.3%; or the lending bank's wholesale rate
of interest for credits linked to the Israeli consumer price index plus
0.7%.
The revolving credit facility is available up to $30.0 million in the
aggregate. Interest on the outstanding balance is based upon either LIBOR
plus 0.4%; or the lending bank's prime rate minus 1.1%; or a rate to be
agreed upon by the parties. The facility terminates on December 31, 2003.
(c) The Premier revolving credit facility represents borrowings by Premier's
principal operating subsidiaries. Borrowings under the facility are
allowable up to $50.0 million in the aggregate. Interest on the outstanding
balance is based upon LIBOR plus 2.5% or the base rate (prime) plus 1.5% and
is payable quarterly. The facility terminates on April 15, 2003.
The Premier term loan A represents the dollar equivalent of pounds sterling
borrowings and is repayable in varying installments over six years with
interest payable quarterly based upon LIBOR plus 2.5% or the base rate
(prime) plus 1.5%.
The Premier term loan B is repayable in varying installments over eight
years with interest payable quarterly based upon LIBOR plus 3.25% or the
base rate (prime) plus 2.0%.
The Premier term loan C is repayable in varying installments over eight
years with interest payable quarterly based upon LIBOR plus 3.25% or the
base rate (prime) plus 2.25%.
All borrowings under the above described credit arrangements are guaranteed
by Premier. All borrowings of Premier's European subsidiaries are guaranteed
by Premier. The stock of all domestic subsidiaries of Premier and 65% of the
stock of its foreign subsidiaries has been pledged to secure certain of
these guarantees. The obligations under these credit arrangements are
secured by substantially all of the assets of Premier and its European-based
subsidiaries.
(d) The Premier floating rate note facility is due in 2006. Interest is based
upon the base rate (prime) plus 3.0% or LIBOR plus 4.0%. Interest is payable
quarterly in the case of base rate notes but may be payable over shorter
periods in the case of LIBOR rate notes. The Premier floating rate notes are
secured by a pledge of substantially all of the common stock of Premier's
operating subsidiaries and are guaranteed by Alpine. The Alpine guaranty is
secured by the pledge of the common stock of Premier owned by Alpine and a
portion of the common stock of Superior TeleCom owned by Alpine with a
market value of $60.0 million.
(e) On February 6, 1998, Alpine entered into a $25.0 million senior secured
credit agreement (the "Alpine Credit Facility"). This agreement was amended
and restated in October 1998 increasing the facility to $50.0 million,
including a $10.0 million senior secured term loan and a $40.0 million
15
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999
(UNAUDITED)
6. DEBT (CONTINUED)
revolving credit facility. Proceeds from these facilities are for ongoing
general working capital and corporate needs of Alpine. Interest on the
revolving credit facility is based upon LIBOR plus 1.5% or the base rate
(prime) and interest on the term loan is based upon LIBOR plus 2.0% or the
base rate (prime) plus 0.5%. Borrowings under the Alpine Credit Facility are
secured by a pledge of certain shares of Superior TeleCom common stock owned
by Alpine.
In connection with the amendment and restatement of Superior TeleCom's
credit facilities, the Company recognized an extraordinary charge on the early
extinguishment of debt of $0.6 million, or $0.04 per diluted share (after the
impact of income taxes and minority interest).
During the nine months ended January 1998, the Company retired $7.0 million
face amount ($6.4 million recorded amount) of its 12.25% Senior Secured Notes
and $5.0 million face amount ($4.7 million recorded amount) of Premier's 11%
Senior Notes. In connection with this early extinguishment of debt, the Company
recognized an after-tax extraordinary charge of $1.2 million or $0.06 per
diluted share.
The above credit agreements contain certain restrictive covenants,
including, among other things, requirements to maintain certain financial
ratios, limitations on the amount of dividends the Company and its subsidiaries
are allowed to pay and restrictions on additional indebtedness.
7. SHORT-TERM BORROWINGS
At January 31, 1999, short-term borrowings consist principally of $105.4
million in borrowings under the Essex accounts receivable securitization program
which provides for up to $150.0 million in short-term financing through the
issuance of secured commercial paper through a limited purpose subsidiary of
Essex (Essex Funding). Under the receivable securitization program, Essex has
granted a security interest in all its trade accounts receivable to secure
borrowings under the facility. The receivable securitization program expires on
November 30, 1999, although it may be extended for successive one-year periods
subject to agreement. Borrowings under this agreement bear interest at the
lenders commercial paper rate (which approximated 5.25% at January 31, 1999)
plus 0.35%.
16
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999
(UNAUDITED)
8. EARNINGS PER SHARE
The computation of basic and diluted earnings per share for the three and
nine months ended January 31, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31,
--------------------------------------------------------------------
1998 1999
--------------------------------- ---------------------------------
NET PER SHARE NET PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
--------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Income attributable to common stock before extraordinary
(loss)..................................................... $ 1,322 $ 1,025
Less: preferred stock dividends.............................. (9) (9)
--------- ---------
Basic earnings per common share before extraordinary
(loss)..................................................... $ 1,313 16,990 $ 0.08 $ 1,016 16,095 $ 0.06
----------- -----
----------- -----
Dilutive impact of stock options, warrants and grants........ -- 2,118 -- 1,382
Dilution in subsidiary earnings from subsidiary stock
options.................................................... (138) -- -- --
Assumed conversion of preferred stock........................ 9 82 9 50
--------- --------- --------- ---------
Diluted earnings per common share before extraordinary
(loss)..................................................... $ 1,184 19,190 $ 0.07 $ 1,025 17,527 $ 0.06
--------- --------- ----------- --------- --------- -----
--------- --------- ----------- --------- --------- -----
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED JANUARY 31,
--------------------------------------------------------------------
1998 1999
--------------------------------- ---------------------------------
NET PER SHARE NET PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
--------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Income attributable to common stock before extraordinary
(loss).................................................. $ 11,775 $ 12,973
Less: preferred stock dividends........................... (59) (27)
--------- ---------
Basic earnings per common share before extraordinary
(loss).................................................. $ 11,716 16,995 $ 0.69 $ 12,946 16,714 $ 0.77
----------- -----
----------- -----
Dilutive impact of stock options, warrants and grants..... -- 1,888 -- 1,502
Dilution in subsidiary earnings from subsidiary stock
options................................................. (376) -- (339) --
Assumed conversion of preferred stock..................... 59 148 27 52
--------- --------- --------- ---------
Diluted earnings per common share before extraordinary
(loss).................................................. $ 11,399 19,031 $ 0.62 $ 12,634 18,268 $ 0.69
--------- --------- ----------- --------- --------- -----
--------- --------- ----------- --------- --------- -----
</TABLE>
17
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999
(UNAUDITED)
9. STOCKHOLDER RIGHTS AGREEMENT
On February 17, 1999, the Board of Directors declared a dividend
distribution of one preferred stock purchase right (a "Right") for each
outstanding share of the Company's Common Stock, (the "Common Shares"), payable
to the stockholders of record on March 1, 1999 (the "Record Date"). The Board of
Directors also authorized and directed the issuance of one Right with respect to
each Common Share issued thereafter until the Distribution Date (as defined
below) (or the earlier redemption or expiration of the Rights).
Except as set forth below, each Right, when it becomes exercisable, entitles
the holder to purchase one one-hundredth of a share of Series A Junior
Participating Preferred Stock, $1.00 par value (the "Preferred Shares"), at a
price of $75.00, subject to adjustment (the "Purchase Price"). Initially, the
Rights will be attached to all certificates representing Common Shares then
outstanding, and no separate Right Certificates will be distributed. The Rights
will separate from the Common Shares upon the earliest to occur of (i) the tenth
day after a person or entity (a "Person") or group of affiliated or associated
Persons (a "Group") having acquired beneficial ownership of 15% or more of the
outstanding Common Shares (except pursuant to a Permitted Offer, as hereinafter
defined); or (ii) 10 business days (or such later date as the Board of Directors
may determine) following the commencement of, or announcement of an intention to
make, a tender offer or exchange offer the consummation of which would result in
a Person or Group becoming an Acquiring Person (as hereinafter defined) (the
earliest of such dates being called the "Distribution Date"). A Person or Group
whose acquisition of Common Shares causes a Distribution Date pursuant to clause
(i) above is an "Acquiring Person". The date that a Person or Group becomes an
Acquiring Person is the "Stock Acquisition Date".
Notwithstanding the foregoing, stockholders who currently own in excess of
15% of the outstanding Common Shares and their affiliates, associates and
permitted transferees will not be deemed to be Acquiring Persons unless they
acquire additional Common Shares equal to more than 20% of the number of Common
Shares owned by them on the date of the Rights Agreement.
In addition, a Person who acquires Common Shares pursuant to a tender or
exchange offer which is for all outstanding Common Shares at a price and on
terms which the Board of Directors determines to be adequate and in the best
interests of the Company and its stockholders (a "Permitted Offer") will not be
deemed to be an Acquiring Person.
The Preferred Shares purchasable upon exercise of the Rights will have a
minimum preferential quarterly dividend of $1.00 per share, but will be entitled
to receive, in the aggregate, a dividend of 100 times the dividend declared on
the Common Shares. In the event of liquidation, the holders of the Preferred
Shares will be entitled to receive a minimum liquidation payment of $100 per
share, but will be entitled to receive an aggregate liquidation payment equal to
100 times the payment made per Common Share. Each Preferred Share will have 100
votes, voting together with the Common Shares. In the event of any merger,
consolidation or other transaction in which Common Shares are exchanged, each
Preferred Share will be entitled to receive 100 times the amount and type of
consideration received per Common Share. The rights of the Preferred Shares are
subject to certain customary anti-dilution provisions.
18
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999
(UNAUDITED)
9. STOCKHOLDER RIGHTS AGREEMENT (CONTINUED)
The Rights will expire at the close of business February 17, 2009, unless
earlier redeemed by the Company as described below.
In the event that any person becomes an Acquiring Person, each holder of
Rights will thereafter have the right (the "Flip-In Right") to receive, upon
exercise of such Rights, the number of Common Shares (or, in certain
circumstances, other securities of the Company) having a value (immediately
prior to such triggering event) equal to two times the aggregate exercise price
of such Rights.
The Board, at its option, may at any time after any Person becomes an
Acquiring Person exchange all or part of the then issued and outstanding Rights
for Common Shares at an exchange ratio of one Common Share per Right in lieu of
the Flip-In Right, provided no Person is the beneficial owner of 50% or more of
the Common Shares at the time of such exchange.
10. 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.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Alpine Group, Inc. (the "Company" or "Alpine"), through its
subsidiaries, Superior TeleCom Inc. ("Superior TeleCom") and Premier
Refractories International Inc. ("Premier"), operates in two primary industry
segments: (i) wire and cable products including communication, electrical, and
magnet wire and cable and (ii) refractories which include refractory products
and services for the iron and steel, glass, aluminum, cement and co-generation
industries. The results of operations of the wire and cable segment include the
operations of Superior TeleCom's subsidiaries: Superior Telecommunications Inc.,
and its 51% owned subsidiary, Cables of Zion United Works Ltd. ("Cables of
Zion"), an Israeli-based cable and wire manufacturer, acquired on May 5, 1998
(see Note 4 to the accompanying unaudited Condensed Consolidated Financial
Statements) and Essex International Inc. ("Essex"), a U.S.-based wire and cable
manufacturer, an 81% interest in which was acquired on November 27, 1998 (see
Note 4 to the accompanying unaudited Condensed Consolidated Financial
Statements). The results of operations of the refractory products segment
include the Company's 83.4% owned subsidiary, Premier, which includes the
operations of American Premier Holdings, Inc. ("American Premier") which was
acquired on January 30, 1998 (see Note 6 to the Company's consolidated financial
statements in the Company's Annual Report on Form 10-K for the year ended April
30, 1998).
RESULTS OF OPERATIONS
The following table compares operating statement data for Alpine on an
industry segment basis. Such industry segment operating data is presented on an
historical reporting basis for the three and nine months ended January 31, 1998
and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
---------------------- ----------------------
<S> <C> <C> <C> <C>
1998 1999 1998 1999
---------- ---------- ---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales:
Wire and cable................................................. $ 113,661 $ 326,714 $ 384,106 $ 629,685
Refractories................................................... 92,843 114,039 262,426 367,672
---------- ---------- ---------- ----------
Consolidated................................................. 206,504 440,753 646,532 997,357
Gross profit:
Wire and cable................................................. $ 21,680 $ 63,169 $ 71,364 $ 130,937
Refractories................................................... 15,747 24,565 49,903 82,610
---------- ---------- ---------- ----------
Consolidated................................................. 37,427 87,734 121,267 213,547
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
---------------------- ----------------------
1998 1999 1998 1999
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Gross profit percentage:
Wire and cable................................................. 19.1% 19.3% 18.6% 20.8%
Refractories................................................... 17.0 21.5 19.0 22.5
Consolidated................................................. 18.1 19.9 18.8 21.4
Selling, general and administrative expenses:
Wire and cable................................................. $ 4,401 $ 28,225 $ 13,655 $ 42,436
Refractories................................................... 10,225 17,473 31,092 55,821
Corporate and other expenses................................... 3,233 4,975 7,468 10,916
---------- ---------- ---------- ----------
Consolidated................................................. 17,859 50,673 52,215 109,173
Amortization of goodwill:
Wire and cable................................................. $ 428 $ 2,969 $ 1,288 $ 3,853
Refractories................................................... 639 1,202 1,872 3,634
---------- ---------- ---------- ----------
Consolidated................................................. 1,067 4,171 3,160 7,487
Operating income (a):
Wire and cable................................................. $ 16,851 $ 31,975 $ 56,421 $ 84,648
Refractories................................................... 4,883 5,890 16,939 23,155
Corporate and other expenses................................... (3,233) (4,975) (7,468) (10,916)
---------- ---------- ---------- ----------
Consolidated................................................. $ 18,501 $ 32,890 $ 65,892 $ 96,887
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
- ------------------------
(a) Operating income for the quarter and nine months ended January 1998 and 1999
presented above excludes the impact of nonrecurring and unusual charges of
$3.6 million and $3.2 million, respectively. (See Note 5 to the accompanying
unaudited Condensed Consolidated Financial Statements.)
IMPACT OF COPPER PRICE FLUCTUATIONS ON OPERATING RESULTS
Copper is one of the principal raw materials used in the wire and cable
segment. Fluctuations in the price of copper do 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
product pricing in order to properly match the price of copper billed with the
copper cost component of its inventory shipped.
21
<PAGE>
WIRE AND CABLE--RESULTS OF OPERATIONS
Superior TeleCom's net sales for the quarter ended January 1999 were $326.7
million, representing an increase of $213.1 million, or 187.5%, as compared to
the same period in the prior fiscal year. For the nine months ended January
1999, net sales were $629.7 million, representing an increase of $245.6 million,
or 63.9%, as compared to the same period in the prior fiscal year. Adjusted to a
constant copper value, the comparative percentage increase in net sales for the
quarter and nine months ended January 1999 was 219.9% and 87.9%, respectively.
The increase in net sales for the quarter and nine months ended January 1999
included $250.7 million and $287.7 million, respectively, in net sales
contributed by the acquired operations of Essex and Cables of Zion. Superior
TeleCom's North American communications wire and cable operations (excluding the
impact of the Essex and Cables of Zion acquisitions) experienced a comparative
decrease in net sales on a constant copper value basis for the quarter ended
January 1999 of approximately 17% (or approximately $17.0 million) and a
comparative increase in net sales of 8% (or approximately $27.0 million) for the
nine months ended January 1999. The increase in the North American
communications wire and cable revenues for the nine months ended January 1999
reflected continued strong demand for copper communications wire and cable
products resulting from the growth in copper based telephone access lines and
increased maintenance requirements by Superior TeleCom's major telephone company
customers. The comparative decrease in the North American copper communications
wire and cable sales for the quarter ended January 1999 was due to the impact of
seasonal procurement patterns and year end budgeting constraints experienced by
several of the Company's customers which was further impacted by severe weather
conditions in many regions of the United States during January 1999.
Gross profit increased by $41.5 million, or 191.4%, to $63.2 million for the
quarter ended January 1999 as compared to the same period in the prior fiscal
year. For the nine months ended January 1999, gross profit increased by $59.6
million, or 83.5%, to $130.9 million as compared to the same period in the prior
fiscal year. The comparative increase in gross profit for the quarter and nine
months ended January 1999 included incremental gross profit contribution by
Essex and Cables of Zion of $43.5 million and $49.8 million, respectively. The
North American communications wire and cable operations experienced a
comparative decrease in gross profits of $1.3 million in the quarter ended
January 1999 and a comparative increase in gross profit of $10.6 million for the
nine months ended January 1999. Gross margin, based on actual sales, was 19.3%
and 20.8% for the quarter and nine months ended January 1999, respectively, as
compared to 19.1% and 18.6%, respectively, for the quarter and nine months ended
January 1998. Adjusted to a constant copper sales value of $0.80 per pound, the
gross margin decreased to 18.8% and 19.8%, respectively, for the quarter and
nine months ended January 1999, as compared to 20.6% and 20.3%, respectively,
for the quarter and nine months ended January 1998. The decrease in copper
adjusted gross margin for the January 1999 three month and nine month periods
was attributable to the inclusion of the results of operations of Essex and
Cables of Zion, both of which operate in industries and markets with lower
margins than those historically generated by the Company's North American
communications wire and cable business. The North American wire and cable
business gross margin increased on a constant copper adjusted basis by 2.5% and
1.4%, respectively, for the quarter and nine months ended January 1999 as
compared to the quarter and nine months ended January 1998. This increase in
gross margin reflected continued reductions in manufacturing cost resulting from
production efficiencies, lower raw material prices and improved cost absorption
resulting from increased production volumes.
SG&A expense for the quarter ended January 1999 was $28.2 million,
representing an increase of $23.8 million, as compared to the same period in the
prior fiscal year. For the nine months ended January 1999, SG&A expense was
$42.4 million, representing an increase of $28.8 million, as compared to the
same period in the prior fiscal year. The increase in SG&A expense for the
quarter and nine months ended January 1999 was due primarily to the inclusion of
$23.7 million and $27.0 million, respectively, in SG&A expense from Essex and
Cables of Zion and an increase of $0.2 million and
22
<PAGE>
$1.8 million, respectively, in the North American communication wire and cable
operations SG&A expense. The Company anticipates that the consolidation of the
acquired Essex operations with Superior TeleCom as well as the consolidation of
the Cables of Zion and Cvalim will result in SG&A expense savings which will
reduce the level of SG&A expense as a percentage of sales during fiscal 2000.
Operating income for the quarter ended January 1999 was $32.0 million,
representing an increase of $15.1 million, or 89.8%, as compared to the same
period in the prior fiscal year. For the nine months ended January 1999,
operating income was $84.6 million, representing an increase of $28.2 million,
or 50.0%, as compared to the same period in the prior fiscal year. The increase
in operating income for the quarter ended January 1999 resulted primarily from
the inclusion of the results of operations of Essex and Cables of Zion, offset
by lower net sales and lower operating income generated by the North American
communication wire and cable operations. The comparative increase in operating
income for the nine months ended January 1999 resulted from the inclusion of the
results of operations of Essex and Cables of Zion as well as an $8.7 million (or
16%) increase in operating income in the North American communications wire and
cable business.
REFRACTORIES--RESULTS OF OPERATIONS
Premier's net sales for the quarter ended January 1999 were $114.0 million,
representing an increase of $21.2 million, or 22.8%, as compared to the same
period in the prior fiscal year. For the nine months ended January 1999, net
sales were $367.7 million, representing an increase of $105.2 million, or 40.1%,
as compared to the same period in the prior fiscal year. The increase in net
sales for the quarter and nine months ended January 1999 was attributable to the
inclusion of the acquired operations of American Premier, offset by a decline
during the current fiscal year in shipments to U.S. and European steel industry
customers, which represent approximately 50% of Premier's total sales. The
current fiscal year decline in steel-related refractory product shipments is
principally the result of a reduction in production by U.S. and European steel
producers due to a substantial increase in low cost steel imports from Asia,
South America and Russia resulting from the continuing economic crisis
experienced in these regions. The U.S. Commerce Department has threatened
recently to impose tariff protection in order to reduce the level of low priced
steel imports which have eroded domestic steel production. As a result of the
anticipated tariff protection, the Company expects domestic steel production to
increase and for shipments of refractory products to steel customers to improve
during the latter half of calendar 1999. In addition to the reduction in
refractory product shipments, the decline in steel production has also impacted
Premier's construction division due to delays by the steel producers in
incurring major maintenance and capital projects until future steel production
levels become more determinable.
Gross profit for the quarter ended January 1999 was $24.6 million,
representing an increase of $8.8 million, or 56.0%, as compared to the same
period in the prior fiscal year. For the nine months ended January 1999, gross
profit was $82.6 million, representing an increase of $32.7 million, or 65.5%,
as compared to the same period in the prior fiscal year. The combined gross
margin for the quarter and nine months ended January 1999 was 21.5% and 22.5%,
respectively, as compared to 17.0% and 19.0%, respectively, for the same periods
in the prior fiscal year. The comparative increase in gross margin in the
quarter and nine months ended January 1999 resulted from: (i) the inclusion of
American Premier's higher margin product lines in fiscal 1999, (ii) higher
margins generated in the Company's construction division during the early
portion of fiscal 1999, and (iii) cost reductions resulting from the integration
of the American Premier acquisition. The increase in gross margin was offset
during recent months by a decline in selling prices resulting primarily from the
competitive environment in the steel industry and reduced absorption of overhead
due to the recent decline in production volumes.
23
<PAGE>
SG&A expense for the quarter ended January 1999 was $17.5 million,
representing an increase of $7.2 million, or 70.9%, as compared to the same
period in the prior fiscal year. For the nine months ended January 1999, SG&A
expense was $55.8 million, representing an increase of $24.7 million, or 79.5%,
as compared to the same period in the prior fiscal year. The increase in SG&A
expense during the fiscal 1999 three month and nine month periods was
attributable to the inclusion of American Premier, offset by a comparative
reduction in SG&A expense in Premier's European operations ("Premier Europe")
for the quarter and nine months ended January 1999. The reduction in SG&A
expense at Premier Europe resulted from continuing cost reduction initiatives
implemented subsequent to the acquisition of Premier Europe in April 1997. In
connection with the American Premier acquisition in January 1998, Premier's
North American operations effected a restructuring plan that included the
consolidation of certain administrative and sales functions. This plan has
resulted in an annual decline of approximately $2.3 million in SG&A expense as
compared to the fourth quarter of fiscal 1998.
Operating income for the quarter ended January 1999 was $5.9 million,
representing an increase of $1.0 million, or 20.6%, as compared to the same
period in the prior fiscal year. For the nine months ended January 1999,
operating income was $23.2 million, representing an increase of $6.2 million, or
36.7%, as compared to the same period in the prior fiscal year. The increase in
operating income resulted primarily from the inclusion of American Premier for
the quarter and nine months ended January 1999, offset by the current fiscal
year impact of lower shipment volumes and selling prices to the Company's steel
industry customers.
CONSOLIDATED RESULTS OF OPERATIONS
The impact of the acquisitions of Essex, American Premier and Cables of Zion
resulted in an increase in consolidated net sales of $234.2 million, or 113.4%,
for the quarter ended January 1999 and of $350.8 million, or 54.3%, for the nine
months ended January 1999, as compared to the same periods in the prior fiscal
year. The growth in net sales and an increase in consolidated gross margin, gave
rise to a consolidated comparative increase in gross profit of $50.3 million, or
134.4%, for the quarter ended January 1999 and of $92.3 million, or 76.1%, for
the nine months ended January 1999, as compared to the same periods in the prior
fiscal year.
Consolidated SG&A expense for the quarter ended January 1999 was $50.7
million, representing an increase of $32.8 million, or 183.7%, as compared to
the same period in the prior fiscal year. For the nine months ended January
1999, consolidated SG&A expense was $109.2 million, representing an increase of
$57.0 million, or 109.1%, as compared to the same period in the prior fiscal
year. The increase in consolidated SG&A expense resulted primarily from the
inclusion of American Premier, Essex and Cables of Zion for the current fiscal
periods. The Company also incurred higher corporate SG&A expenses in the current
fiscal year, which was attributable to the level of the Company's acquisition
and transactional activities during the current year along with the increased
scale and breadth of the Company's operations.
During the quarter ended January 1999, the Company recorded nonrecurring and
unusual charges (net) of $3.2 million ($0.3 million, or $0.01 per diluted share,
after tax and after the impact of minority interest). The charge consisted of
(1) a restructuring charge recorded by Cables of Zion for planned manufacturing
plant consolidations and overhead rationalizations associated with the
acquisition of Cvalim (see Note 4 to the accompanying Condensed Consolidated
Financial Statements), (2) $1.6 million in charges associated with the review
and evaluation of a planned implementation of a new enterprise resource
management information system at Superior TeleCom and (3) nonrecurring income
related to the favorable resolution of certain statutory claims in the Company's
European refractories operations. During the quarter ended January 1998, the
Company recorded a nonrecurring restructuring charge of $3.6 million ($2.2
million, or $0.11 per diluted share, after tax). This restructuring charge
related to costs incurred in the consolidation of manufacturing capacity and
24
<PAGE>
administrative functions in connection with the integration of American
Premier's operations with Premier's existing North American operations.
Consolidated operating income was $29.7 million for the quarter ended
January 1999, representing an increase of $14.8 million, or 99.8%, as compared
to the same period in the prior fiscal year. For the nine months ended January
1999, consolidated operating income was $93.7 million, representing an increase
of $31.5 million, or 50.5%, as compared to the same period in the prior fiscal
year. Excluding the impact of the aforementioned restructuring charge, operating
income for the quarter and nine month periods ended January 1999 was $32.9
million and $96.9 million, respectively, as compared to $18.5 million and $65.9
million for the quarter and nine months ended January 1998, respectively. The
increase in operating income for the quarter and nine months ended January 1999
was primarily the result of the inclusion of the acquired operations of American
Premier, Essex and Cables of Zion. In addition, operating income for the nine
months ended January 1999 was complimented by the growth in net sales and
operating profit in Superior's North American communications wire and cable
operations.
Consolidated interest expense for the quarter ended January 1999 was $30.9
million, representing an increase of $24.0 million, as compared to the same
period in the prior fiscal year. For the nine months ended January 1999,
consolidated interest expense was $51.5 million, representing an increase of
$29.8 million, as compared to the same period in the prior fiscal year. The
increase in consolidated interest expense reflects the increase in consolidated
debt resulting from the acquisitions of American Premier, Essex, and Cables of
Zion (see Note 6 to the accompanying Condensed Consolidated Financial
Statements).
Consolidated other income (net) for the quarter ended January 1999 was $1.0
million, representing a decrease of $0.1 million as compared to the same period
in the prior fiscal year. For the nine months ended January 1999, consolidated
other income (net) was $1.3 million, representing a decrease of $1.4 million as
compared to the same period in the prior fiscal year, with such decrease
primarily the result of lower investment income on marketable securities and
foreign currency translation losses related to Cables of Zion.
Provision for income taxes for the quarter and nine months ended January
1999 was $1.2 million and $18.7 million, respectively, as compared to the
provision for income taxes of $3.5 million and $17.2 million, respectively, for
the same periods in the prior fiscal year. The impact of non-deductible goodwill
amortization resulted in the comparative increase in the Company's effective tax
rate for the quarter and nine months ended January 1999.
A minority interest benefit of $2.4 million was recorded during the quarter
ended January 1999 and a minority interest charge of $4.2 million was recorded
for the quarter ended January 1998. For the nine months ended January 1999 and
1998 the minority charge was $11.8 million and $14.3 million, respectively.
Minority interest represents the interests of minority stockholders in the net
income or loss of Superior TeleCom (including its minority interest in Essex and
Cables of Zion) and Premier. The minority benefit recorded for the three months
ended January 31, 1999 was impacted by a $10.0 million investment advisory fee
paid by Superior TeleCom to Alpine in connection with the Essex Acquisition.
While the consolidated operating income was not impacted by this transaction (ie
the transaction was eliminated as an intercompany revenue and expense item),
Superior TeleCom's earnings were reduced by the after tax impact of this charge
for purposes of calculating minority interest in earnings of subsidiaries. After
netting expenses incurred by Alpine related to this transaction, the after tax
benefit of such fee paid to Alpine amounted to $1.2 million, or $0.07 per
diluted share, for the three month and nine month periods ended January 31,
1999.
Net income attributable to common stock before extraordinary loss and
nonrecurring charges was $1.3 million, or $0.07 per diluted share, for the
quarter ended January 1999 as compared to net income attributable to common
stock before extraordinary loss and nonrecurring charges of $3.4 million, or
25
<PAGE>
$0.18 per diluted share, for the same period in the prior fiscal year. For the
nine months ended January 1999, net income attributable to common stock before
extraordinary loss and nonrecurring charges was $13.3 million, or $0.70 per
diluted share, as compared to net income attributable to common stock before
extraordinary loss and nonrecurring charges of $13.9 million, or $0.73 per
diluted share, for the same period in the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended January 1999, the Company generated $43.2 million
in cash flow from operating activities consisting of $58.8 million in cash flow
generated from operations (net income plus non-cash charges) reduced by $15.6
million in cash flow used for net working capital changes. The major working
capital changes included a $27.5 million increase in inventories and a $22.2
million decrease in accounts payable and accrued expenses, offset by a $29.7
million decrease in accounts receivable. Cash used for investing activities
amounted to $1.2 billion consisting principally of $829.7 million in cash paid
for the acquisition of Essex, Cables of Zion and Cvalim, $280 million paid to
refinance Essex's existing credit lines and $40.0 million in capital
expenditures. Cash provided by financing activities amounted to $1.1 billion
consisting principally of $1.2 billion in borrowings under revolving credit
facilities and various term loans and $30.1 million used for the purchase of
Company and subsidiary common stock.
At January 31, 1999, the Company's consolidated long-term debt was $1.6
billion, with the components of such debt, on an entity basis, consisting of the
following:
<TABLE>
<CAPTION>
IN MILLIONS
-----------
<S> <C>
Long-term debt obligations of:
Superior TeleCom and subsidiaries............................................... $ 1,279.2
Premier and subsidiaries........................................................ 294.8
Alpine corporate................................................................ 50.2
-----------
$ 1,624.2
-----------
-----------
</TABLE>
The Company, on a consolidated basis, had $47.1 million in cash, cash
equivalents and marketable securities at January 31, 1999. Of such amount, $3.2
million was maintained by Premier and its subsidiaries, $19.6 million by
Superior TeleCom and its subsidiaries, and $24.3 million at the Alpine corporate
level.
As discussed in Note 4 to the accompanying unaudited Condensed Consolidated
Financial Statements, Superior TeleCom completed the acquisition of 81% of Essex
on November 27, 1998. In connection with the acquisition Superior Telecom
entered into a $1.15 billion amended and restated credit agreement ("Credit
Agreement") and a $200 million senior subordinated credit agreement ("Sub
Notes"). Proceeds from the financing were used to (i) pay $770 million,
representing the cash portion of the Essex acquisition purchase price, (ii)
refinance approximately $84 million under Superior's existing credit facility,
(iii) refinance approximately $280 million of Essex's existing credit
facilities, and (iv) pay related transaction expenses. Obligations under the
Credit Agreement and the Sub Notes are secured by substantially all of the
assets of Superior TeleCom and its domestic subsidiaries and the Credit
Agreement is also secured by the stock of Superior TeleCom's domestic
subsidiaries and 65% of its principal foreign subsidiaries. The Credit Agreement
and Sub Notes contain customary performance and financial covenants. At January
31, 1999 Superior TeleCom had $145 million in excess availability under its
revolving credit facility.
Superior TeleCom, through Essex, has financing availability through a
receivable securitization program providing for up to $150.0 million in short
term financing through the issuance of secured commercial paper. The receivable
securitization program expires on November 30, 1999 although it
26
<PAGE>
may be extended for successive one-year periods subject to agreement. At January
31, 1999, $105.4 million was outstanding under this program at an interest rate
of 5.6%.
As discussed in Note 4 to the accompanying unaudited Condensed Consolidated
Financial Statements, Superior TeleCom acquired 51% of Cables of Zion on May 5,
1998 and financed the $25.0 million purchase price through borrowings under its
existing revolving credit facility. On December 30, 1998, Cables of Zion
completed the acquisition of the business and certain operating assets of Cvalim
for $41.2 million. In connection with the acquisition, Cables of Zion entered
into a $83.0 million credit facility consisting of a term loan amounting to
$53.0 million and a $30.0 million revolving credit facility. Proceeds from the
financing were used to finance the acquisition, pay related expenses and provide
for working capital requirements of Cables of Zion. Obligations under the credit
facility are secured by all of the assets of Cables of Zion. The credit facility
contains customary performance and financial covenants. At January 31, 1999,
Cables of Zion had $30 million in excess availability under its revolving credit
facility.
Superior TeleCom's principal debt service commitments for the next 12 months
amount to $63.0 million and capital expenditures are expected to approximate
$65.0-$75.0 million. Management anticipates that Superior TeleCom 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 Superior TeleCom's revolving credit facility should be sufficient to cover
such shortfall.
As of January 31, 1999, Premier had $26.1 million in availability under its
revolving credit facility and an additional $3.2 million in cash and cash
equivalents. Premier's principal debt service commitments for the next 12 months
amount to $8.7 million and capital expenditures are expected to approximate
$12.0 - $15.0 million. Management 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 10.1 million common shares (representing 50.1% of the
outstanding common shares) of Superior TeleCom (NYSE:SUT) which, based on the
closing price on March 16, 1999, had a market value of approximately $216.8
million and a consolidated carrying value as recorded by Alpine (net of minority
interest) of approximately $46.1 million. Superior TeleCom common stock owned by
Alpine with a market value of approximately $81.0 million is pledged as
collateral to secure certain debt of Alpine and Premier.
The Superior TeleCom, Cables of Zion 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 $12.0 - $13.0 million in
estimated cash corporate overhead and interest expense) from allowable
management fees payable by its subsidiaries to Alpine, cash dividends received
from Superior TeleCom and from interest income, with any shortfall funded from
Alpine's existing corporate cash, cash equivalents and marketable securities
reserves.
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 TeleCom'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
27
<PAGE>
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 ("Y2K") 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 75% complete at
Superior TeleCom and 85% complete at Premier and should be completed in April
1999 upon receipt of all remaining vendor and supplier Year 2000 readiness
inquiries.
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:
(1) Raw material vendors: The Company's raw material purchases are through third
party raw material vendors. All mission critical raw material vendors have
responded to the Company's Year 2000 readiness inquiry;
(2) Equipment vendors: The response to the Year 2000 readiness inquiries from
equipment vendors, which includes all embedded chip equipment, is at 75% at
Superior and 100% at Premier;
(3) Service providers: The response to the Year 2000 readiness inquiries from
third party service providers, which includes utilities, phone service and
all facility related services, is at 90% at Superior and 100% at Premier;
and
28
<PAGE>
(4) Software vendors: The Company has substantially completed its upgrade of all
purchased software to Year 2000 compliant versions and is in the
modification and testing phase.
The responses received, thus far, from the Company's third party vendors and
suppliers indicate compliance on or before June 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
completed during the first and second quarters of 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
SUPERIOR TELECOM
The current estimate of the cost of remediation and equipment and software
replacement, of which approximately 50% has been incurred to date, ranges
between $7 million and $7.25 million and is summarized below. Approximately
one-half of the remaining $3.5 million is to be paid to external parties for
purchases of new systems and equipment.
<TABLE>
<S> <C>
$ 5.95 - $6.16
Code modification and testing:.......................... million
$ 1.05 - $1.09
Personal computer, software and other upgrades.......... million
</TABLE>
Approximately 12% of the total 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.
PREMIER
The current estimate of the cost of remediation and equipment and software
replacement, of which approximately 50% has been incurred to date, is $1.68
million and is summarized below.
<TABLE>
<S> <C>
$1.40
Information technology........................................ million
$0.28
Non-information technology.................................... million
</TABLE>
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
SUPERIOR TELECOM
A most reasonably likely worst case Year 2000 scenario for Superior TeleCom
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
Superior TeleCom's 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 Superior TeleCom's schedule of other major IT
projects.
Superior TeleCom has not completed a contingency plan, however, it intends
to have such a plan completed by March 31, 1999. Each manufacturing facility
will incorporate Year 2000 into their existing
29
<PAGE>
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 and available.
PREMIER
Premier's most reasonably likely worst case Year 2000 scenario in its North
American operations is that in areas where new Year 2000 compliant software has
been installed, the software users will be unable to properly operate the
system. As a contingency plan, Premier will provide the new software users with
on-site seasoned personnel from sites where such software has been previously
installed and operated.
Premier's most reasonably likely worst case Year 2000 scenario in its
European operations is that any of its customized business systems will contain
new programming anomalies which render such systems ineffective. Premier's
contingency plans for this include significant project management review,
intensified testing by both the information technology staff and the users and
remediation prioritization.
Contingency plans for Premier's most reasonably likely worst case Year 2000
scenario for its manufacturing, distribution and research and development
systems are currently being developed.
- ------------------------
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.
30
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- ----------------- ---------------------------------------------------------------------------------------
<C> <S>
10.1* The Alpine Group, Inc. Stock Compensation Plan for Non-Employee Directors.
27* Financial Data Schedule
</TABLE>
(B) REPORTS ON FORM 8-K
A Form 8-K related to the Cvalim acquisition was filed on January 15,
1999.
- ------------------------
* Filed herewith
31
<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: March 17, 1999 By: /s/ DAVID S. ALDRIDGE
-----------------------------------------
David S. Aldridge
Chief Financial Officer
</TABLE>
32
<PAGE>
THE ALPINE GROUP, INC.
STOCK COMPENSATION PLAN FOR
NON-EMPLOYEE DIRECTORS
<PAGE>
TABLE OF CONTENTS
<TABLE>
PAGE
<S> <C> <C>
ARTICLE I. PURPOSE....................................................1
ARTICLE II. DEFINITIONS................................................1
ARTICLE III. ADMINISTRATION.............................................3
ARTICLE IV. SHARES; ADJUSTMENT UPON CERTAIN EVENTS.....................4
ARTICLE V. ELECTIONS..................................................5
ARTICLE VI. RESTRICTED STOCK...........................................7
ARTICLE VII. STOCK OPTIONS..............................................8
ARTICLE VIII. TERMINATION OF DIRECTORSHIP...............................10
ARTICLE IX. NON-TRANSFERABILITY.......................................11
ARTICLE X. CHANGE IN CONTROL PROVISIONS..............................11
ARTICLE XI. TERMINATION OR AMENDMENT OF THE PLAN......................13
ARTICLE XII. UNFUNDED PLAN.............................................13
ARTICLE XIII. GENERAL PROVISIONS........................................14
ARTICLE XIV. TERM OF PLAN..............................................16
</TABLE>
<PAGE>
THE ALPINE GROUP, INC.
STOCK COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
ARTICLE I
PURPOSE
The purpose of the Plan is to enhance the profitability and value of the
Company for the benefit of its stockholders by enabling the Company to: (i)
require Non-Employee Directors to elect either shares of Restricted Stock or
Stock Options with respect to 50% of their Retainer Fees; and (ii) permit
Non-Employee Directors to elect either shares of Restricted Stock or Stock
Options, in lieu of cash payment of their Retainer Fees or Meeting Fees, thereby
attracting, retaining and rewarding Non-Employee Directors and strengthening the
mutuality of interests between Non-Employee Directors and the Company's
stockholders.
ARTICLE II
DEFINITIONS
For purposes of this Plan, the following terms shall have the following
meanings:
2.1 "AWARD" shall mean any award under this Plan of any: (i) Restricted
Stock; or (ii) Stock Option.
2.2 "BOARD" shall mean the Board of Directors of the Company.
2.3 "CAUSE" shall mean an act or failure to act that constitutes "cause"
for removal of a director under applicable Delaware law.
2.4 "CHANGE IN CONTROL" shall have the meaning set forth Section 10.2.
2.5 "CODE" shall mean the Internal Revenue Code of 1986, as amended. Any
reference to any section of the Code shall also be a reference to any successor
provision
2.6 "COMMON STOCK" shall mean common stock, $.10 par value per share, of
the Company.
2.7 "COMPANY" shall mean The Alpine Group, Inc. or any successor
corporation by merger, consolidation or transfer of assets substantially as a
whole.
2.8 "EFFECTIVE DATE" shall mean January 1, 1999.
2.9 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
2.10 "FAIR MARKET VALUE" shall mean for purposes of this Plan, unless
otherwise required by any applicable provision of the Code or any regulations
issued thereunder, as of any date, the last sales price reported for the Common
Stock on the applicable date: (i) as reported by the principal national
securities exchange in the United States on which it is then traded or the
Nasdaq Stock Market, Inc.; or (ii) if not traded on any such national securities
exchange or the Nasdaq Stock Market, Inc., as quoted on an automated quotation
system sponsored by the National Association of Securities Dealers. If the
Common Stock is not readily tradable on a national
<PAGE>
securities exchange, the Nasdaq Stock Market, Inc. or any system sponsored by
the National Association of Securities Dealers, its Fair Market Value shall be
set in good faith by the Board on the advice of a registered investment adviser
(as defined under the Investment Advisers Act of 1940). Notwithstanding anything
herein to the contrary, if selected by the Board, "Fair Market Value" means the
price for Common Stock set by the Board in good faith based on reasonable
methods set forth under Section 422 of the Code and the regulations thereunder
including, without limitation, a method utilizing the average of prices of the
Common Stock reported on the principal national securities exchange on which it
is then traded during a reasonable period designated by the Board.
2.11 "MEETING FEE(S)" shall mean any fees to which a Non-Employee
Director is entitled for attending Board meetings (including by telephonic
means) or for attending the meetings of any Board committee (including by
telephonic means) of which the Non-Employee Director is a member. Meeting Fees
shall not include expense reimbursements, amounts realized upon the exercise of
a Stock Option, Restricted Stock or any other amounts paid to the Non-Employee
Director.
2.12 "NON-EMPLOYEE DIRECTOR" shall mean any non-employee director of the
Company who is not an employee of the Company. Any director who acts on behalf
of the Company as an officer but who does not receive any compensation for such
services shall be treated as a non-employee for purposes of eligibility
hereunder.
2.13 "PLAN" shall mean The Alpine Group, Inc. Stock Compensation Plan for
Non-Employee Directors, as may be amended from time to time.
2.14 "RESTRICTED STOCK" shall mean an Award of shares of Common Stock
under this Plan that is subject to the restrictions under Article VI.
2.15 "RETAINER FEE(S)" shall mean the fee to which a Non-Employee
Director is entitled for service on the Board as a director during a fiscal year
of the Company. Retainer Fees shall not include expense reimbursements, amounts
realized upon the exercise of a Stock Option, Restricted Stock or any other
amounts paid to the Non-Employee Director.
2.16 "RETIREMENT" shall mean the failure to stand for reelection or the
failure to be reelected after a Non-Employee Director has attained age
sixty-five (65).
2.17 "RULE 16B-3" shall mean Rule 16b-3 under Section 16(b) of the
Exchange Act as then in effect or any successor provisions.
2.18 "STOCK OPTION" shall mean an option to purchase shares of Common
Stock granted to Non-Employee Directors pursuant to this Plan. No Stock Option
awarded under this Plan is intended to be an "incentive stock option" within the
meaning of Section 422 of the Code.
2.19 "TERMINATION OF DIRECTORSHIP" shall mean that the Non-Employee
Director has ceased to be a director (whether as a non-employee director or an
employee director) of the Company.
2.20 "TRANSFER" or "TRANSFERRED" shall mean anticipate, alienate, attach,
sell, assign, pledge, encumber, charge or otherwise transfer.
<PAGE>
ARTICLE III
ADMINISTRATION
3.1 THE BOARD. The Plan shall be administered and interpreted by the
Board.
3.2 DUTIES OF THE BOARD. The Board shall have full authority to interpret
the Plan and to decide any questions and settle all controversies and disputes
that may arise in connection with the Plan; to establish, amend and rescind
rules for carrying out the Plan; to administer the Plan, subject to its
provisions; to prescribe the form or forms of instruments evidencing Awards and
any other instruments required under the Plan and to change such forms from time
to time; and to make all other determinations and to take all such steps in
connection with the Plan and the Awards as the Board, in its sole discretion,
deems necessary or desirable.
3.3 ADVISORS. The Company or the Board may employ such legal counsel,
consultants and agents as it may deem desirable for the administration of the
Plan, and may rely upon any advice or opinion received from any such counsel or
consultant and any computation received from any such consultant or agent.
Expenses incurred for the engagement of such counsel, consultant or agent shall
be paid by the Company.
3.4 DECISIONS FINAL. Any decision, interpretation or other action made or
taken in good faith by or at the direction of the Company or the Board (or any
of its members) arising out of or in connection with the Plan shall be within
the absolute discretion of the Company or the Board, as the case may be, and
shall be final, binding and conclusive on the Company and all Non-Employee
Directors and their respective heirs, executors, administrators, successors and
assigns.
ARTICLE IV
SHARES; ADJUSTMENT UPON CERTAIN EVENTS
4.1 SHARES TO BE DELIVERED. Shares to be issued under the Plan shall be
made available only from issued shares of Common Stock reacquired by the Company
and held in treasury.
4.2 ADJUSTMENTS UPON CERTAIN EVENTS.
(a) ADJUSTMENTS. The existence of the Plan and any Award granted
hereunder shall not affect in any way the right or power of the Board or
the stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any
issue of bonds, debentures, preferred or prior preference stocks ahead of
or affecting Common Stock, the dissolution or liquidation of the Company
or any sale or transfer of all or part of the assets or business of the
Company, or any other corporate act or proceeding.
(b) CAPITAL STRUCTURE. In the event of (i) any such change in the
capital structure or business of the Company by reason of any stock
dividend or distribution, stock split or reverse stock split,
recapitalization, reorganization, merger, consolidation, split-up,
combination or exchange of shares, distribution with respect to its
outstanding Common Stock or capital stock other than Common Stock, sale or
transfer of all or part of its assets or business, reclassification of its
capital stock, or any similar change affecting the Company's capital
structure or business and (ii) the Board determines an adjustment
<PAGE>
is appropriate under the Plan, then the aggregate number and kind of
shares which thereafter may be issued under this Plan, the number and kind
of shares to be issued upon exercise of an outstanding Stock Option
granted under this Plan and the purchase price thereof shall be
appropriately adjusted consistent with such change in such manner as the
Board may deem equitable to prevent substantial dilution or enlargement of
the rights granted to, or available for, Non-Employee Directors under this
Plan or as otherwise necessary to reflect the change, and any such
adjustment determined by the Board shall be binding and conclusive on the
Company and all Non-Employee Directors and employees and their respective
heirs, executors, administrators, successors and assigns.
(c) FRACTIONAL SHARES. Fractional shares of Common Stock resulting
from any adjustment in Awards pursuant to Section 4.2(a) or (b) shall be
aggregated until, and eliminated at, the time of exercise by rounding-down
for fractions less than one-half (2) and rounding-up for fractions equal
to or greater than one-half (2). No cash settlements shall be made with
respect to fractional shares eliminated by rounding. Notice of any
adjustment shall be given by the Board to each Non-Employee Director whose
Award has been adjusted and such adjustment (whether or not such notice is
given) shall be effective and binding for all purposes of the Plan.
(d) ACQUISITION EVENTS. If the Company shall not be the surviving
corporation in any merger or consolidation, or if the Company is to be
dissolved or liquidated, then, unless the surviving corporation assumes
the Stock Options or substitutes new Stock Options which are determined by
the Board in its sole discretion to be substantially similar in nature and
equivalent in terms and value for Stock Options then outstanding, upon the
effective date of such merger, consolidation, liquidation or dissolution,
any unexercised Stock Options shall expire without additional compensation
to the holder thereof; provided, that, the Board shall deliver notice to
each non-employee director at least twenty days prior to the date of
consummation of such merger, consolidation, dissolution or liquidation
which would result in the expiration of the Stock Options and during the
period from the date on which such notice of termination is delivered to
the consummation of the merger, consolidation, dissolution or liquidation,
such Non-Employee Director shall have the right to exercise in full
effective as of such consummation all Stock Options that are then
outstanding (without regard to limitations on exercise otherwise contained
in the Stock Options) but contingent on occurrence of the merger,
consolidation, dissolution or liquidation, and, provided that, if the
contemplated transaction does not take place within a ninety day period
after giving such notice for any reason whatsoever, the notice,
accelerated vesting and exercise shall be null and void and, if and when
appropriate, new notice shall be given as aforesaid.
ARTICLE V
ELECTIONS
5.1 NON-EMPLOYEE DIRECTOR ELECTIONS.
(a) The Company shall pay 50% of a Non-Employee Director's Retainer
Fees in the form of Restricted Stock or Stock Options, as elected by the
Non-Employee Director in accordance with Section 5.2 below.
(b) Each Non-Employee Director may also elect, in accordance with
Section 5.2 below, to receive Awards of Restricted Stock or Stock Options
in lieu of receiving (i) a cash payment of all or a
<PAGE>
portion of Retainer Fees not covered by Section 5.1(a); or (ii) a cash
payment of all or a portion of Meeting Fees.
5.2 TIMING AND MANNER OF ELECTION.
(a) METHOD OF ELECTION. Any election to receive Restricted Stock or
Stock Options as payment of Retainer Fees or Meeting Fees shall be made in
writing to the Board (on a form prescribed by the Board) prior to the
first day of the Company's fiscal year during which the Retainer Fees or
Meeting Fees are earned; provided, however, that with respect to the 1999
fiscal year, any election under Section 5.1 shall be made in writing to
the Board prior to the first regularly scheduled meeting of the Board, but
in no event later than January 31, 1999. Each election, which shall be
made in a manner as determined by the Board in its sole and absolute
discretion, shall designate (i) whether the election applies to Retainer
Fees or Meeting Fees; (ii) whether the Retainer Fees or Meeting Fees, as
applicable, are to be awarded in cash, Restricted Stock or Stock Options;
and (iii) the applicable percentage of Retainer Fees or Meeting Fees to be
awarded in cash, Restricted Stock or Stock Options.
(b) IRREVOCABLE ELECTION. An election under this Article V is
irrevocable and, except with respect to the 1999 fiscal year, is valid
only for the Company's fiscal year commencing immediately following the
date of the election.
(c) DEFAULT ELECTIONS. If no election is made or if a new election
is not made with respect to any subsequent fiscal year pursuant to Section
5.1(a), the Non-Employee Director shall be deemed to have made an election
to receive an Award of Restricted Stock for purposes of Section 5.1(a). If
no election is made or if a new election is not made with respect to any
subsequent fiscal year pursuant to Section 5.1(b), the Non-Employee
Director shall be deemed to have made an election to receive all Retainer
Fees not covered by Section 5.1(a) and all Meeting Fees in cash.
(d) MID-YEAR PARTICIPATION. An individual who becomes a Non-Employee
Director after the date by which an election would otherwise be required
to be made hereunder with respect to a fiscal year may elect to receive an
Award during that fiscal year by making an election, in the form required
hereunder, within thirty days after the individual becomes a Non-Employee
Director and such election shall become effective the first day of the
month following the date of the election.
5.3 DATE OF GRANT. Awards that are attributable to Retainer Fees shall be
made as of the first business day of each quarter of the Company's fiscal year,
which shall be treated as the dates of grant for such Awards. Awards that are
attributable to Meeting Fees shall be made as of the dates of the Board meetings
and/or committee meetings with respect to which such Awards relate, which shall
be treated as the dates of grant for such Awards. Unless the Board decides to
take specific action at grant with respect to an Award (provided that it is
consistent with the Plan's terms), any grant of an Award hereunder shall be
automatic after giving effect to the election made by an Non-Employee Director
pursuant to Section 5.1 hereof without further action by the Board or the
stockholders of the Company.
ARTICLE VI
RESTRICTED STOCK
6.1 RESTRICTED STOCK. As of each date of grant, as determined in
accordance with Section 5.3
above, each Non-Employee Director shall receive that number of shares of
Restricted Stock determined by dividing (a) the amount of Retainer Fees or
Meeting Fees that the Non-Employee Director elected to receive in Restricted
Stock, by (b) the lesser of: (i) 100% of the Fair Market Value of the Common
Stock on the first business day of the Company's fiscal year and (ii) 100% of
the Fair Market Value of the Common Stock at the time of grant of the Restricted
Stock. Any fractional shares of Restricted Stock resulting from the division of
(a) by (b) shall be eliminated by rounding-down for fractions less than one-half
(2) and rounding-up for fractions equal to or greater than one-half (2). No cash
settlements shall be made with respect to fractional shares eliminated by
rounding.
6.2 AWARDS OF RESTRICTED STOCK. Restricted Stock granted under this
Article VI shall be subject to the following terms and conditions:
(a) PURCHASE PRICE. The purchase price of shares of Restricted Stock
shall be their par value or, to the extent permitted by applicable law,
zero.
(b) AGREEMENT. Awards of Restricted Stock shall be evidenced by an
agreement entered into between the Company and the Non-Employee Director.
In the event that the Non-Employee Director is required to pay the
purchase price for Restricted Stock in accordance with Section 6.2(a),
such agreement must be accepted within a period of ninety days (or such
shorter period as the Board may specify at grant) after the Award date by
executing a Restricted Stock Award agreement and by paying the purchase
price, if any.
(c) VESTING. Except as otherwise provided in Article VIII or X,
shares of Restricted Stock granted to a Non-Employee Director shall be
fully vested as of the third anniversary of the date the Award is granted
(the "Restriction Period").
(d) LEGEND. Each Non-Employee Director receiving shares of
Restricted Stock granted under this Article VI shall be issued a stock
certificate in respect of such shares of Restricted Stock, unless the
Board elects to use another system, such as book entries by the transfer
agent, as evidencing ownership of shares of Restricted Stock. Such
certificate shall be registered in the name of the Non-Employee Director
and shall bear an appropriate legend, to the extent required by applicable
law, as the Company may determine, referring to the terms, conditions and
restrictions applicable to such Award, substantially in the following
form:
"The anticipation, alienation, attachment, sale, transfer,
assignment, pledge, encumbrance or charge of the shares of stock
represented hereby are subject to the terms and conditions
(including forfeiture) of The Alpine Group, Inc. (the "Company")
Stock Compensation Plan for Non-Employee Directors (the "Plan") and
an Agreement entered into between the registered owner and the
Company dated . Copies of such Plan and Agreement are on file at the
principal office of the Company."
(e) CUSTODY. The Board may require that any stock certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed and that, as a condition to the
grant of such Award of Restricted Stock, the Non-Employee Director shall
have delivered a duly signed stock power, endorsed in blank, relating to
the Common Stock covered by such Award.
6.3 OWNERSHIP. Except to the extent otherwise set forth in the
Restricted Stock agreement, the
<PAGE>
Non-Employee Director shall possess all incidents of ownership of such
shares of Common Stock, subject to this Article VI, including the right to
receive dividends with respect to such shares of Common Stock, the right
to vote such shares of Common Stock, and, subject to and conditioned upon
the full vesting of Restricted Stock, the right to tender such shares of
Common Stock. Any stock dividend that is issued on Restricted Stock or if
Restricted Stock is split or any other shares, securities, moneys or
property representing a dividend is issued on Restricted Stock (other than
regular cash dividends which will be paid when any such cash dividends are
distributed to the Company's stockholders) or represents a distribution or
return of capital upon or in respect of Restricted Stock or any part
thereof, or results from a split-up, reclassification or other like
changes of Restricted Stock, or otherwise is issued in exchange therefor,
and any warrants, rights or options issued in respect of Restricted Stock
shall be subject to the same restrictions, including that of this Article
VI, as Restricted Stock with regard to which they are issued and shall
herein be encompassed within the term "Restricted Stock."
6.4 LAPSE OF RESTRICTIONS. If and when the Restriction Period
expires without a prior forfeiture of the Restricted Stock subject to such
Restriction Period, the certificates for such shares shall be delivered to
the Non-Employee Director. All legends shall be removed from said
certificates at the time of delivery to the Non-Employee Director except
as otherwise required by applicable law.
ARTICLE VII
STOCK OPTIONS
7.1 STOCK OPTIONS. As of each date of grant, as determined in
accordance with Section 5.3 above, each Non-Employee Director shall
receive that number of Stock Options determined by dividing (i) the amount
of Retainer Fees or Meeting Fees that the Non-Employee Director elected to
receive in the form of Stock Options, by (ii) the value of one Stock
Option on the date of grant as determined in good faith by the Board,
based on the purchase price per share of Common Stock determined in
accordance with Section 7.2(a) and a Black-Scholes Option pricing model
(calculated by an accounting, investment banking or appraisal firm
selected by the Board) and such other factors as the Board deems
appropriate. Any fractional number of Stock Options resulting from the
division of (i) by (ii) shall be eliminated by rounding-down for fractions
less than one-half (2) and rounding-up for fractions equal to or greater
than one-half (2). No cash settlements shall be made with respect to
fractional shares eliminated by rounding.
7.2 TERMS OF STOCK OPTIONS. Stock Options granted under this
Article VII shall be subject to the following terms and conditions and
shall be in such form and contain such additional terms and conditions,
not inconsistent with terms of this Plan, as the Board shall deem
desirable:
(a) STOCK OPTION PRICE. The purchase price per share of Common
Stock deliverable upon the exercise of a Stock Option granted
pursuant to Section 7.1 shall be the lesser of: (i) 100% of the Fair
Market Value of such Common Stock on the first business day of the
Company's fiscal year; and (ii) 100% of the Fair Market Value of
such Common Stock at the time of the grant of the Stock Option.
(b) AGREEMENT. Awards of Stock Options shall be evidenced by
an agreement entered into between the Company and the Non-Employee
Director.
(c) OPTION TERM. If not previously exercised each Stock Option
shall expire upon the tenth anniversary of the date of the grant
thereof.
<PAGE>
(d) EXERCISABILITY. Except as otherwise provided in Article
VIII or X, any Stock Option granted under this Article VII shall
vest and become fully exercisable as of the third anniversary of the
date the Award is granted.
(e) METHOD FOR EXERCISE. Subject to the vesting provisions of
Section 7.2(d), Stock Options may be exercised in whole or in part
at any time during the Stock Option term, by giving written notice
of exercise to the Company specifying the number of shares to be
purchased. Such notice shall be accompanied by payment in full of
the purchase price in cash, in the form of Common Stock owned by the
Non-Employee Director for at least 6 months (and for which the
Non-Employee Director has good title free and clear of any liens and
encumbrances) based on the Fair Market Value of the Common Stock on
the payment date, in a combination thereof or such other arrangement
for the satisfaction of the purchase price, as the Board may accept.
No shares of Common Stock shall be issued until payment, as provided
herein, therefor has been made or provided for.
ARTICLE VIII
TERMINATION OF DIRECTORSHIP
8.1 TERMINATION OF DIRECTORSHIP BY REASON OF DEATH. If a Non-Employee
Director's Termination of Directorship is by reason of death, upon such
Termination of Directorship (i) all Restricted Stock held by such Non-Employee
Director and still subject to restrictions shall become fully vested and the
restrictions thereon shall lapse; and (ii) all Stock Options held by such
Non-Employee Director and not previously exercisable shall become fully vested
and exercisable. All Stock Options shall remain exercisable by the Non-Employee
Director's estate or by the person given authority to exercise such Stock
Options by his or her will or by operation of law, for the remainder of the
stated term of such Stock Option.
8.2 TERMINATION OF DIRECTORSHIP FOR CAUSE. If a Non-Employee Director's
Termination of Directorship is for Cause or if the Company obtains or discovers
information after Termination of Directorship that such Non-Employee Director
had engaged in conduct that would have justified a removal for Cause during such
directorship, (i) all Restricted Stock subject to restriction held by such
Non-Employee Director shall be forfeited; and (ii) all Stock Options held by
such Non-Employee Director shall thereupon terminate and expire as of the date
of such Termination of Directorship or the date the Company obtains or discovers
such information.
8.3 TERMINATION OF DIRECTORSHIP BY REASON OTHER THAN DEATH OR FOR CAUSE.
(a) GENERAL RULE. If a Non-Employee Director's Termination of
Directorship is by any reason other than death or for Cause, including,
without limitation, Retirement, disability, resignation, or failure to
stand for reelection (i) all Restricted Stock subject to restriction held
by such Non-Employee Director shall be forfeited; and (ii) all Stock
Options held by such Non-Employee Director may be exercised, to the extent
exercisable at the Non-Employee Director's Termination of Directorship, by
the Non-Employee Director for the remainder of the stated term of such
Stock Option.
(b) SPECIAL RETIREMENT RULE. Notwithstanding the foregoing, if a
Non-Employee Director's Termination of Directorship is by reason of
Retirement, the Board may, in its sole and absolute discretion, determine
that: (i) all or a portion of the Restricted Stock held by such
Non-Employee Director and still subject to restrictions shall become fully
vested and the restrictions thereon shall lapse; and (ii)
<PAGE>
all or portion of the Stock Options held by such Non-Employee Director and
not previously exercisable shall become fully vested and exercisable and
remain exercisable by the Non-Employee Director for the remainder of the
stated term of the Stock Option; provided, however, that if the
Non-Employee Director dies before the end of the stated term of the Stock
Option, any unexercised Stock Option held by the Non-Employee Director
shall thereafter be exercisable by the Non-Employee Director's estate or
by the person given authority to exercise such Stock Option by his or her
will or by operation of law, to the extent to which it was exercisable at
the time of death, for the remainder of the stated term of such Stock
Option.
8.4 CANCELLATION OF STOCK OPTIONS. Subject to Section 8.3(b), no Stock
Options that were not vested during the period such person serves as a director
shall thereafter become exercisable upon a Termination of Directorship for any
reason or no reason whatsoever, and such Stock Options shall terminate and
become null and void upon a Termination of Directorship.
8.5 FORFEITURE. A Non-Employee Director shall be entitled to no
compensation upon the forfeiture of rights to Restricted Stock, other than
repayment of par value paid for such Restricted Stock, if any.
ARTICLE IX
NON-TRANSFERABILITY
No Stock Option shall be Transferable by the Non-Employee Director
otherwise than by will or by the laws of descent and distribution. All Stock
Options shall be exercisable, during the Non-Employee Director's lifetime, only
by the Non-Employee Director. Shares of Restricted Stock under Article VI may
not be Transferred prior to the date on which such shares are issued, or, if
later, the date on which the Restriction Period lapses. No Award shall, except
as otherwise specifically provided by law or herein, be Transferable in any
manner, and any attempt to Transfer any such Award shall be void, and no such
Award shall in any manner be liable for or subject to the debts, contracts,
liabilities, engagements or torts of any person who shall be entitled to such
Award nor shall it be subject to attachment or legal process for or against such
person. Notwithstanding the foregoing, the Board may determine at the time of
grant or thereafter, that a Stock Option granted pursuant to Article VII that is
otherwise not Transferable pursuant to this Article IX is Transferable in whole
or part and in such circumstances, and under such conditions, as specified by
the Board.
ARTICLE X
CHANGE IN CONTROL PROVISIONS
10.1 BENEFITS. Upon a Change in Control of the Company (as defined below):
(i) Stock Options granted and not previously exercisable shall vest and become
fully exercisable; and (ii) shares of Restricted Stock shall fully vest and the
restrictions thereon shall lapse.
10.2 CHANGE IN CONTROL. A "Change in Control" shall be deemed to have
occurred:
(a) upon the acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of voting securities of the Company
where such acquisition causes such Person to own more than 20% or more of
the combined voting power of the then outstanding voting
<PAGE>
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (a), the following
acquisitions shall not be deemed to result in a Change in Control: (i) any
acquisition directly from the Company; (ii) any acquisition by the
Company; (iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company; or (iv) any acquisition by any corporation
pursuant to a transaction that complies with clauses (i), (ii) and (iii)
of subsection (c) below; and provided, further, that if any Person's
beneficial ownership of the Outstanding Company Voting Securities reaches
or exceeds more than 20% as a result of a transaction described in clause
(i) or (ii) above, and such Person subsequently acquires beneficial
ownership of additional voting securities of the Company, such subsequent
acquisition shall be treated as an acquisition that causes such Person to
own more than 20% or more of the Outstanding Company Voting Securities; or
(b) individuals who, as of the Effective Date, constitute the Board
(the "Incumbent Board"), cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the Effective Date whose election, or nomination
for election by the Company's stockholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) the consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of the assets of another corporation ("Business
Combination"); excluding, however, such a Business Combination pursuant to
which (i) all or substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly
or indirectly, more than 50% of, respectively, the then outstanding shares
of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation that as a result
of such transaction owns the Company or all or substantially all of the
Company's assets either directly or indirectly through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company
Voting Securities; (ii) no Person (excluding any employee benefit plan (or
related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, more than
20% or more of, respectively, the then outstanding shares of common stock
of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination; and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
<PAGE>
ARTICLE XI
TERMINATION OR AMENDMENT OF THE PLAN
Notwithstanding any other provision of this Plan, the Board may at any
time, and from time to time, amend, in whole or in part, any or all of the
provisions of the Plan, or suspend or terminate it entirely, retroactively or
otherwise; provided, however, that, unless otherwise required by law or
specifically provided herein, the rights of a Non-Employee Director with respect
to Awards granted prior to such amendment, suspension or termination, may not be
impaired without the consent of such Non-Employee Director.
The Board may amend the terms of any Award granted, prospectively or
retroactively, but, subject to Articles VIII and X above or as otherwise
specifically provided herein, no such amendment or other action by the Board
shall impair the rights of any Non-Employee Director without the Non-Employee
Director's consent.
ARTICLE XII
UNFUNDED PLAN
This Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payments as to which a Non-Employee Director
has a fixed and vested interest but which are not yet made to a Non-Employee
Director by the Company, nothing contained herein shall give any such
Non-Employee Director any rights that are greater than those of a general
creditor of the Company.
ARTICLE XIII
GENERAL PROVISIONS
13.1 REPRESENTATION AND LEGEND. The Board may require each person
receiving shares pursuant to the exercise of an Award under the Plan to
represent to and agree with the Company in writing that the Non-Employee
Director is acquiring the shares without a view to distribution thereof. In
addition to any legend required by this Plan, the certificates for such shares
may include any legend which the Board deems appropriate to reflect any
restrictions on Transfer.
All certificates for shares of Common Stock delivered under the Plan shall
be subject to such stock transfer orders and other restrictions as the Board may
deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Common
Stock is then listed or any national securities association system upon whose
system the Common Stock is then quoted, any applicable Federal or state
securities law, and any applicable corporate law, and the Board may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
13.2 OTHER PLANS. Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.
13.3 NO RIGHT TO DIRECTORSHIP. Neither this Plan nor the grant of any
Award hereunder shall impose any obligations on the Company to retain any
Non-Employee Director as a director nor shall it impose on the part
<PAGE>
of any Non-Employee Director any obligation to remain as a director of the
Company.
13.4 WITHHOLDING OF TAXES. The Company shall have the right to deduct from
any payment to be made to a Non-Employee Director, or to otherwise require,
prior to the issuance or delivery of any shares of Common Stock or the payment
of any cash hereunder, payment by the Non-Employee Director, of, any Federal,
state or local taxes required by law to be withheld.
The Board may permit any such withholding obligation with regard to any
Non-Employee Director to be satisfied by reducing the number of shares of Common
Stock otherwise deliverable or by delivering shares of Common Stock already
owned. Any fraction of a share of Common Stock required to satisfy such tax
obligations shall be disregarded and the amount due shall be paid instead in
cash by the Non-Employee Director.
Notwithstanding anything hereunder to the contrary, to the extent
permitted under the Code or other applicable law, the Company may, in its sole
and absolute discretion, reduce the number of shares of Common Stock otherwise
deliverable to a Non-Employee Director in an amount that would be withheld if
taxes were required to be withheld and, if the Company so reduces the shares
otherwise deliverable, the Company shall remit such amount to any such
applicable Federal, state or local taxing authority.
13.5 LISTING AND OTHER CONDITIONS.
(a) As long as the Common Stock is listed on a national securities
exchange or system sponsored by a national securities association, the
issue of any shares of Common Stock pursuant to the exercise of an Award
shall be conditioned upon such shares being listed on such exchange or
system. The Company shall have no obligation to issue such shares unless
and until such shares are so listed, and the right to exercise any Stock
Option with respect to such shares shall be suspended until such listing
has been effected.
(b) If at any time counsel to the Company shall be of the opinion
that any sale or delivery of shares of Common Stock pursuant to an Award
is or may in the circumstances be unlawful or result in the imposition of
excise taxes on the Company under the statutes, rules or regulations of
any applicable jurisdiction, the Company shall have no obligation to make
such sale or delivery, or to make any application or to effect or to
maintain any qualification or registration under the Securities Act of
1933, as amended, or otherwise with respect to shares of Common Stock or
Awards and the right to exercise any Stock Option shall be suspended
until, in the opinion of said counsel, such sale or delivery shall be
lawful or will not result in the imposition of excise taxes on the
Company.
(c) Upon termination of any period of suspension under this Section
13.5, any Award affected by such suspension which shall not then have
expired or terminated shall be reinstated as to all shares available
before such suspension and as to shares which would otherwise have become
available during the period of such suspension, but no such suspension
shall extend the term of any Stock Option.
13.6 GOVERNING LAW. This Plan shall be governed and construed in
accordance with the laws of the State of Delaware (regardless of the law that
might otherwise govern under applicable Delaware principles of conflict of
laws).
13.7 CONSTRUCTION. Wherever any words are used in this Plan in the
masculine gender they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply, and
<PAGE>
wherever any words are used herein in the singular form they shall be construed
as though they were also used in the plural form in all cases where they would
so apply.
13.8 OTHER BENEFITS. No Award payment under this Plan shall be deemed
compensation for purposes of computing benefits under any retirement plan of the
Company or its subsidiaries nor affect any benefits under any other benefit plan
now or subsequently in effect under which the availability or amount of benefits
is related to the level of compensation.
13.9 COSTS. The Company shall bear all expenses included in administering
this Plan, including expenses of issuing Common Stock pursuant to any Award
hereunder.
13.10 NO RIGHT TO SAME BENEFITS. The provisions of Awards need not be the
same with respect to each Non-Employee Director, and such Awards granted to
individual Non-Employee Directors need not be the same in subsequent years.
13.11 DEATH/DISABILITY. The Board may in its discretion require the
transferee of a Non-Employee Director to supply it with written notice of the
Non-Employee Director's death or disability and to supply it with a copy of the
will (in the case of a Non-Employee Director's death) or such other evidence as
the Board deems necessary to establish the validity of the transfer of an Award.
The Board may also require that the agreement of the transferee to be bound by
all of the terms and conditions of the Plan.
13.12 SECTION 16(B) OF THE EXCHANGE ACT. All elections and transactions
under the Plan by persons subject to Section 16 of the Exchange Act involving
shares of Common Stock are intended to comply with any applicable condition
under Rule 16b-3. The Board may establish and adopt written administrative
guidelines, designed to facilitate compliance with Section 16(b) of the Exchange
Act, as it may deem necessary or proper for the administration and operation of
the Plan and the transaction of business thereunder.
13.13 SEVERABILITY OF PROVISIONS. If any provision of the Plan shall be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and the Plan shall be construed and enforced
as if such provisions had not been included.
13.14 HEADINGS AND CAPTIONS. The headings and captions herein are provided
for reference and convenience only, shall not be considered part of the Plan,
and shall not be employed in the construction of the Plan.
ARTICLE XIV
TERM OF PLAN
No Award shall be granted pursuant to the Plan on or after the tenth
anniversary of the Effective Date, but Awards granted prior to such tenth
anniversary may extend beyond that date.
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<PAGE>
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