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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
/ / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED
OR
/X/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
--FOR THE TRANSITION PERIOD FROM MAY 1, 1999 TO DECEMBER 31, 1999
COMMISSION FILE NUMBER 1-9078
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THE ALPINE GROUP, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 22-1620387
(State or other jurisdiction (I.R.S. Employer
of Identification No.)
incorporation or organization)
1790 BROADWAY
NEW YORK, NEW YORK
(Address of principal 10019-1412
executive offices) (Zip code)
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Registrant's telephone number, including area code 212-757-3333
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Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $.10 per share............ New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K/A or any
amendment to this Form 10-K/A. / /
At March 24, 2000, the registrant had 14,148,944 shares of common stock, par
value $.10 per share, outstanding, and the aggregate market value of the
outstanding shares of voting stock held by non-affiliates of the registrant on
such date was $102,906,239, based on the closing price of $9.8125 per share of
such common stock on such date.
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DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the Company's Annual Meeting of Stockholders in Part III of
this Form 10-K/A.
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PART I
ITEM 1. BUSINESS
The Alpine Group, Inc. (together with its subsidiaries, unless the context
otherwise requires, "Alpine" or the "Company") is an industrial holding company
with investments in three industrial manufacturing companies.
SUPERIOR TELECOM INC.
Alpine holds a 51.8% common equity interest in its consolidated subsidiary,
Superior TeleCom Inc. (together with its subsidiaries, unless the context
otherwise requires, "Superior"), a publicly traded New York Stock Exchange
listed company (NYSE: SUT) engaged in the manufacture of wire and cable
products. A description of the business of Superior is included herein.
POLYVISION CORPORATION
Alpine holds a 48% common equity interest and $19.7 million of convertible
preferred stock in its unconsolidated affiliate, PolyVision Corporation, a
publicly-traded American Stock Exchange listed company (AMEX: PLI). PolyVision
is a global manufacturer of visual communications and related products for the
education/office markets, menus and merchandising boards for food service and
banking institutions, and high performance wall systems used in the education,
transportation and select architectural markets.
COOKSON GROUP PLC
On August 6, 1999, Alpine completed the sale of its wholly-owned subsidiary,
Premier Refractories International Inc. ("Premier") to Cookson Group plc
("Cookson"), a London Stock Exchange listed company engaged in the manufacture
and sale of a variety of industrial materials.
The sale was effected through the merger of Premier with a wholly-owned
subsidiary of Cookson. In connection with the transaction, Cookson assumed all
of Premier's existing indebtedness, issued to Alpine approximately 32.3 million
shares of Cookson common stock and paid to Alpine $15.6 million in cash.
Immediately prior to the sale of Premier, Alpine acquired the 16.6% minority
equity interest in Premier for approximately $31.1 million in cash. In
connection with this transaction, Alpine recognized an after tax gain of
$35.4 million.
Alpine's current ownership in Cookson common stock approximates 4%.
Alpine was incorporated in New Jersey on May 7, 1957 and reincorporated in
Delaware on February 3, 1987. Its principal executive offices are located at
1790 Broadway, New York, New York 10019-1417 and its telephone number is
(212) 757-3333.
SUPERIOR TELECOM INC.
GENERAL
Superior is the largest wire and cable manufacturer in the United States and
the fourth largest in the world. Superior manufactures wire and cable products
for the communications, original equipment manufacturer or "OEM" and electrical
markets. Superior is a leading manufacturer and supplier of communications wire
and cable products to telephone companies, distributors and system integrators;
magnet wire and insulation materials for motors, transformers and electrical
controls as well as automotive and specialty wiring assemblies for automobiles
and trucks; and building and industrial wire for applications in commercial and
residential construction and industrial facilities. Superior operates 33
manufacturing facilities in the United States, Canada, United Kingdom and
Israel.
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ORGANIZATIONAL HISTORY
Superior was incorporated in July 1996 as a wholly-owned subsidiary of
Alpine. On October 2, 1996, Alpine completed a reorganization whereby all of the
issued and outstanding common stock of two of Alpine's wholly-owned
subsidiaries, Superior Telecommunications Inc. and DNE Systems, Inc., were
contributed to Superior.
On October 17, 1996, Superior completed an initial public offering of its
common stock, generating net proceeds of approximately $90 million which were
used to reduce outstanding bank debt and pay Alpine certain previously declared
dividends. In November 1996, the underwriters of the initial public offering
exercised their over-allotment option to purchase additional shares of Superior
common stock, resulting in additional net proceeds of approximately
$13.3 million of which $8.1 million was used to repurchase Superior common
stock, with the balance used to reduce bank debt. As a result of the initial
public offering, Alpine's common stock ownership position in Superior was
reduced to approximately 50.1%. As a result of treasury stock repurchases and
other transactions, Alpine's current common stock interest in Superior is 51.8%.
Superior effected a five-for-four stock split on February 2, 1998 and again
on February 3, 1999, and issued a 3% stock dividend on February 11, 2000.
RECENT SIGNIFICANT GROWTH
Over the past five years, Superior, including its predecessors, has led a
consolidation of the North American wire and cable industry. In May 1995,
Superior Telecommunications Inc. acquired the North American copper
telecommunications wire and cable operations of Alcatel N.A. Cable
Systems, Inc. and Alcatel Canada Wire, Inc. With this acquisition, Superior
became the largest North American manufacturer of copper telephone wire and
cable.
On November 27, 1998, a newly formed, wholly-owned subsidiary of Superior
acquired approximately 81% of the outstanding shares of common stock of Essex
International Inc. through a cash tender offer for an aggregate price of
approximately $770 million. Essex, through its subsidiaries, manufactures and
distributes wire and cable and insulation products, including magnet wire for
electromechanical devices, building wire for commercial and residential
construction applications, copper communications wire and cable, industrial wire
and automotive wire. As a result of the acquisition of Essex, Superior is now a
diversified supplier of wire and cable products and, based on current annualized
sales levels, is the largest wire and cable manufacturer in North America and
the fourth largest wire and cable manufacturer in the world.
In connection with the Essex acquisition, Superior amended and restated its
bank credit facility and entered into a new $200.0 million senior subordinated
credit agreement. These credit facilities provide for total borrowings of up to
$1.35 billion. Approximately $1.2 billion of the total proceeds available under
these credit facilities were used to finance the Essex cash tender offer,
including the refinancing of certain indebtedness of Superior and Essex, and to
pay related fees and expenses. The remaining proceeds were available to fund the
working capital requirements of Superior.
On March 31, 1999, Essex merged with a wholly-owned subsidiary of Superior.
In the merger, holders of the remaining 19% of the outstanding shares of common
stock of Essex each received 0.64 (in the aggregate $167 million liquidation
value) of an 8 1/2% trust convertible preferred security of Superior Trust I, a
Delaware trust in which Superior owns all the common equity interests, for each
share of Essex common stock owned. Upon completion of the merger, Essex became a
wholly-owned subsidiary of Superior.
During 1998, Superior expanded its presence in international markets. On
May 5, 1998, Superior acquired 51% of the issued and outstanding shares of
common stock of Cables of Zion United Works, Ltd. for approximately
$25.0 million in cash. Cables of Zion is an Israel-based cable and wire
manufacturer
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whose primary products include fiber and copper communications wire and cable
and power cable. Cables of Zion products are sold primarily into the Israeli and
European markets.
On December 31, 1998, Superior, through Cables of Zion, acquired the
business and certain operating assets of Cvalim-The Electric Wire & Cable
Company of Israel Ltd. and its wholly-owned subsidiary, Dash Cable Industries
(Israel) Ltd., for approximately $41.2 million in cash. Cvalim was the leading
Israeli manufacturer of electrical, communications and industrial wire and cable
products. Furthermore, in October 1999 Cables of Zion acquired the business and
certain operating assets of Pica Plast Limited the remaining major wire and
cable company in Israel for a purchase price of approximately $10 million. As a
result of these acquisitions, Cables of Zion, which has changed its name to
Superior Cables Limited, is the dominant wire and cable manufacturer in Israel
with an approximate 80% market share. The Company believes that expanding
Superior's operational presence in Israel will enable it to participate further
in the growing communications wire and cable markets in Europe and the Middle
East. The operations of Superior Cables Limited, including the acquired
operations of Cvalim and Pica Plast, are hereinafter referred to as "Superior
Israel".
BUSINESS LINES
Prior to the acquisitions of Essex and Superior Israel, Superior's product
sales were comprised almost entirely of communications wire and cable. With the
Essex acquisition, Superior broadened its product lines into the OEM segment,
which includes principally magnet wire, automotive wire and related products,
and into electrical wire, which includes low voltage building wire and
industrial wire. With the Superior Israel acquisition, Superior added additional
communications wire and cable product sales on an international basis, including
fiber optic cable, along with low, medium and high voltage power cable, as well
as other wire and cable product lines.
RECENT CORPORATE REORGANIZATION AND OPERATIONAL RESTRUCTURINGS
During 1999, and in connection with the Essex acquisition, Superior
initiated a significant corporate reorganization at Essex and a major
restructuring of certain operations of Essex, including the sale of
non-strategic business lines and the rationalization of certain manufacturing
assets.
In April 1999, Superior completed a corporate reorganization which included
the elimination of more than 130 corporate and divisional general and
administrative positions at Essex. Annual savings in corporate expenses from
these personnel reductions, along with other corporate general and
administrative cost reductions and synergies, approximate $25 million.
Superior has also divested non-core product lines, including the sale of the
business and operating assets of Essex's insulation products business in
October 1999 and its Interstate operations (wiring assemblies for trucks and
buses) in December 1999. Total cash proceeds from these sales amounted to
$11 million.
Additionally, Superior has substantially completed a restructuring and
rationalization of the operating assets comprising Essex's Electrical Group.
During 1999, Superior shut down or sold five electrical wire manufacturing
plants and is in negotiations to sell a sixth plant. This will result in the
Electrical Group's manufacturing being consolidated into five remaining
manufacturing facilities. This restructuring resulted in the elimination of 600
positions and a reduction of 22% in the Electrical Group's manufacturing
capacity all of which was considered excess capacity.
As a result of the above mentioned activities, Superior has eliminated
approximately 1,100 positions in the aggregate, a 25% reduction in Essex's total
workforce since the beginning of 1999.
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COMMUNICATIONS GROUP
Superior's Communications Group includes its North American communications
wire and cable operations as well as the operations of Superior Israel.
The Communications Group's North American operations manufacture and sell
the following communications wire and cable products:
(1) outside plant ("OSP") wire and cable for voice and data transmission,
including copper OSP products used in the local loop portion of the
telecommunications infrastructure, and, to a lesser degree, fiber optic OSP
products used by the local exchange carriers ("LECs"), CATV companies and
competitive local exchange carriers for both trunking and feeder
applications and OSP composite (or hybrid) cables (including fiber
optic/twisted pair cables and coaxial/twisted pair cables) for local loop,
feeder and distribution applications; and
(2) copper and fiber optic datacom, or premise, wire and cable used within homes
and offices for local area networks ("LANs"), Internet connectivity and
other applications.
Through six geographically dispersed plants, Superior has annual production
capacity in North America of approximately 165 billion conductor feet ("bcf")
for copper OSP and datacom copper wire and cable. Additionally, through Superior
Israel, Superior has seven bcf of production capacity for copper OSP and datacom
products. Superior is currently the largest manufacturer of copper
communications cable in North America, which is Superior's primary market, and
the largest worldwide manufacturer of copper OSP wire and cable products.
Superior's manufacturing capacity (based on current product mix) for fiber optic
OSP and fiber optic premise cable is 480,000 fiber kilometers ("fkm") in North
America and 450,000 fkm in Israel. Superior is currently expanding its North
American capacity for both fiber optic OSP and premise wire and cable products
as well as for copper premise wire and cable products. The Company expects that
this production capacity expansion will increase Superior's total annual sales
capacity for fiber optic and copper premise products by approximately
$100 million, based on current market prices, product mix and estimated
production rates.
The Communications Group also includes the operations of DNE Systems, Inc.
DNE designs and manufactures data communications equipment, integrated access
devices and other electronic equipment for defense, government and commercial
applications. DNE's net sales are not significant in relation to the total net
sales of the Communications Group.
For the eight month period ended December 31, 1999, net sales of copper OSP
products accounted for 68% of the Communications Group's net sales.
OSP PRODUCTS
Copper wire and cable are the most widely-used media for voice and data
transmission in the local loop portion of the traditional telecommunications
infrastructure operated by the LECs, which include the regional Bell operating
companies ("RBOCs") and the independent telephone operating companies. The local
loop is the segment of the telecommunications network that connects the
customer's premises to the nearest telephone company switching center or central
office. The Company believes that copper will continue to be a leading
transmission medium in the local loop due to factors such as:
- the installed base of copper cable and associated switches, connectors and
other accessory components represents an investment of over $150 billion
that must be maintained by the LECs;
- the lower installation and maintenance costs of copper compared to optical
fiber and other media;
- technological advances, such as digital subscriber line ("xDSL")
technologies and integrated services digital networks ("ISDN"), that
increase the bandwidth of the installed local loop copper network;
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- the increasing demand by consumers for affordable enhanced services,
which, because of technological advances, can be supported by the
copper-based local loop; and
- the increasing demand for affordable multiple residential access lines to
support fax machines, Internet access and multiple voice lines.
Demand for copper communications wire and cable is dependent on several
factors, including the rate at which new access lines are installed in homes and
businesses, the level of infrastructure spending for items such as
road-widenings and bridges, which generally necessitates replacement of existing
utilities, including telephone cable, and the level of general maintenance
spending by the LECs. The installation of new access lines is, in turn,
partially dependent on the level of new home construction and expansion of
business and, increasingly in recent years, on demand for additional telephone
lines and lines dedicated to facsimile machines and computer modems, which are
used for, among other purposes, business communications and access to the
Internet.
The local loop comprises approximately 180 million residential and business
access lines in the United States. The installed base of copper wire and cable
and associated switches and other components utilized in the local loop
represents an investment of over $150 billion that must be maintained by the
LECs. Although other media, such as fiber optic cable, are used for trunk lines
between central offices and for feeder lines connecting central offices to the
local loop, a substantial portion of all local loop lines and systems continue
to be copper-based. The Company believes that in the local loop, copper-based
networks require significantly lower installation and maintenance costs than
other alternative networks such as fiber optics. Installation of fiber optic
systems is both capital and labor intensive, and until very recently deployment
of fiber optic systems has been limited to trunk and feeder lines and wide area
network configurations, where the density of voice and data traffic make such
systems cost efficient.
Copper usage in the local loop continues to be supported by technological
advances that expand the use and bandwidth of the installed local loop copper
network. These advances include xDSL and ISDN technologies. These technologies,
together with regulatory developments and increased competition among service
providers, have accelerated the demand for and the introduction of new
high-speed and bandwidth-intensive telecommunications services, such as
integrated voice and data, broadcast and conference quality video, Internet,
high-speed LAN-to-LAN connectivity, and other specialized bandwidth-intensive
applications.
While these rapid and significant technological advances continue to
increase the use and bandwidth of the copper local loop network, there is
growing use of optical fiber in the feeder network as a funnel to support the
emerging high bandwidth digital copper loops. Superior has developed and is now
manufacturing and selling an optical fiber cable product line that includes
local loop feeder cables for OSP applications.
Superior manufactures a wide variety of OSP wire and cable products.
Superior's copper-based OSP products include distribution cable and service wire
products, ranging in size from a single twisted pair wire to a 4,200-pair cable.
The basic unit of virtually all copper OSP wire and cable is the "twisted pair,"
a pair of insulated conductors twisted around each other. Twisted pairs are
bundled together to form communications wire and cable. Superior's copper OSP
wire and cable products are differentiated by design variations, depending on
where the cable is to be installed. Copper OSP products used for direct
underground burial are designed to be water resistant and are filled with
compounds to prevent moisture from penetrating the cable structure. The
individual copper wires utilize either polyethylene or polypropylene insulation.
Copper OSP products used for underground duct or aerial applications, where
water penetration is not a major concern, are designed with polyethylene
insulation and no filling compound. Copper OSP products normally have metallic
shields for mechanical protection and electromagnetic shielding, as well as an
outer polyethylene jacket.
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To a lesser extent, Superior also manufactures fiber optic cable for OSP
applications. Superior is currently expanding its manufacturing capabilities for
fiber optic cables for OSP and premise applications. Superior's fiber optic OSP
cables can be used in a variety of installations such as aerial, buried and
underground conduit and can be configured with two to over 280 fibers, which are
typically single-mode fibers. These cables are sold to traditional customers,
such as distributors and LECs, as well as new customers, such as CATV companies,
competitive local exchange carriers, inter-exchange carriers and competitive
access providers. The first phase of this expansion, which includes plant and
equipment additions in its Brownwood, Texas facility, is expected to be
completed in the second quarter of 2000 and will increase Superior's total
manufacturing capacity for these products by over 100%.
One element of Superior's strategy in the Communications Group is to
continue to expand its offering of performance enhanced OSP wire and cable
products that provide opportunities for growth both within and outside
Superior's basic market. In addition to its recent development and current
expansion of manufacturing capabilities for fiber optic wire and cable products,
Superior has also acquired, developed or is in the process of developing other
new products including:
(1) hybrid OSP products combining twisted-pair copper wires with coaxial or
fiber optic cable for feeder and distribution service; and
(2) a broad band cable to support new technologies within the OSP segment.
Superior has historically been a key supplier of copper OSP wire and cable
to the RBOCs and the two major independent telephone companies, GTE Corporation
and Sprint Corporation. It is estimated that the RBOCs, GTE and Sprint comprise
approximately 80% of the approximately $1.4 billion North American copper OSP
market. The remaining 20% of the North American market is comprised of more than
1,200 smaller independent telephone companies. In recent years, Superior has not
been a major supplier to the smaller independent telephone companies due to
capacity constraints and lack of established distributor relationships. However,
the Essex acquisition provided Superior both the capacity and the established
distributor network to address this market.
For the eight month period ended December 31, 1999, 71% of Superior's OSP
net sales were to the RBOCs and the two major independent telephone companies,
25% of net sales were primarily to other telephone companies and data product
distributors in North America and 4% of net sales, excluding sales of Superior
Israel, were made outside of North America.
Superior sells to the RBOCs and the two major independent telephone
companies on a direct basis through a sales force of five salespersons. With the
acquisition of Essex, Superior's OSP wire and cable products are increasingly
being sold through domestic and international distributors and sales
representatives. Superior, through Superior Israel, also sells its fiber optic,
OSP and datacom copper wire and cable products to Bezeq, the Israeli telephone
company, and other customers and distributors in Israel, the United Kingdom,
Europe and South America.
Superior's sales to the major telephone operating companies are generally
pursuant to multi-year supply arrangements in which the customer agrees to have
Superior supply a certain percentage of the customer's OSP wire or cable needs
during the term of the arrangement. Typically, customers are not required to
purchase any minimum quantities of product under these arrangements. At
December 31, 1999, Superior had multi-year arrangements with three of the four
RBOCs and with the two major independent telephone companies.
In February 2000, Superior was notified that it would experience a
significant reduction in sales of copper OSP products to SBC, one of the four
RBOCs, due to price underbidding by a competitor on a rebid of a major portion
of SBC's annual OSP requirements. Superior expects to continue to sell OSP cable
to SBC on a transitional basis for a portion of 2000. Superior believes it can
recapture a portion of this lost business through increased sales with other
customers and in other markets. Superior also intends to reduce costs and, if
required, manufacturing capacity to offset the impact of these developments.
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DATACOM PRODUCTS
Datacom wire and cable is used within buildings to connect
telecommunications devices, such as telephones, facsimile machines and computer
modems, to the telecommunications network and in commercial buildings to provide
connectivity for LANs. Rapid technological advances in communication and
computer system capabilities have created increasing demand for greater
bandwidth capabilities in wire and cable products. Superior expects demand for
datacom wire and cable products to increase significantly in the future,
particularly as new office buildings are constructed, existing office buildings
are upgraded to accommodate advanced network requirements and multiple
residential access lines for facsimile machines, home offices and access to the
Internet are installed.
There are two primary applications for communications wiring systems within
buildings: voice applications, estimated at 15% of new wiring system investment,
and data applications, estimated at 85% of new wiring system investment. The
primary voice application consists of networking telephone stations. The primary
data application is LANs, which require the wired interconnection of
workstations and peripherals, such as printers, file servers, etc., to form a
network.
Four major types of cables are currently deployed in datacom applications:
(1) LAN copper twisted pair (unshielded twisted pair or "UTP" and shielded
twisted pair or "STP"), (2) LAN fiber optic cable, (3) LAN coaxial cable and
(4) voice grade twisted copper pair. Superior anticipates that UTP and fiber
optic cable will provide the most significant growth opportunities due to
increasing demands in the datacom market for cost-effective, high bandwidth
solutions.
Continued high growth for new LAN installations, as well as voice system
upgrades, have resulted in increased demand for LAN UTP cables, particularly
Category 5, advanced Category 5 and Category 6 cables. These high bandwidth
cables have made it possible for UTP to compete with fiber and LAN STP for
high-speed LAN applications. The other large component of the datacom segment is
fiber optic cable, which meets the needs of communications services requiring
bandwidth capabilities greater than can be provided by copper based
technologies.
Superior's current datacom wire and cable product offerings include voice
grade twisted pair, UTP and LAN fiber optic cable. Superior's UTP product
offerings include Category 6 cables and Category 5 cables ranging in size from
4-pair to 25-pair. These cables are designed and manufactured for use in both
plenum vertical and riser horizontal applications. Superior has recently
developed and has begun marketing and sales of LAN fiber optic cables. These
cables, which may be used for LAN trunking or distribution applications, contain
from one to 144 fibers, which are typically multi-mode fibers, and are used in
plenum and riser applications within buildings. Superior is currently expanding
its manufacturing capabilities for both copper UTP and fiber optic cable
products with an anticipated increase in sales and market share in 2000.
Superior's datacom wire and cable products are sold primarily through major
national and international distributors, smaller regional distributors and
representatives who in turn resell to contractors, international and domestic
telephone companies and private overseas contractors for installation in the
industrial, commercial and residential markets.
The datacom wire and cable market is fragmented, with nearly 25 datacom wire
and cable manufacturers in North America and more than 75 worldwide. Major
suppliers in North America include Lucent Technologies Inc., Cable Design
Technologies Corporation, Berk-Tek (an Alcatel company), Belden Inc.,
CommScope Inc. and General Cable Corporation. Superior estimates the North
American market for datacom wire and cable products similar to those
manufactured by Superior to be approximately $1.7 billion.
As previously mentioned, Superior is expanding its manufacturing
capabilities for both copper UTP and fiber optic products with an anticipated
increase in sales and market share in 2000.
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SUPERIOR ISRAEL
As previously discussed, during 1998 Superior acquired 51% of the
outstanding common stock of Cables of Zion, an Israeli wire and cable company.
Cables of Zion, in subsequent transactions, acquired the business and certain
operating assets of Cvalim and Pica Plast. With the consolidation of these three
businesses, Superior Israel is the largest Israeli wire and cable manufacturer
with an approximate 80% share of the Israeli wire and cable market.
Superior Israel's major product offerings include:
(1) communications cable including copper and optical fiber OSP and datacom
products;
(2) high and medium voltage power cable utilized by power utilities; and
(3) industrial and automotive wire and cable.
Superior Israel also owns 80% of Premier Cable Ltd., a UK-based distributor
of communications cable and related products.
Superior Israel's major customers include the two largest public utilities
in Israel: Bezeq, the largest Israeli telephone company, and IEC, the largest
Israeli power utility. Product export sales outside of Israel amounted to 21% of
total sales for the eight months ended December 31, 1999. The major export
markets include Europe, Latin America and Southeast Asia.
As a result of the combination of the operations of Cables of Zion, Cvalim
and Pica Plast, Superior has consolidated certain manufacturing facilities and
administrative functions. This restructuring resulted in closure of three
manufacturing facilities, closure of administrative offices in Rishon LeZion and
elimination of 146 personnel to date. Superior Israel currently operates five
manufacturing plants.
DNE
DNE Systems, Inc. designs and manufactures data communications equipment,
integrated access devices and other electronic equipment for defense, government
and commercial applications. It is the largest supplier to the U.S. defense
forces of data and voice multiplexers used in tactical secure military
applications. Multiplexers are integrated access devices that combine several
information-carrying channels into one line, thereby permitting simultaneous
multiple voice and data communications over a single line. DNE also produces
military avionic products, including switches, dimmers, relays and other
electronic controllers, sensors and aerial refueling amplifiers. DNE net sales
comprise less than 5% of the Communications Group's net sales.
OEM GROUP
Superior's OEM Group manufactures and sells magnet wire, automotive wiring
and other related products to major OEMs for use in motors, transformers,
electrical controls and automobile harnesses. Through its Essex Brownell
distribution business, Superior also distributes its magnet wire and certain
related accessory products to smaller OEMs and motor repair and refurbishing
contractors.
Additionally, in 1998, Essex, prior to its acquisition by Superior, acquired
BICC's UK-based magnet wire operations. This acquisition provides Superior with
European magnet wire capacity to service certain of Superior's existing North
American customers which have major European operations. This acquisition also
provides Superior an opportunity to participate in growth through an anticipated
consolidation of magnet wire manufacturers in the European market. The OEM Group
operates 12 manufacturing plants and 22 warehousing and distribution locations
in North America and the U.K.
For the eight month period ended December 31, 1999, sales of magnet wire
accounted for 68% of the OEM Group's net sales.
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MAGNET WIRE
Superior is the leading supplier of magnet wire in the North American
market. The North American market demand for magnet wire has experienced
continued growth since 1990. Sales growth in the magnet wire industry is driven
by increasing demand for electrical devices containing motors for, among other
things, home appliances and automobiles. Additionally, continuing consumer
pressure and federal government mandates for higher energy efficiency are
resulting in increased utilization of magnet wire within individual motors and
electrical converter devices such as transformers. Strong consumer demand for
greater numbers of electrical convenience items in homes, offices and vehicles
has resulted in increased sales of household appliances and increased use of
electric motors and coils in cars and trucks.
Due to the substantial initial capital costs associated with magnet wire
production, the importance of consistent quality, stringent technological
requirements and the cost efficiencies achieved by larger magnet wire producers,
significant industry consolidation has occurred during the past ten years in the
North American magnet wire industry. In addition, the percentage of domestic
magnet wire produced by independent magnet wire manufacturers, such as Superior,
has grown as the manufacturing capacity of captive magnet wire producers
(electrical equipment manufacturers who internally produce their own magnet
wire) has declined as a result of outsourcing over the last several years. It is
estimated that captive magnet wire manufacturers now represent only 7% of total
magnet wire production in North America.
Superior is currently operating its magnet wire facilities at or near full
capacity. In order to provide additional capacity for anticipated growth in
demand and in market share, as well as to service a growing number of customer
manufacturing locations in Mexico, Superior began construction during 1999 of a
new 290,000 square foot magnet wire manufacturing facility in Torreon, Mexico.
This facility is expected to be completed during the summer of 2000 and should
increase Superior's North American magnet wire production capacity by
approximately 13%.
Superior offers a comprehensive line of magnet wire products, including over
500 types of magnet wire used in a wide variety of applications. Magnet wire is
the wire that is wound into coils of electromagnetic devices including motors,
alternators, coils, transformers, control devices and power generators.
Electromagnetic devices are found in numerous industrial, household and
automotive applications.
New magnet wire products have been introduced recently that the Company
believes will further enhance Superior's position as one of the technological
and development leaders in the industry. Specifically, Superior has recently
introduced the Ultra Shield-TM- Plus wire, which is a superior rated magnet wire
now used by many global motor manufacturers in inverter drive applications where
high voltage spikes are encountered. Other new products include
Soderon-Registered Trademark-/180 and Soderex-Registered Trademark-/180, two new
magnet wires that are used in automotive and appliance controls in higher
temperature applications. These products allow for increased throughput with
faster soldering times than conventional high temperature type products. In
addition, Superior has also introduced a new DuPont
Nemon-Registered Trademark-/910 wrapped magnet wire conductor for liquid-filled
transformer applications as a replacement for low temperature paper wrap.
Superior is also a leader in product palletizing and packaging with a focus on
ease of handling, reduced freight damage, environmental disposal issues and cost
reduction.
Superior's magnet wire products are sold directly to major OEMs and, through
its Essex Brownell distribution business, to secondary OEMs, aftermarket repair
facilities, coil manufacturers and distributors. Products are also marketed
internationally through authorized distributors.
Sales to major OEMs, including, among others, Emerson, General Motors, A.O.
Smith, Howard Industries, Cooper Power and Tecumseh, are typically pursuant to
annual supply agreements based on a percentage of the customers' total
requirements and on a negotiated fixed price, subject to adjustment for the cost
of copper. For the eight months ended December 31, 1999, approximately 85% of
magnet wire
9
<PAGE>
sales were pursuant to annual supply arrangements. Sales through the Essex
Brownell distribution business are typically quoted on a daily spot price basis.
As previously mentioned, the magnet wire market in North America is
concentrated, with a small number of large manufacturers. The Company believes
that Superior is the largest supplier of magnet wire in the North American
market.
AUTOMOTIVE WIRE
Superior's automotive wire products include primary wire for use in engine
and body harnesses, ignition wire, battery cable and specialty wiring
assemblies. The automotive primary wire market has experienced growth over the
last decade due to steady production levels of new vehicles and an increase in
the installation of electrical options in vehicles, which deliver increased
safety, convenience and engine performance to the consumer. These electrical
options include power windows, supplemental restraint systems, digital displays,
keyless entry, traction control, electronic suspension and anti-lock brakes. The
Company expects the trend of additional electronic features to grow, thereby
increasing demand for automotive wire. Further, the increasing demand for copper
wire content in vehicles has made it essential to use finer-gauge, thinner wall,
higher temperature insulation coated wire, which requires significant advanced
product development and manufacturing technologies.
Superior sells automotive wire products primarily to tier-one motor vehicle
manufacturer suppliers. Automotive wire products are marketed through an
internal sales force and manufacturers' representatives.
ESSEX BROWNELL DISTRIBUTION AND ACCESSORY PRODUCTS
Through its Essex Brownell distribution operations, Superior sells magnet
wire, insulation and other related accessory products to the motor repair and
secondary OEM markets, which represent a fragmented customer base. The Essex
Brownell distribution operations include a nationwide sales force of 60 people,
supported by 26 strategically located distribution and warehouse locations.
Approximately 13% of Superior's magnet wire sales are sold through Essex
Brownell. Additionally, Essex Brownell sells insulation and other related
accessory products, as a complement to its magnet wire product sales, to the
motor repair and secondary OEM markets. The Company believes that Superior has a
distinct competitive advantage in that it is the only major North American
magnet wire producer that also distributes a full line of complementary
electrical accessory products used by the motor repair and secondary OEM
markets. Essex Brownell was formed with the acquisition of the Brownell
distribution business in 1995.
ELECTRICAL GROUP
Superior's Electrical Group manufactures and distributes a complete line of
building wire products as well as a line of industrial wire products. For the
eight months ended December 31, 1999, net sales of the Electrical Group were
$429.2 million. As discussed above in "Recent Corporate Reorganization and
Operational Restructurings", the Electrical Group has consolidated its
manufacturing operations into five manufacturing facilities in the United States
with annual production capacity of approximately 420 million pounds.
Building wire products include a wide variety of thermoplastic and thermoset
insulated wires for the commercial and industrial construction markets and
service entrance cable, underground feeder wire and nonmetallic jacketed wire
and cable for the residential construction market. These products are generally
installed behind walls, in ceilings and underground. The industrial wire product
segment (which forms a much smaller component of sales than building wire)
includes appliance wire, motor lead wire, submersible pump cable, power cable,
bulk flexible cord, power supply cord sets, welding cable and recreational
vehicle wire.
10
<PAGE>
Superior is the leading manufacturer in North America of copper building
wire products used in commercial and residential applications. The Company
estimates that the building wire market has grown, on average, approximately
2%-4% per annum over the past five years. Sales growth in the building wire
industry has resulted primarily from renovation activity, as well as new
nonresidential and residential construction. Both new construction and
renovation growth are being affected by the increased number of circuits and
amperage handling capacity needed to support the increasing demand for
electrical services. In addition, there has been a greater wiring density
required in new construction and renovation projects to provide for the
electrical needs of appliances such as trash compactors, microwave ovens, air
conditioners, entertainment centers, lighting and climate controls, specialty
and task lighting, electric garages and outdoor lighting systems. New home
automation and computer systems contribute to the increased cable and wire
density requirements in new and renovation construction as well. The average new
home is also increasing in size and thus influencing demand in this industry.
The building wire industry has experienced significant consolidation in
recent years, declining from approximately 28 manufacturers in 1980 to nine
primary manufacturers in 1999. The Company believes this consolidation is due
primarily to cost efficiencies achieved by the larger building wire producers as
they capitalize on the benefits of vertical integration and manufacturing,
purchasing and distribution economies of scale.
In the industrial wire market, Superior has a significantly smaller market
position than in the building wire industry. Factors impacting sales growth in
this market include the construction and expansion of manufacturing plants, mine
expansion and consumer spending for hard goods. Due to the diversity of product
offerings within this industry, Superior's competition is fragmented across
product lines and markets served.
Superior sells its electrical wire and cable products nationally through an
internal sales force and through manufacturers' representatives. Its customer
base is large and diverse, consisting primarily of wholesale electrical and
specialty distributors, consumer product retailers and hardware wholesalers. No
single customer accounts for more than 10% of the Electrical Group's net sales.
Notwithstanding this consolidation of suppliers, there still exists
manufacturing overcapacity for building wire, which is generally viewed as a
commodity product. As a result, the market is extremely competitive, with price
and availability being the most important factors. During 1999, market pricing
for building wire products declined substantially, with copper adjusted pricing
reaching three year lows through much of the year. As previously discussed,
Superior has responded to these conditions by eliminating excess capacity and
consolidating remaining production capacity to achieve cost reductions necessary
to offset, in part, the impact of the recent period price declines.
Prior to 1998, Superior served the wholesale electrical and specialty
distributors through a network of over 30 service centers and stocking locations
in the United States. In 1998, Essex, prior to its acquisition by Superior,
began an initiative to consolidate the service centers and stocking locations
into a smaller number of strategically located regional distribution centers
("RDCs"). These RDCs provide for centralized stocking of "off-the-shelf"
products, including substantially all of Superior's building and industrial wire
products. To a lesser degree, these RDCs provide regionally centralized
distribution for communication wire and cable, magnet wire and related
insulation products. Superior currently operates four RDCs located in Georgia,
Missouri, California and Oregon.
RAW MATERIALS AND MANUFACTURING
The principal raw materials used by Superior in the manufacture of its wire
and cable products are copper, aluminum, bronze, steel, optical fibers and
plastics, such as polyethylene and polyvinyl chloride. Copper rod is the most
significant raw material used in Superior's manufacturing process. The Company
estimates that Superior is the largest North American consumer of copper rod
with over 900 million pounds used annually in its production process. Due to the
importance of copper to its business, Superior
11
<PAGE>
maintains a centralized metals operation that manages copper procurement and
provides vertical integration in the production of copper rod and in scrap
recycling.
Superior maintains four copper rod continuous casting units, strategically
located in proximity to many of its major wire producing plants to minimize
freight costs. These facilities convert copper cathode into copper rod which is
then shipped and utilized directly in Superior's manufacturing operations.
Through these continuous casting units, Superior is able to produce
approximately 70% of its North American copper rod requirements.
In addition to converting copper cathode into copper rod, Superior's metal
processing center also processes copper scrap, both internally generated scrap
as well as scrap purchased from other copper wire producers. Copper scrap is
processed in rotary furnaces, which also have refining capability to remove
impurities. Superior uses a continuous casting process to convert scrap material
directly into copper rod. Management believes that internal reclamation of scrap
copper provides greater control over the cost to recover Superior's principal
manufacturing by-product.
Superior purchases copper cathode and, to the extent not provided
internally, copper rod from a number of copper producers and metals merchants.
Generally, copper cathode and rod purchases are pursuant to contracts which
extend for a one-year period and are normally based on the COMEX price, plus a
premium to cover transportation and payment terms. Additionally, Superior, to a
limited extent, utilizes COMEX fixed price futures contracts to manage its
commodity price risk. Superior does not hold or issue such contracts for trading
purposes.
Historically, Superior has had adequate supplies of copper and other raw
materials available to it from producers and merchants, both foreign and
domestic. In addition, competition from other users of copper has not affected
Superior's ability to meet its copper procurement requirements. Although
Superior has not experienced any shortages in the recent past, no assurance can
be given that Superior will be able to procure adequate supplies of its
essential raw materials to meet its future needs.
The cost of copper has been subject to considerable volatility over the past
several years. Fluctuations in the cost of copper have not had a material impact
on profitability due to the ability of Superior 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.
Superior's manufacturing strategy is primarily focused on maximizing product
quality and production efficiencies while maintaining a high level of vertical
integration through internal production of its principal raw materials. In
addition to copper rod, Superior is also vertically integrated in the production
of magnet wire enamels and extrudable polymeric compounds. The Company believes
one of Superior's primary cost and quality advantages in the magnet wire
business is the ability to produce most of its enamel and copper rod
requirements internally. Similarly, the Company believes that Superior's ability
to develop and produce PVC and rubber compounds, which are used as insulation
and jacketing materials for many of its building wire, communication wire,
automotive wire and industrial wire products, provides competitive advantages
because greater control over the cost and quality of essential compounds used in
production can be achieved.
EXPORT SALES
The Company's export sales during the eight months ended December 31, 1999
were $54.6 million. The Company's primary markets for export sales are Latin
America and Europe.
BACKLOG; RETURNS
Backlog in the communications wire and cable segment typically consists of
3-5 weeks of sales depending on seasonal issues. Superior's other product lines
have no significant order backlog because they follow the industry practice of
manufacturing products on an ongoing basis to meet customer demand
12
<PAGE>
on a just-in-time basis. The Company believes that the ability to supply orders
in a timely fashion is a competitive factor in the markets in which Superior
operates. Historically, sales returns have not had a material adverse effect on
the Company's results of operations.
COMPETITION
The market for wire and cable products is highly competitive. Each of
Superior's businesses competes with at least one major competitor. However, due
to the diversity of Superior's product lines as a whole, no single competitor
competes with Superior across the entire spectrum of Superior's product lines.
Many of Superior's products are made to industry specifications and,
therefore, may be interchangeable with competitors' products. Superior is
subject to competition in many markets on the basis of price, delivery time,
customer service and its ability to meet specialty needs. The Company believes
that Superior enjoys strong customer relations resulting from its long
participation in the industry, emphasis on customer service, commitment to
quality control, reliability and substantial production resources. Furthermore,
the Company believes that Superior's distribution networks enable it to compete
effectively with respect to delivery time.
RESEARCH AND DEVELOPMENT
In response to the changing requirements of the communications industry, the
Company established a product development center during the fourth quarter of
fiscal 1997. This 58,000 square foot facility is located in Kennesaw, Georgia
and is dedicated to defining and creating new wire and cable systems that meet
the needs of the evolving communications networks. Recent projects include the
development of single mode and multimode fiber optic cable products for use in
LANs as well as telephone networks. Initial sales and shipments of these
products began in 1998.
Superior also has development projects underway for performance enhanced
copper-based communications wire products that are designed to meet the existing
and future needs of telephone and datacom customers. Several of these projects
have been undertaken in conjunction with Superior's telephone company customers
and include the development of composite cables that incorporate copper twisted
pair wire and coaxial cable or optical fibers in a single cable construction.
Superior is also developing extensions of its UTP product line for certain LAN
datacom applications, including the development of Category 6 UTP products.
Superior also operates research and development facilities in Lafayette and
Fort Wayne, Indiana. Research activities at the Lafayette facility are focused
on development of improved PVC and rubber compounds, which are used as
insulation and jacketing materials for many communication, automotive, building
and industrial wire products. At the Fort Wayne facility, Superior's
metallurgical and chemical labs are focused on the development of magnet wire
metal properties and processing qualities, as well as enhancement of enamels and
their application in the magnet wire manufacturing process.
Aggregate research and development expenses of the Company during the fiscal
years ended April 30, 1997, 1998 and 1999 and the eight months ended
December 31, 1999 amounted to $2.2 million, $3.0 million, $5.1 million and
$4.1 million, respectively.
Although Superior holds certain trademarks, licenses and patents, none is
considered to be material to its business.
EMPLOYEES
As of December 31, 1999, the Company employed approximately 6,600 employees.
Approximately 2,300 persons employed by the Company are represented by unions.
Collective bargaining agreements expire at various times between 1999 and 2004,
with contracts covering approximately 36% of the
13
<PAGE>
Company's unionized work force due to expire at various times in 2000. The
Company considers relations with its employees to be satisfactory.
ENVIRONMENTAL MATTERS
The manufacturing operations of the Company's subsidiaries are subject to
extensive and evolving federal, foreign, state and local environmental laws and
regulations relating to, among other things, the storage, handling, disposal,
emission, transportation and discharge of hazardous substances, materials and
waste products, as well as the imposition of stringent permitting requirements.
The Company does not believe that compliance with environmental laws and
regulations will have a material effect on the level of capital expenditures of
the Company or its business, financial condition, liquidity or results of
operations. No material expenditures relating to these matters were made in
1997, 1998 or 1999. However, violation of, or non-compliance with, such laws,
regulations or permit requirements, even if inadvertent, could result in an
adverse impact on the operations, business, financial condition, liquidity or
results of operations of the Company.
14
<PAGE>
ITEM 2. PROPERTIES
Alpine conducts its principal operations at the facilities set forth below
which, except for corporate offices, represent the facilities of Superior:
<TABLE>
<CAPTION>
SQUARE
OPERATION LOCATION FOOTAGE LEASED/OWNED
- --------- ------------------------------ -------- ---------------------
<S> <C> <C> <C>
COMMUNICATIONS
OSP/Datacom................. Chester, South Carolina 218,000 Owned
Hoisington, Kansas 257,000 Owned
Brownwood, Texas 328,000 Leased (expires 2013)
Tarboro, North Carolina 295,000 Owned
Winnipeg, Manitoba 190,000 Owned
Elizabethtown, Kentucky 163,000 Owned
Kennesaw, Georgia 58,000 Leased (expires 2002)
DNE......................... Wallingford, Connecticut 65,000 Leased (expires 2007)
OEM
Magnet Wire................. Charlotte, North Carolina 26,000 Leased (expires 2001)
Fort Wayne, Indiana 181,000 Owned
Franklin, Indiana 35,000 (a)
Franklin, Tennessee 289,000 Leased (expires 2008)
Kendallville, Indiana 88,000 Owned
Rockford, Illinois 319,000 Owned
Vincennes, Indiana 267,000 Owned
Automotive Wire............. Orleans, Indiana 425,000 Owned
Accessory Products.......... Athens, Georgia 30,000 Leased (expires 2016)
Clifton Park, New York 22,000 Leased (expires 2016)
Willowbrook, Illinois 60,000 Leased (expires 2016)
United Kingdom.............. Huyton Quarry, U.K. 146,000 Owned
ELECTRICAL
Building Wire............... Anaheim, California 174,000 Owned
Columbia City, Indiana 400,000 Owned
Sikeston, Missouri 189,000 Owned
Florence, Alabama 129,000 Owned
Industrial Wire............. Lafayette, Indiana 350,000 Owned
Pawtucket, Rhode Island 412,000 Owned (b)
SUPERIOR ISRAEL............... Shaar Hanegav, Israel 66,000 Owned
Eilat, Israel 53,000 Owned
Bet-Shean, Israel 51,000 Leased (expires 2002)
Maalot, Israel 10,000 Leased (expires 2003)
Nazareth, Israel 25,000 Leased (expires 2003)
METALS PROCESSING............. Columbia City, Indiana 75,000 Owned
Jonesboro, Indiana 56,000 Owned
ADMINISTRATIVE OFFICES........ New York, New York 5,400 Leased (expires 2002)
Atlanta, Georgia 31,000 Leased (expires 2001)
Fort Wayne, Indiana 295,000 Owned
</TABLE>
- ------------------------
(a) The Franklin, Indiana facility is approximately 70,000 square feet, of
which 35,000 square feet is leased to Femco as a joint venture between
Superior and the Furukawa Electric Company, LTD., Tokyo, Japan. Femco
manufactures and markets magnet wire with special emphasis on products
required by Japanese manufacturers with production facilities in the
United States.
(b) Currently listed for sale.
15
<PAGE>
In addition to the facilities described in the table above, the Company owns
or leases 32 warehousing and distribution facilities throughout the United
States, Canada and United Kingdom to facilitate the sale and distribution of its
products.
The Company believes that its plants are generally suitable and adequate for
the business being conducted and to service the requirements of its customers.
Capital spending plans are primarily designed to keep up with current
technology, to increase capacity in existing product lines and for cost
reduction initiatives. The extent of current utilization is generally consistent
with historical patterns and, in the view of management, is satisfactory. The
Company does not view any of its plants as being underutilized. A majority of
Superior's plants operate on 24 hour-a-day schedules, on either a five day or
seven day per week basis. During the eight months ended December 31, 1999, the
Company's facilities have operated at approximately 90% capacity.
ITEM 3. LEGAL PROCEEDINGS
The Company is engaged in certain routine litigation arising in the ordinary
course of business. While the outcome of litigation can never be predicted with
certainty, the Company does not believe that any of its existing litigation,
either individually or in the aggregate, will have a material adverse effect
upon its business, financial condition, liquidity or results of operations.
Superior's operations are subject to environmental laws and regulations in
each of the jurisdictions in which it operates governing, among other things,
emissions into the air, discharges to water, the use, handling and disposal of
hazardous substances and the investigation and remediation of soil and
groundwater contamination both on-site at Superior's facilities and at off-site
disposal locations. On-site contamination at certain of Superior's facilities is
the result of historic disposal activities, including activities attributable to
Superior's operations and those occurring prior to the use of a facility by
Superior. Off-site liability includes clean-up responsibilities at various
sites, to be remedied under federal or state statutes, for which Superior has
been identified by the United States Environmental Protection Agency, or the
equivalent state agency, as a Potentially Responsible Party ("PRP").
Essex has been named as a PRP at a number of sites. Most of the sites for
which Essex is currently named as a PRP are covered by an indemnity from United
Technologies Corporation provided in connection with the February 1988 sale of
Essex by United Technologies to Essex's previous stockholders. Pursuant to the
indemnity, United Technologies agreed to indemnify Essex against losses incurred
under any environmental protection and pollution control laws or resulting from,
or in connection with, damage or pollution to the environment arising from
events, operations or activities of Essex prior to February 29, 1988, or from
conditions or circumstances existing at or prior to February 29, 1988. In order
to be covered by the indemnity, the condition, event, or circumstance must have
been known to United Technologies prior to February 29, 1988. The sites covered
by the indemnity are handled directly by United Technologies and all payments
required to be made are paid directly by United Technologies. These sites are
all mature sites where allocations have been settled and remediation is well
underway or has been completed. The Company is not aware of any inability or
refusal on the part of United Technologies to pay amounts that are owing under
the indemnity or any disputes between Essex and United Technologies concerning
matters covered by the indemnity.
United Technologies also provided an additional environmental indemnity,
referred to as the "basket indemnity." This indemnity relates to liabilities
arising from environmental events, conditions or circumstances existing at or
prior to February 29, 1988 that only became known to United Technologies in the
five-year period commencing February 29, 1988. As to such liabilities, Essex is
responsible for the first $4.0 million incurred. Thereafter, United Technologies
has agreed to indemnify Essex fully for any liabilities in excess of
$4.0 million. To date, Essex has incurred less than $0.2 million in the basket.
Apart from the indemnified sites and those subject to the basket indemnity,
Essex has been named as a PRP or a defendant in a civil lawsuit at eight sites.
Operations of Superior Telecommunications and DNE
16
<PAGE>
have resulted in releases of hazardous substances or wastes at sites currently
or formerly owned or operated by such companies. Alpine, as to one site, and
Superior Telecommunications as to one site, are presently involved in separate
investigatory and remedial activities at one site subject to the oversight of a
state governmental authority. The Company has provided a reserve in the amount
of $2.9 million to cover its environmental contingencies as of December 31,
1999. This accrual is based on management's best estimate of the Company's
exposure in light of relevant available information, including the allocations
and remedies set forth in applicable consent decrees, third-party estimates of
remediation costs, actual remediation costs incurred, the probable ability of
other PRPs to pay their proportionate share of remediation costs, the conditions
at each site and the number of participating parties. The Company currently does
not believe that any of the environmental proceedings in which it is involved,
and for which it may be liable, will individually, or in the aggregate, have a
material adverse effect upon its business, financial condition, liquidity or
results of operations. There can be no assurance that future developments will
not alter this conclusion. None of the sites mentioned above involves sanctions,
fines or administrative penalties against Superior.
Since approximately 1990, Essex has been named as a defendant in a number of
product liability lawsuits brought by electricians and other skilled tradesmen
claiming injury from exposure to asbestos found in electrical wire products
produced many years ago. Litigation against various past insurers of Essex who
had previously refused to defend and indemnify Essex against these lawsuits was
settled during 1999. Pursuant to the settlement, Essex was reimbursed for
substantially all of its costs and expenses incurred in the defense of these
lawsuits, and the insurers have undertaken to defend, are currently directly
defending and, if it should become necessary, will indemnify Essex against such
asbestos lawsuits, subject to the express terms and limits of the respective
policies. The Company believes that Essex's liability, if any, in these matters
will not have a material adverse effect either individually, or in the
aggregate, upon its business, financial condition, liquidity or results of
operations. There can be no assurance, however, that future developments will
not alter this conclusion.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 15, 1999, the Company held its annual meeting of stockholders.
At that meeting, John C. Jansing was reelected as a director of the Company by a
vote of 12,739,033 shares for and 161,744 shares against his reelection. In
addition, the appointment of Arthur Andersen LLP as the Company's independent
certified public accountants was ratified by a vote of 12,886,265 shares for and
6,334 shares against such appointment.
17
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER MATTERS
(a) Market Information
Alpine's common stock, $0.10 par value, is listed on the New York Stock
Exchange (the "NYSE") under the symbol AGI. The following table sets forth the
range of high and low daily closing sales prices for the Alpine common stock for
the last two complete fiscal years and the eight months ended December 31, 1999.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
Fiscal Year Ended April 30, 1998
First Quarter ended July 31, 1997......................... $12.69 $ 9.13
Second Quarter ended October 31, 1997..................... 15.31 11.00
Third Quarter ended January 31, 1998...................... 20.88 14.81
Fourth Quarter ended April 30, 1998....................... 21.75 18.19
Fiscal Year Ended April 30, 1999
First Quarter ended July 31, 1998......................... $21.88 $16.50
Second Quarter ended October 31, 1998..................... 18.25 13.19
Third Quarter ended January 31, 1999...................... 18.75 13.13
Fourth Quarter ended April 30, 1999....................... 14.25 9.38
Eight Months Ended December 31, 1999
First Quarter ended July 31, 1999......................... $17.63 $13.75
Second Quarter ended October 31, 1999..................... 18.63 11.44
Two month period ended December 31, 1999.................. 12.88 10.69
</TABLE>
(b) Holders
The Company's transfer agent is American Stock Transfer & Trust Company, 40
Wall Street, New York, New York 10005.
At March 24, 2000, 14,148,944 shares of Alpine common stock were issued and
outstanding, and there were approximately 1,600 record holders (exclusive of
beneficial owners of shares held in street name or other nominee form) thereof.
(c) Dividends
Alpine has no recent history of paying cash dividends and does not currently
intend to declare cash dividends on the Alpine common stock in the foreseeable
future. Any payment of future cash dividends and the amounts thereof will be
dependent upon the Company's earnings, financial requirements and other factors,
including contractual obligations.
18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
HISTORICAL FINANCIAL DATA
Set forth below are certain selected historical consolidated financial data
of Alpine. This information should be read in conjunction with the consolidated
financial statements of Alpine and related notes thereto appearing elsewhere
herein and "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations." The selected historical consolidated financial data
for, and as of the end of, each of the fiscal years in the five-year period
ended April 30, 1999, and for, and as the end of, the eight months ended
December 31, 1999, are derived from the audited consolidated financial
statements of Alpine.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30 (1) EIGHT MONTHS
---------------------------------------------------- ENDED DECEMBER
1995 1996 1997 1998 1999 31, 1999 (2)
-------- -------- -------- -------- -------- ---------------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................ $164.5 $410.4 $463.8 $516.6 $1,143.2 $1,370.4
Cost of goods sold....................................... 142.1 362.9 384.3 417.4 910.7 1,116.1
------ ------ ------ ------ -------- --------
Gross profit........................................... 22.4 47.6 79.6 99.2 232.6 254.3
Selling, general and administrative expenses............. 14.7 20.2 25.3 28.8 93.9 102.5
Nonrecurring and unusual charges......................... -- -- -- -- 7.3 4.7
Amortization of goodwill................................. 1.0 1.4 1.7 1.7 8.4 13.8
------ ------ ------ ------ -------- --------
Operating income....................................... 6.6 26.0 52.5 68.7 123.1 133.3
Interest (expense)....................................... (5.4) (19.3) (13.8) (10.8) (60.1) (85.1)
Gain on sale of subsidiary stock......................... -- -- 80.4 -- -- --
Other income, net........................................ 0.1 1.7 2.0 4.1 1.9 4.7
------ ------ ------ ------ -------- --------
Income from continuing operations before income taxes,
distributions on preferred securities of subsidiary
trust, minority interest, equity in earnings of
affiliate and extraordinary (loss)................... 1.3 8.3 121.2 62.0 64.8 52.9
Provision for income taxes............................. (0.3) (1.3) (53.9) (24.8) (28.0) (21.7)
------ ------ ------ ------ -------- --------
Income from continuing operations before distributions on
preferred securities of subsidiary trust, minority
interest, equity in earnings of affiliate and
extraordinary (loss)................................... 1.0 7.0 67.3 37.2 36.9 31.2
Distributions on preferred securities of subsidiary
trust.................................................. -- -- -- -- (1.3) (10.0)
------ ------ ------ ------ -------- --------
Income from continuing operations before minority
interest, equity in earnings of affiliate and
extraordinary (loss)................................... 1.0 7.0 67.3 37.2 35.6 21.2
Minority interest in earnings of subsidiaries, net....... -- -- (8.1) (20.3) (18.7) (11.4)
Equity in earnings of affiliate.......................... -- -- -- -- -- 2.2
------ ------ ------ ------ -------- --------
Income from continuing operations before extraordinary
(loss)................................................. 1.0 7.0 59.2 16.9 16.9 12.0
Income (loss) from discontinued operations (3)........... (7.1) (4.0) (2.3) (0.2) (2.7) 35.4
------ ------ ------ ------ -------- --------
Income (loss) before extraordinary (loss)................ (6.0) 3.0 56.8 16.7 14.2 47.4
Extraordinary (loss) on early extinguishment of debt, net
of tax................................................. -- (4.9) (20.1) (1.5) (0.6) (1.0)
------ ------ ------ ------ -------- --------
Net income (loss)........................................ $ (6.0) $ (1.9) $ 36.7 $ 15.3 $ 13.6 $ 46.4
====== ====== ====== ====== ======== ========
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30 (1) EIGHT MONTHS
---------------------------------------------------- ENDED DECEMBER
1995 1996 1997 1998 1999 31, 1999 (2)
-------- -------- -------- -------- -------- ---------------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C> <C>
Income (loss) per share of common stock:
BASIC
Income from continuing operations...................... $ 0.01 $ 0.33 $ 3.28 $ 0.99 $ 1.03 $ 0.81
(Loss) from discontinued operations.................... (0.39) (0.22) (0.13) (0.01) (0.17) 2.39
Extraordinary (loss) on early extinguishment of debt... -- (0.27) (1.12) (0.09) (0.04) (0.07)
Preferred stock redemption premium..................... -- -- (0.29) -- -- --
------ ------ ------ ------ -------- --------
Net income (loss) per share of common stock............ $(0.38) $(0.16) $ 1.73 $ 0.90 $ 0.82 $ 3.13
====== ====== ====== ====== ======== ========
DILUTED
Income from continuing operations...................... $ 0.01 $ 0.33 $ 2.98 $ 0.90 $ 0.91 $ 0.68
(Loss) from discontinued operations.................... (0.39) (0.22) (0.12) (0.01) (0.15) 2.17
Extraordinary (loss) on early extinguishment of debt... -- (0.27) (1.01) (0.08) (0.04) (0.06)
Preferred stock redemption premium..................... -- -- (0.26) -- -- --
------ ------ ------ ------ -------- --------
Net income (loss) per share of common stock............ $(0.38) $(0.16) $ 1.59 $ 0.81 $ 0.72 $ 2.79
====== ====== ====== ====== ======== ========
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital........................................ $ 27.1 $103.8 $ 99.0 $ 64.8 $ 247.4 $ 170.0
Total assets........................................... 140.2 318.7 303.8 320.4 2,109.0 2,183.6
Total debt............................................. 56.9 202.7 140.8 97.1 1,445.1 1,479.3
Preferred stock........................................ 17.3 11.8 1.9 0.4 0.4 0.4
Total stockholders' equity............................. 44.7 43.1 54.4 77.5 56.4 95.0
</TABLE>
- ------------------------------
(1) Alpine's results of operations have been significantly impacted by
acquisitions. On May 11, 1995, Superior completed the acquisition of
Alcatel N.A. for $103.4 million in cash. On May 5, 1998, Superior
acquired 51% of Cables of Zion for approximately $25 million in cash. On
November 27, 1998, Superior acquired 81% of Essex for $770 million in
cash and on March 31, 1999 the remaining 19% through the issuance of
$167 million of 8 1/2% trust convertible preferred securities of Superior
Trust I. On December 31, 1998, Cables of Zion acquired Cvalim for
$41.2 million in cash.
(2) On December 20, 1999, the Company elected to change its fiscal year end
to December 31 from April 30. This change was made effective on
December 31, 1999.
(3) On August 6, 1999, the Company completed the disposition by merger of
its subsidiary Premier Refractories International Inc. In July 1995,
Alpine completed the spin-off of its information display segment,
PolyVision Corporation, which consisted of Alpine PolyVision Inc.,
Posterloid Corporation and Information Display Technologies, Inc. The
results of operations (including the gain on sale from the disposition of
Premier Refractories International Inc.) for these segments have been
reflected as discontinued operations for the periods presented. (See
Note 4 to Alpine's consolidated financial statements).
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Alpine Group, Inc. (together with its subsidiaries, unless the context
otherwise requires, "Alpine" or the "Company") is an industrial holding company
with investments in three industrial manufacturing companies.
SUPERIOR TELECOM INC.
Alpine holds a 51.8% common equity interest in its consolidated subsidiary,
Superior TeleCom Inc. (together with its subsidiaries, unless the context
otherwise requires, "Superior"), whose balance sheet accounts and results of
operations are consolidated with the financial statements of Alpine.
Superior manufactures a portfolio of wire and cable products grouped into
the following primary industry segments: (i) communications, (ii) original
equipment manufacturer ("OEM") and (iii) electrical. The Communications Group
includes communications wire and cable products sold to telephone companies,
distributors and systems integrators, principally in North America. In addition,
included within the Communications Group is Superior's 51% owned Israeli
subsidiary, Superior Cables Limited ("Superior Israel"), which manufactures a
range of wire and cable products in Israel, including communications cable,
power cable and other industrial and electronic wire and cable products. The OEM
Group includes magnet wire and accessory products for motors, transformers and
electrical controls sold primarily to OEMs, as well as automotive and specialty
wiring assemblies for automobiles and trucks. The Electrical Group includes
building and industrial wire for applications in commercial and residential
construction and industrial facilities.
Prior to the acquisitions of Essex and Superior Israel (see Note 5 to the
consolidated financial statements), Superior's operations consisted principally
of its North American communications wire and cable business. The Essex
acquisition, which occurred on November 27, 1998, resulted in the addition of
the OEM and Electrical Group product lines as well as incremental sales of
communications wire and cable. The May 1998 acquisition of 51% of Superior
Israel and Superior Israel's subsequent acquisition of two major Israeli
competitors, resulted in the addition to Superior's operating results of its
Israeli operations. These acquisitions were accounted for under the purchase
method of accounting with the operating results from these acquired businesses
being included in Superior's consolidated statements of operations
prospectively, from the date of acquisition. Accordingly, comparisons to results
of operations for periods prior to the date of these acquisitions will be
impacted.
Copper is one of the principal raw materials used in Superior's wire and
cable product manufacturing. 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 as Superior, in most cases, has the
ability to adjust prices billed for its products to properly match the copper
cost component of its inventory shipped.
POLYVISION CORPORATION
Alpine holds a 48% common equity interest and $19.7 million of convertible
preferred stock in its unconsolidated affiliate, PolyVision Corporation, a
global manufacturer of visual communications and related products for the
education/office markets, menus and merchandising boards for food service and
banking institutions, and high performance wall systems used in the education,
transportation and select architectural markets.
Alpine currently accounts for its investment in PolyVision under the equity
method of accounting resulting in recognition of Alpine's proportionate share of
PolyVision's earnings as a one-line item within the statement of operations.
Prior to November 1998, Alpine's equity interest in PolyVision was less than
20%, with such investment accounted for on the cost basis.
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<PAGE>
DISCONTINUED OPERATIONS/COOKSON GROUP PLC
On August 6, 1999, Alpine completed the sale of its subsidiary, Premier
Refractories International Inc. ("Premier"), to Cookson Group plc ("Cookson").
The gain on the sale of Premier of $35.4 million and the historical net
operating results of Premier have been classified as discontinued operations
within the consolidated financial statements (see Note 4 to the consolidated
financial statements).
The sale of Premier was effected through the merger of Premier with a
wholly-owned subsidiary of Cookson. In connection with the transaction, Cookson
assumed all of Premier's existing indebtedness, issued to Alpine approximately
32.3 million shares of Cookson common stock and paid to Alpine $15.6 million in
cash. Immediately prior to the sale of Premier, Alpine acquired the 16.6%
minority equity interest in Premier for approximately $31.1 million in cash.
Alpine's current ownership of Cookson common stock approximates 4%, with
such investment accounted for as an available for sale investment with
unrealized holding gains and losses reflected as a component of other
comprehensive income. Dividend income on the Cookson stock is recognized in the
statement of operations, as received.
CHANGE IN ALPINE'S FISCAL YEAR-END
Alpine recently changed its year end to December 31 from April 30, effective
for the December 31, 1999 period. Accordingly, the Company has reported results
of operations for an eight month transitional period ended December 31, 1999.
RESULTS OF OPERATIONS--EIGHT MONTH PERIOD ENDED DECEMBER 31, 1999
COMPARED TO THE TWELVE MONTH PERIOD ENDED APRIL 30, 1999
The comparison of operating results for the eight month period ended
December 31, 1999 with the twelve month period ended April 30, 1999 ("fiscal
1999") is impacted by: (i) the inclusion of the acquired operations of Essex for
the entire period for the eight months ended December 31, 1999 as compared to
only five months in fiscal 1999 and (ii) the difference in comparative periods
(eight months versus twelve months).
Net sales were $1.370 billion for the eight months ended December 31, 1999
compared to net sales of $1.143 billion for fiscal 1999. The comparative
increase in net sales was due primarily to the inclusion of the acquired
operations of Essex for the full eight month period versus only five months
during fiscal 1999, partially offset by the shorter comparison period (eight
months versus twelve months).
Gross profit for the eight months ended December 31, 1999 was $254 million
as compared to $233 million for fiscal 1999. The increase in gross profit
resulted from the inclusion of gross profit contributed by the acquired
operations of Essex for eight months versus only five months during fiscal 1999.
The gross margin percentage was 18.6% for the eight months ended December 31,
1999 as compared to 20.4% for fiscal 1999. The reduction in gross margin
percentage for the December 1999 eight month period was primarily attributable
to the change in product mix resulting from the product lines acquired in the
Essex acquisition.
Selling, general and administrative expenses ("SG&A expenses") increased
from $94 million in fiscal 1999 to $103 million for the eight months ended
December 31, 1999. The increase resulted from incremental expenses associated
with the acquired operations of Essex, partially offset by corporate cost
reductions and the shorter comparison period (eight months versus twelve
months).
Goodwill amortization increased from $8.4 million for fiscal 1999 to
$13.8 million for the eight months ended December 31, 1999 with such increase
due to incremental goodwill associated with the acquisition of Essex.
22
<PAGE>
Operating income (excluding nonrecurring and unusual charges) was
$138.0 million for the eight months ended December 31, 1999 as compared to
$130.3 million for fiscal 1999. The increase reflects the impact of the acquired
operations of Essex for the full eight months versus five months during fiscal
1999, partially offset by the shorter comparison period.
The Company incurred nonrecurring and unusual charges of $4.7 million during
the eight months ended December 31, 1999 and $7.3 million during fiscal 1999.
The charges incurred during the eight months ended December 31, 1999 included
$2.1 million related to plant consolidation activities at Essex, $1.3 million
related to restructuring activities at Superior Israel, $0.9 million associated
with the evaluation of management information systems at Essex, and
$0.4 million of start-up costs for the Company's Mexican magnet wire facility.
The nonrecurring and unusual charges in fiscal 1999 consisted of a $2.9 million
restructuring charge at Superior Israel related to plant consolidations and
corporate rationalization activities and $4.4 million associated with the
evaluation of a management information system project at Essex.
Interest expense was $85.1 million for the eight months ended December 31,
1999 as compared to $60.1 million for fiscal 1999. The increase was attributable
to the debt incurred in connection with the Essex acquisition.
Distributions on preferred securities of subsidiary trust were
$10.0 million for the eight months ended December 31, 1999 and $1.3 million in
fiscal 1999. The amounts include dividends paid under the $167 million (face
amount) of 8 1/2% Mandatorily Redeemable Trust Convertible Preferred Securities
of Superior Trust I issued in connection with the Essex acquisition.
The minority interest charge of $11.4 million for the eight months ended
December 31, 1999 represented the minority stockholders' interest in Superior's
net income for such period. The minority interest charge of $18.7 million in
fiscal 1999 included the minority stockholders' interest in Superior's net
income, and the minority stockholders' interest (approximately 19%) in Essex's
net income from November 27, 1998 (the date which Superior acquired an 81%
ownership position in Essex) until March 31, 1999 (the date on which Superior
acquired the remaining 19% outstanding ownership position in Essex (Note 5).
Equity in earnings of affiliate during the eight months ended December 31,
1999 represented the Company's preferred and common equity interest in earnings
of PolyVision Corporation.
Income from continuing operations for the eight months ended December 31,
1999 was $12.0 million, or $0.68 per diluted share as compared to
$16.9 million, or $0.91 per diluted share for fiscal 1999. Excluding the impact
of nonrecurring and unusual charges, income from continuing operations was
$14.1 million, or $0.81 per diluted share, for the eight months ended
December 31, 1999 compared to $18.6 million, or $1.00 per diluted share, for
fiscal 1999.
During the eight months ended December 31, 1999, the Company completed the
sale of Premier to Cookson. The transaction resulted in an after tax gain on
disposition of discontinued operations of $35.4 million, or $2.17 per diluted
share. In fiscal 1999, the Company incurred a net loss from the discontinued
operating activities of Premier of $2.7 million, or $0.15 per diluted share.
The Company recorded after tax extraordinary charges of $1.0 million, or
$0.06 per diluted share, and $0.6 million, or $0.04 per diluted share, during
the eight months ended December 31, 1999 and fiscal 1999, respectively. The
charges represent previously capitalized deferred financing fees written off in
connection with the early extinguishment of debt.
Net income (after discontinued operations and extraordinary loss) for the
eight months ended December 1999 was $46.4 million, or $2.79 per diluted share,
as compared to $13.5 million, or $0.72 per diluted share, for fiscal 1999.
23
<PAGE>
RESULTS OF OPERATIONS--COMPARATIVE RESULTS FOR FISCAL YEARS 1999, 1998 AND 1997
In fiscal 1999, net sales were $1,143.2 million representing an increase of
$626.6 million, or 121%, as compared to fiscal 1998 net sales of
$516.6 million. The increase in net sales in fiscal 1999 was principally the
result of incremental revenues from the acquired operations of Essex and
Superior Israel along with continued demand growth in 1999 for copper
communications wire and cable products within Superior's existing communications
segment.
In fiscal 1998, net sales (which consisted entirely of sales within the
communications segment) were $516.6 million, representing an increase of
$52.8 million, or 11.4%, as compared to fiscal 1997 net sales of
$463.8 million. The increase in net sales in fiscal 1998 resulted from increased
demand due to the growth in telephone and data access lines and increased
maintenance spending by major telephone company customers, and an increase in
market share resulting from multi-year supply agreements entered into with
several of Superior's major telephone company customers during fiscal 1997 and
1998.
Along with the comparative increase in net sales in fiscal 1999 and 1998,
the Company also achieved substantial growth in gross profit and an expansion of
its gross margin percentage during such fiscal periods. In fiscal 1999, gross
profit increased $133.4 million, or 134%, to $232.6 million, as compared to
fiscal 1998. In fiscal 1998, the gross profit was $99.2 million, representing a
comparative increase of $19.7 million, or 24.7%, as compared to fiscal 1997.
The comparative increase in gross profit for fiscal 1999 included
$114.8 million in gross profit contribution from the acquired Essex and Superior
Israel operations as well as an increase in gross profit contribution from
Superior's existing communications segment operations of $18.8 million. In
fiscal 1998 the comparative increase in gross profit of $19.7 million, or 24.7%,
was wholly attributable to Superior's existing communications segment
operations.
The increase in the gross margin percentage from 17.2% in fiscal 1997 to
19.2% in fiscal 1998 and to 20.3% in fiscal 1999 was attributable to the
communications segment where the impact of substantial manufacturing cost
reductions and efficiencies coupled with copper adjusted price increases gave
rise to an approximate 5.8% increase in this segment's gross margin percentage
from fiscal 1997 period to fiscal 1999 period. The overall gross margin
percentage was negatively impacted in fiscal 1999 as a result of lower margins
associated with the acquired OEM and Electrical segments of Essex and lower
margins in the acquired Superior Israel operations.
SG&A expenses increased from $25.3 million in fiscal 1997 to $28.8 million
in fiscal 1998 and to $93.9 million in fiscal 1999. The comparative increase in
SG&A expenses of $65.1 million during fiscal 1999 was primarily due to
incremental SG&A expenses associated with the acquired operations of Essex and
Superior Israel. The increase in SG&A expenses in fiscal 1998 was attributable
to costs associated with incremental sales, marketing and administrative staff
to support the increased level of sales activity and the expansion of product
development activities, including the establishment and staffing of a product
development facility in the fourth quarter of fiscal 1997.
The Company incurred nonrecurring and unusual charges during fiscal 1999 of
$7.3 million, consisting of (i) a $2.9 million restructuring charge recorded by
Superior Israel relating to planned manufacturing plant consolidations and
overhead rationalization associated with the acquisition of Cvalim and
(ii) $4.4 million in charges associated with the review and evaluation of a
management information system at Essex.
As a result of the Essex acquisition, amortization of goodwill increased to
$8.4 million in fiscal 1999 from $1.7 million in both fiscal 1998 and 1997.
Commensurate with the growth in net sales and gross profit, the Company's
operating income increased substantially in both fiscal 1999 and fiscal 1998.
Excluding the impact of nonrecurring and unusual charges, operating income in
fiscal 1999 was $130.4 million, representing an increase of 90%, as
24
<PAGE>
compared to fiscal 1998 operating income of $68.7 million. The increase in
fiscal 1999 operating income resulted from: (i) the Essex and Superior Israel
acquisitions, which acquired operations contributed $38.6 million in operating
income and (ii) a strong comparative improvement in the existing communications
segment's gross margin percentage resulting from cost reductions and other
manufacturing and operating efficiencies achieved during the year. The increase
in operating income in fiscal 1998, as compared to fiscal 1997, was
$16.2 million, or 30.8%, which increase was attributable to the comparative
increase in the communications segment's net sales in fiscal 1998 coupled with
an expansion in the gross margin percentage resulting from copper adjusted price
increases and manufacturing cost reductions.
Interest expense in fiscal 1999 was $60.1 million representing an increase
of $49.4 million, as compared to fiscal 1998 interest expense of $10.8 million.
This comparative increase was directly attributable to acquisition-related debt
associated with the acquisition of Essex and Superior Israel. Interest expense
in fiscal 1998 was $10.8 million representing a decrease of $3.0 million, or
21.8%, as compared to fiscal 1997 interest expense of $13.8 million. The
comparative decline is attributable to debt reduction achieved through the
application of operating cash flow during such period.
In fiscal 1999, the provision for income tax expense was $28.0 million,
representing an effective tax rate of 43.1%. This compares with fiscal 1998 and
1997 income tax expense of $24.8 million and $53.9 million, respectively,
representing effective tax rates of 40.0% and 44.5%, respectively. The increase
in effective tax rate in fiscal 1999 was the result of the increase in
nondeductible goodwill associated with the Essex acquisition.
The minority interest charge of $18.7 million in fiscal 1999 represented
(i) the approximate 49% minority stockholders' interest in Superior's net
income, (ii) the approximate 49% minority stockholders' interest in Superior
Israel's net income from the date of acquisition and (iii) the approximate 19%
minority interest in Essex's net income from November 27, 1998 until the final
completion of the Essex merger on March 31, 1999. The minority interest charge
of $8.1 million in fiscal 1997 and $20.3 million in fiscal 1998 represented the
approximate 49% minority stockholders' interest in Superior's net income from
October 17, 1996 (the date of its initial public offering) through the end of
fiscal 1997 and for the full fiscal year 1998, respectively.
Loss from discontinued operations, net of tax, for fiscal 1999 was
$2.7 million, or $0.15 per diluted share. This compares to losses from
discontinued operations for fiscal 1998 of $0.2 million, or $0.01 per diluted
share, and $2.3 million, or $0.12 per diluted share, for fiscal 1997.
Income before extraordinary loss was $14.2 million in fiscal 1999,
$16.7 million in fiscal 1998 and $56.8 million in fiscal 1997. Excluding the
effect of discontinued operations and nonrecurring and unusual items, income per
diluted share was $1.00 in fiscal 1999, $0.90 in fiscal 1998 and $0.80 in fiscal
1997.
In fiscal 1999, fiscal 1998 and fiscal 1997, the Company incurred an after
tax extraordinary loss on early extinguishment of debt of $0.6 million,
$1.5 million and $20.1 million, respectively (See Note 9 to Alpine's
consolidated financial statements).
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
For the eight month period ended December 31, 1999, the Company generated
$63.8 million in cash flow from continuing operating activities, consisting of
$55.1 million in income generated from operations (net income plus non-cash
charges) increased by $8.7 million in cash flow provided by net working capital
changes. The major working capital changes included a $24.4 million decrease in
inventories primarily offset by an $18.4 million decrease in accounts payable
and accrued expenses. Cash used by investing activities amounted to
$93.7 million and consisted principally of capital expenditures, pre-arranged
long-term loans ("Israel Customer Loans") made to one of Superior Israel's
principal customers and Superior Israel's acquisition of Pica Plast. Cash
provided by financing activities amounted to $16.4 million. The
25
<PAGE>
major components were a net increase in borrowings of Superior Israel of
$60.0 million (including $28.7 million related to Superior Israel Customer
Loans), other debt reductions of $24.0 million, and treasury stock repurchases
of $26.1 million.
SUPERIOR TELECOM
As discussed in Note 5 to the accompanying consolidated financial
statements, Superior completed a cash tender offer for the acquisition of 81% of
the outstanding common shares of Essex on November 27, 1998. In connection with
this acquisition, Superior entered into a $1.15 billion amended and restated
credit agreement (the "Credit Agreement") and a $200 million senior subordinated
credit agreement (the "Sub Notes"). Proceeds from these financing arrangements
amounting to approximately $1.15 billion 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 $275 million of Essex's existing debt,
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 and its domestic subsidiaries, and by the common stock of Superior's
domestic subsidiaries and 65% of the common stock of its principal foreign
subsidiaries. At December 31, 1999, Superior had $167 million in excess
availability under the Credit Agreement. The Credit Agreement contains certain
performance and financial covenants. Further, in March 2000 the Credit Agreement
was amended, reducing certain prospective financial covenant thresholds related
to, among other things, operating cash flow (EBITDA) levels.
In addition to financing provided by the Credit Agreement and Sub Notes,
Superior has financing availability under a receivable securitization program
providing for up to $160 million in short term financing through the issuance of
secured commercial paper. The receivable securitization program expires on
November 30, 2000, although it may be extended for successive one-year periods,
subject to agreement. At December 31, 1999, $140.4 million was outstanding under
this program bearing an interest rate of 6.75%.
As discussed in Note 5 to the accompanying consolidated financial
statements, Superior acquired 51% of Superior Israel on May 5, 1998. On
December 31, 1998, Superior Israel completed the acquisition of all of the
business and certain operating assets of Cvalim for $41.2 million. In connection
with this acquisition, Superior Israel entered into a $83.0 million credit
facility, consisting of a $53.0 million term loan and a $30.0 million revolving
credit facility. Proceeds from this financing were used to finance the
acquisition, pay related expenses and provide for working capital requirements
of Superior Israel. Obligations under this credit facility are secured by all of
the assets of Superior Israel. The credit facility contains customary
performance and financial covenants. At December 31, 1999, Superior Israel had
$10.0 million in excess availability under its revolving credit facility.
Superior's principal debt service commitments for the next 12 months amount
to $86.0 million and capital expenditures are expected to approximate
$70.0-$80.0 million. Management anticipates that Superior will generate in
excess of $100 million in cash flows from its operating activities over the next
twelve months subject to fluctuations resulting from operating performance and
working capital changes. The Company believes that operating cash flows plus
excess funds available under Superior's credit facilities will be sufficient to
fund its aforementioned debt service and capital commitments.
ALPINE CORPORATE
As of December 31, 1999, Alpine had corporate cash, cash equivalents and
marketable securities (excluding its investments in Superior, PolyVision and
Cookson) of approximately $27.4 million. Alpine also owns approximately
10.2 million common shares (representing 51.8% common share ownership) of
Superior (NYSE:SUT) with a market value on March 24, 2000 of approximately
$131.3 million and a consolidated carrying value as recorded by the Company (net
of minority interest) of approximately $58.5 million. Additionally, at
March 24, 2000, Alpine's investments in Cookson common stock (FTSE:
26
<PAGE>
CKSN.L) and PolyVision common stock and preferred stock amounted to
$93.2 million and $41.1 million, respectively.
Alpine's primary commitments over the next twelve month period include
funding of corporate overhead expenses and interest payments on approximately
$83.0 million in Alpine corporate debt (of which $20.0 million was incurred in
August 1999 to complete the acquisition of the minority interest of Premier--see
Note 5 to the accompanying consolidated financial statements). Total annual
funding for Alpine corporate overhead and interest expense is expected to
approximate $13-$14 million.
In November 1999, the Company refinanced and expanded its existing corporate
credit facility. The revised credit facility provides for borrowings up to
$100 million, of which $70.0 million was drawn as of December 31, 1999. The
Company has pledged substantially all of its common share and ordinary share
ownership in Superior and Cookson, respectively, as security for this credit
facility.
For the next 12 month period, Alpine expects to fund its aforementioned
annual commitments from allowable management fees payable by Superior to Alpine,
cash dividends from Superior and Cookson and from interest income, with any
shortfall funded from availability under the aforementioned corporate credit
facility or from existing corporate cash, cash equivalents and marketable
securities reserves.
YEAR 2000 UPDATES
The Company did not experience any significant disruptions in its business
operations as a result of the Year 2000 problem. The Year 2000 problem was
defined as the potential system and mechanical failures or miscalculations
resulting from the inability of computer programs to recognize dates after
December 31, 1999. Most computer programs had been written using two digits
(rather than four) to define the applicable year.
In fiscal 1997, the Company established project teams to identify and
resolve Year 2000 problems. The teams' processes included (i) the readiness
assessment of service providers, major vendors and internal operating systems
and applications; (ii) the upgrade or remediation of non-compliant items
identified; and (iii) the testing and implementation of the upgraded or
remediated items.
The Company incurred approximately $6.0 million of expenses related to the
Year 2000 project. The costs associated with code modification and testing
(approximately $5.0 million) were expensed as incurred. The personal computer
and purchased software upgrades (approximately $1.0 million) were incurred in
the ordinary course of business and capitalized.
The Company does not anticipate any future disruptions in its business
related to the Year 2000 problem.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk primarily relates to interest rates on
long-term debt. The Company enters into interest rate swap agreements to manage
its exposure to interest rate changes. At December 31, 1999, the Company has an
interest rate swap on $600 million principal amount with a fixed LIBOR rate of
5.27% expiring December 10, 2000. Considering the impact of the existing
interest rate swap, a one percent increase in interest rates affecting the
Company's $1.15 billion credit agreement and its $200 million sub notes would
increase annual interest expense by approximately 4% or $5.2 million. Excluding
the impact of the existing rate swap, a one percent increase in interest rates
affecting the Company's $1.15 billion credit agreement and its $200 million sub
notes would increase annual interest expense by approximately 9% or
$11.2 million.
EXCEPT FOR THE HISTORICAL INFORMATION HEREIN, THE MATTERS DISCUSSED IN THIS
ANNUAL REPORT ON FORM 10-K/A 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
27
<PAGE>
DEVELOPMENT, MARKET ACCEPTANCE OF NEW PRODUCTS AND CONTINUING PRODUCT DEMAND,
PREDICTION AND TIMING OF CUSTOMER ORDERS, THE IMPACT OF COMPETITIVE PRODUCTS AND
PRICING, CHANGING ECONOMIC CONDITIONS, INCLUDING CHANGES IN SHORT TERM INTEREST
RATES AND FOREIGN EXCHANGE RATES, AND OTHER RISK FACTORS DETAILED IN THE
COMPANY'S MOST RECENT FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Alpine's consolidated financial statements as of December 31, 1999 and
April 30, 1999 and 1998 and for the eight months ended December 31, 1999 and
each of the three years in the period ended April 30, 1999 and the report of the
independent public accountants thereon and financial statement schedules
required under Regulation S-X are submitted herein as a separate section
following Item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information required by this Item is incorporated herein by reference to
Alpine's definitive Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days after the end of the
fiscal year covered by this report ("Alpine's Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to
Alpine's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to
Alpine's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to
Alpine's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1),(a)(2) See the separate section of this report following Item 14 for
a list of financial statements and schedules filed herewith.
(a)(3)Exhibits as required by Item 601 of Regulation S-K are listed in Item
14(c) below.
(b) The Company filed a Current Report on Form 8-K on December 21, 1999 with
respect to Item 8 to report its change in year end to December 31 from
April 30, effective December 31, 1999.
ITEM 14(C) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- ------------------------------------------------------------
<C> <S>
2(a) Stock Purchase Agreement, dated February 14, 1992, by and
between Alpine and Dataproducts Corporation, relating to the
purchase of shares of capital stock of DNE Systems, Inc.
(incorporated herein by reference to Exhibit 1 to the
Current Report on Form 8-K of Alpine dated March 2, 1992).
2(b) Agreement and Plan of Merger, dated as of June 17, 1993 and
amended on September 24, 1993, by and between Alpine and
Superior TeleTec Inc. (incorporated herein by reference to
Exhibit 2 to the Registration Statement on Form S-4
(Registration No. 33-9978) of Alpine, as filed with the
Securities and Exchange Commission (the "Commission") on
October 5, 1993).
2(c) Agreement and Plan of Merger, dated as of December 21, 1994,
as amended, by and among Information Display Technology,
Inc., IDT PolyVision Acquisition Corp., IDT Posterloid
Acquisition Corp., The Alpine Group, Inc.,
Alpine/PolyVision, Inc. and Posterloid Corporation
(incorporated herein by reference to Exhibit 2 to Amendment
No. 1 to Alpine's Statement on Schedule 13D relating to its
beneficial ownership of equity securities of Information
Display Technology, Inc. dated December 28, 1994).
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- ------------------------------------------------------------
<C> <S>
2(d) Amendment to the Agreement and Plan of Merger, dated as of
December 21, 1994, by and among Information Display
Technology, Inc., IDT PolyVision Acquisition Corp., IDT
Posterloid Acquisition Corp., Alpine, Alpine/PolyVision,
Inc. and Posterloid Corporation (incorporated herein by
reference to Exhibit 1 to Amendment No. 2 to Alpine's
Statement on Schedule 13D relating to its beneficial
ownership of equity securities of Information Display
Technology Inc. dated May 5, 1995).
2(e) Asset Purchase Agreement, dated as of March 17, 1995, by and
among Alcatel NA Cable Systems, Inc., Alcatel Canada Wire,
Inc. Superior Cable Corporation and Superior Teletec Inc.
(the "Alcatel Acquisition Agreement") (incorporated herein
by reference to Exhibit 1 to the Current Report on Form 8-K
of Alpine dated May 24, 1995).
2(f) Amendment dated May 11, 1995 to Asset Purchase Agreement by
and among Alcatel NA Cable Systems, Inc., Alcatel Canada
Wire, Inc., Superior Cable Corporation and Superior TeleTec
Inc. (incorporated herein by reference to Exhibit 2 to the
Current Report on Form 8-K of Alpine dated May 24, 1995).
2(g) Agreement Regarding Certain Employee Benefit Plans, amending
the Alcatel Acquisition Agreement, dated June 10, 1996
(incorporated herein by reference to Exhibit 2(b) to the
Annual Report on Form 10-K of Alpine for the year ended
April 30, 1996 (the "1996 10-K")).
2(h) Share Purchase Agreement, dated as of May 5, 1998, among
CLAL Industries and Investments Ltd., ISAL Holland B.V. and
Halachoh Hane'eman Hashivim Veshmona Ltd. (incorporated
herein by reference to Exhibit 1 to the Current Report on
Form 8-K of the Company dated May 5, 1998).
2(i) Agreement and Plan of Merger, dated as of October 21, 1998,
by and among Superior Telecom Inc. ("Superior TeleCom"), SUT
Acquisition Corp. and Essex International Inc. (incorporated
herein by reference to Appendix A-1 to the Joint Proxy
Statement/ Prospectus filed as part of the Registration
Statement on Form S-4 (Registration No. 333-68889) of
Superior TeleCom and Superior Trust I, as filed with the
Commission on December 14, 1998, as amended (the "Superior
Form S-4")).
2(j) Amendment No. 1 to Agreement and Plan of Merger, dated as of
February 24, 1999, by and among Superior TeleCom, SUT
Acquisition Corp. and Essex International Inc. (incorporated
herein by reference to Appendix A-2 to the Joint Proxy
Statement/ Prospectus filed as part of the Superior Form
S-4).
2(k) Asset Purchase Agreement, dated October 2, 1998, among
Cables of Zion United Works Ltd., Cvalim-The Electric Wire
and Cable Company of Israel Ltd. and Dash Cable Industries
(Israel) Ltd. (incorporated herein by reference to Exhibit 1
to the Current Report on Form 8-K of the Company dated
December 31, 1998).
2(l) Amendment No. 1 to Asset Purchase Agreement, dated December
31, 1998, among Cables of Zion United Works Ltd., Cvalim-The
Electric Wire and Cable Company of Israel Ltd. and Dash
Cable Industries (Israel) Ltd. (incorporated herein by
reference to Exhibit 2 to the Current Report on Form 8-K of
the Company dated December 31, 1998).
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- ------------------------------------------------------------
<C> <S>
2(m) Agreement and Plan of Merger, dated as of May 28, 1999,
among Cookson Group plc, PRI Acquisition, Inc., Alpine and
Premier Refractories International Inc. (incorporated herein
by reference to Exhibit 2(o) to the Annual Report on Form
10-K of Alpine for the fiscal year ended April 30, 1999 (the
"1999 10-K")).
3(a) Certificate of Incorporation of Alpine (incorporated herein
by reference to Exhibit 3(a) to the Annual Report on Form
10-K of Alpine for the year ended April 30, 1995 (the "1995
10-K")).
3(b) Amendment to the Certificate of Incorporation of Alpine
(incorporated herein by reference to Exhibit 3(aa) of
Post-Effective Amendment No. 1 to the Registration Statement
on Form S-3 (Registration No. 33-53434) of Alpine, as filed
with the Commission on May 12, 1993).
3(c) Certificate of the Powers, Designations, Preferences and
Rights of the 9% Cumulative Convertible Preferred Stock of
Alpine (incorporated herein by reference to Exhibit 1 to the
Quarterly Report on Form 10-Q of Alpine for the quarter
ended January 31, 1989).
3(d) Certificate of the Powers, Designations, Preferences and
Rights of the 9% Cumulative Convertible Senior Preferred
Stock of Alpine (incorporated herein by reference to Exhibit
3(c) to the Annual Report on Form 10-K of Alpine for the
fiscal year ended April 30, 1992 ("1992 10-K")).
3(e) Certificate of the Powers, Designations, Preferences and
Rights of the 8.5% Cumulative Convertible Senior Preferred
Stock of Alpine (incorporated herein by reference to Exhibit
3(e) to the Annual Report on Form 10-K of Alpine for the
fiscal year ended April 30, 1994).
3(f) Certificate of the Powers, Designations, Preferences and
Rights of the 8% Cumulative Convertible Senior Preferred
Stock of the Company (incorporated herein by reference to
Exhibit 3(f) to the 1995 10-K).
3(g) By-laws of Alpine (incorporated herein by reference to
Exhibit 3(g) to the 1995 10-K).
4(a) Indenture, dated as of July 15, 1995, by and among Alpine,
Adience, Inc., Superior Telecommunications Inc. ("STI"),
Superior Cable Corporation and Marine Midland Bank ("Marine
Midland"), as trustee (incorporated herein by reference to
Exhibit 10(ee) to the 1995 10-K).
4(b) Supplemental Indenture to the above Indenture, dated as of
October 2, 1996, among Alpine, STI, Adience, Inc., Superior
Cable Corporation and Marine Midland, as trustee
(incorporated herein by reference to Exhibit 4(b) to the
Annual Report on Form 10-K of Alpine for the fiscal year
ended April 30, 1997 (the "1997 10-K")).
4(c) Second Supplemental Indenture to the above Indenture, dated
as of January 31, 1997, among Alpine, STI, Adience, Inc.,
Superior Cable Corporation and Marine Midland, as trustee
(incorporated herein by reference to Exhibit 4(c) to the
1997 10-K).
4(d) Pledge Agreement, dated as of July 21, 1995, by and between
Alpine and Marine Midland (incorporated herein by reference
to Exhibit 10(ff) to the 1995 10-K).
4(e) Amendment, dated as of October 2, 1996, between Alpine and
Marine Midland, as trustee, to the above Pledge Agreement
(incorporated herein by reference to Exhibit 4(e) to the
1997 10-K).
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- ------------------------------------------------------------
<C> <S>
4(f) Amendment No. 2, dated as of January 27, 1997, between
Alpine and Marine Midland, as trustee, to the above Pledge
Agreement (incorporated herein by reference to Exhibit 4(f)
to the 1997 10-K).
4(g) Rights Agreement, dated as of February 17, 1999, between
Alpine and American Stock Transfer & Trust Company, as
Rights Agent (incorporated herein by reference to Exhibit
4.1 to the Form 8-A of Alpine, as filed with the Commission
on February 18, 1999).
10(a) Amended and Restated 1984 Restricted Stock Plan of Alpine
(incorporated herein by reference to Exhibit 10.5 to the
Registration Statement on Form S-4 (Registration No.
33-9978) of Alpine, as filed with the Commission on October
5, 1993 (the "S-4 Registration Statement")).
10(b) Amended and Restated 1987 Long-Term Equity Incentive Plan of
Alpine (incorporated herein by reference to Exhibit 10.4 to
the S-4 Registration Statement).
10(c) Employee Stock Purchase Plan of Alpine (incorporated herein
by reference to Exhibit B to the proxy statement of Alpine
dated August 22, 1997).
10(d) 1997 Stock Option Plan (incorporated herein by reference to
Exhibit 10(tt) to the 1997 10-K).
10(e) Stock Compensation Plan for Non-Employee Directors of Alpine
(incorporated herein by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q of Alpine for the quarter
ended January 30, 1999).
10(f) Lease Agreement by and between ALP(TX) QRS 11-28, Inc., and
Superior TeleTec Transmission Products, Inc., dated as of
December 16, 1993 (incorporated herein by reference to
Exhibit (i) to the Quarterly Report on Form 10-Q of Alpine
for the quarter ended January 31, 1994).
10(g) First Amendment to Lease Agreement, dated as of May 10,
1995, by and between ALP (TX) QRS 11-28, Inc. and Superior
TeleTec Inc. (incorporated herein by reference to Exhibit
10(o) to the 1995 10-K).
10(h) Second Amendment to Lease Agreement, dated as of July 21,
1995, by and between ALP(TX) QRS 11-28, Inc. and Superior
Telecommunications Inc. (incorporated herein by reference to
Exhibit 10(x) to the 1995 10-K).
10(i) Third Amendment to Lease Agreement, dated as of October 2,
1996, by and between ALP(TX) QRS 11-28, Inc. and Superior
Telecommunications Inc. (incorporated herein by reference to
Exhibit 10.8 to the Registration Statement on Form S-1
(Registration No. 333-09933) of Superior TeleCom, as filed
with the Commission on August 9, 1996, as amended (the
"TeleCom S-1")).
10(j) First Amendment to Guaranty and Surety Agreement, dated as
of October 2, 1996, among the Company, Superior TeleCom and
ALP (TX) QRS 11-28, Inc. (incorporated herein by reference
to Exhibit 10.12 to the TeleCom S-1).
10(k) Employment Agreement, dated as of April 26, 1996, by and
between Alpine and Steven S. Elbaum (incorporated herein by
reference to Exhibit 10(q) to the 1996 10-K).
10(l) Employment Agreement, dated as of April 26, 1996, by and
between Alpine and Stewart H. Wahrsager (incorporated herein
by reference to Exhibit 10(r) to the 1996 10-K).
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- ------------------------------------------------------------
<C> <S>
10(m) Employment Agreement, dated as of April 26, 1996, by and
between Alpine and Bragi F. Schut (incorporated herein by
reference to Exhibit 10(s) to the 1996 10-K).
10(n) Employment Agreement, dated as of April 26, 1996, by and
between Alpine and Stephen M. Johnson (incorporated herein
by reference to Exhibit 10(t) to the 1996 10-K).
10(o) Employment Agreement, dated as of April 26, 1996, by and
between Alpine and David S. Aldridge (incorporated herein by
reference to Exhibit 10(u) to the 1996 10-K).
10(p) Employment Agreement, dated as of April 26, 1996, between
STI and Justin F. Deedy, Jr. (incorporated herein by
reference to Exhibit 10.3 to the TeleCom S-1).
10(q) Employment Agreement, dated as of October 17, 1996, between
Superior TeleCom and Steven S. Elbaum (incorporated herein
by reference to exhibit 10(14) to the Quarterly Report on
Form 10-Q of Superior TeleCom for the quarter ended January
31, 1997).
10(r) Alpine Pledge Agreement, dated as of April 15, 1997, made by
Alpine in favor of Bankers Trust Company, as Collateral
Agent for the benefit of the Secured Creditors (as defined
therein) (incorporated herein by reference to Exhibit 4 to
Amendment No. 1 to Alpine's Current Report on Form 8-K/A
dated June 27, 1997 (the "June 1997 8-K/ A")).
10(s) First Amendment, dated as of June 11, 1997, to the Alpine
Pledge Agreement (incorporated herein by reference to
Exhibit 5 to the June 1997 8-K/A).
10(t) Guaranty, dated as of April 15, 1997, made by Alpine for the
benefit of the Secured Creditors (as defined therein)
(incorporated herein by reference to Exhibit 6 to the June
1997 8-K/A).
10(u) First Amendment, dated as of June 11, 1997, to the Guaranty
(incorporated herein by reference to Exhibit 7 to the June
1997 8-K/A).
10(v) Amended and Restated Credit Agreement, dated as of November
27, 1998, among Superior/Essex Corp., Essex Group, Inc., the
guarantors named therein, various lenders, Merrill Lynch &
Co., as Documentation Agent, Fleet National Bank, as
Syndication Agent, and Bankers Trust Company, as
Administrative Agent (incorporated herein by reference to
Exhibit 99.7 to the Schedule 13D/A of Alpine, Superior
TeleCom, Superior/Essex Corp. and SUT Acquisition Corp., as
filed with the Commission on December 7, 1998).
10(w)* Senior Subordinated Credit Agreement, dated as of May 26,
1999, among Superior/ Essex Corp., as Borrower, Superior
TeleCom, as Parent, the Subsidiary Guarantors listed
therein, the Lending Institutions listed therein, Fleet
Corporate Finance, Inc., as Syndication Agent, and Bankers
Trust Company, as Administrative Agent.
10(x) Addendum No. 1 to the Application to Open an Account, dated
December 29, 1998, between Cables of Zion United Works Ltd.
and Bank Hapoalim B.M. (incorporated herein by reference to
Exhibit 3 to the Current Report on Form 8-K of the Company
dated December 31, 1998).
10(y) Letter Agreement between the Company and Superior TeleCom,
dated October 8, 1996, relating to a capital contribution by
the Company to Superior TeleCom (incorporated herein by
reference to Exhibit 10.2 to the TeleCom S-1).
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- ------------------------------------------------------------
<C> <S>
10(z) Letter Agreement between the Company and Superior TeleCom,
dated October 2, 1996, relating to tax indemnification
(incorporated herein by reference to Exhibit 10.5 to the
TeleCom S-1).
10(aa) Tax Allocation Agreement, dated as of October 2, 1996, among
the Company, Superior TeleCom and its subsidiaries
(incorporated herein by reference to Exhibit 10.9 to the
TeleCom S-1).
10(bb) Exchange Agreement between the Company and Superior TeleCom,
dated October 2, 1996 (incorporated herein by reference to
Exhibit 10.10 to the TeleCom S-1).
10(cc) Registration Rights Agreement, dated October 2, 1996,
between the Company and Superior TeleCom (incorporated
herein by reference to Exhibit 10.11 to the TeleCom S-1).
10(dd) Services Agreement, dated October 2, 1996, between the
Company and Superior TeleCom (incorporated herein by
reference to Exhibit 10.4 to the TeleCom S-1).
10(ee) Amendment No. 1, dated as of May 1, 1997, to the Services
Agreement (incorporated herein by reference to Exhibit
10(pp) to the 1997 10-K).
10(ff) Amendment No. 2, dated as of May 1, 1998, to the Services
Agreement (incorporated herein by reference to Exhibit
10(uu) to the Annual Report on Form 10-K of Alpine for the
fiscal year ended April 30, 1998).
10(gg) Amendment No. 1, dated as of March 15, 1999, to The Alpine
Group, Inc. 1997 Stock Option Plan (incorporated herein by
reference to Exhibit 10(ll) to the 1999 10-K).
10(hh) Amendment No. 2, dated as of April 1, 1999, to The Alpine
Group, Inc. 1997 Stock Option Plan (incorporated herein by
reference to Exhibit 10(mm) to the 1999 10-K).
10(ii) Amendment No. 3, dated as of May 14, 1999, to The Alpine
Group, Inc. 1997 Stock Option Plan (incorporated herein by
reference to Exhibit 10(nn) to the 1999 10-K).
10(jj) Credit Agreement, dated as of November 23, 1999, among The
Alpine Group, Inc., Various Lenders, Fleet Bank, N.A., as
Syndication Agent, Bank of America, N.A., as Documentation
Agent, and Bankers Trust Company, as Administrative Agent
(incorporated herein by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q of Alpine for the quarter
ended October 31, 1999).
10(kk)* Amendment No. 1, dated as of December 10, 1999, to the
Senior Subordinated Credit Agreement, dated as of May 26,
1999, among Superior/Essex Corp., as borrower, Superior
TeleCom, as parent, the subsidiary guarantors named therein,
various lenders, Fleet Corporate Finance, Inc., as
syndication agent, and Bankers Trust Company, as
administrative agent.
10(ll)* Amendment No. 2, dated as of February 18, 2000, to the
Senior Subordinated Credit Agreement, dated as of May 26,
1999, among Superior/Essex Corp., as borrower, Superior
TeleCom, as parent, the subsidiary guarantors named therein,
various lenders, Fleet Corporate Finance, Inc., as
syndication agent, and Bankers Trust Company, as
administrative agent.
10(mm)* Fourth Amendment to Lease Agreement, dated as of November
27, 1998, between ALP (TX) QRS 11-28, Inc. and Superior
Telecommunications Inc.
10(nn)* Second Amendment to Guaranty and Suretyship Agreement, dated
as of November 27, 1998, among ALP (TX) QRS 11-28, Inc.,
Superior TeleCom and Alpine.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- ------------------------------------------------------------
<C> <S>
10(oo)* Employment Agreement, dated as of January 1, 2000, between
Superior TeleCom and Gregory R. Schriefer.
10(pp)* Credit Agreement, dated as of November 23, 1999, among The
Alpine Group, Inc., Various Lenders, Fleet Bank, N.A., as
Syndication Agent, Bank of America, N.A., as Documentation
Agent, and Bankers Trust Company, as Administrative Agent.
21* List of Subsidiaries
23(a)* Consent of Arthur Andersen LLP
27* Financial Data Schedule
</TABLE>
- ------------------------
* Filed herewith.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: April 4, 2000
THE ALPINE GROUP, INC.
By: /s/ STEVEN S. ELBAUM
------------------------------------------------------------------------------
Steven S. Elbaum
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board and
/s/ STEVEN S. ELBAUM Chief Executive Officer
------------------------------------------- (principal executive April 4, 2000
Steven S. Elbaum officer)
Chief Financial Officer and
/s/ DAVID S. ALDRIDGE Treasurer (principal
------------------------------------------- financial and accounting April 4, 2000
David S. Aldridge officer)
/s/ KENNETH G. BYERS, JR. Director
------------------------------------------- April 4, 2000
Kenneth G. Byers, Jr.
/s/ RANDOLPH HARRISON Director
------------------------------------------- April 4, 2000
Randolph Harrison
/s/ JOHN C. JANSING Director
------------------------------------------- April 4 2000
John C. Jansing
/s/ ERNEST C. JANSON, JR. Director
------------------------------------------- April 4, 2000
Ernest C. Janson, Jr.
/s/ JAMES R. KANELY Director
------------------------------------------- April 4, 2000
James R. Kanely
/s/ BRAGI F. SCHUT Director
------------------------------------------- April 4, 2000
Bragi F. Schut
</TABLE>
36
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of independent public accountants.................... F-2
Consolidated balance sheets at April 30, 1998 and 1999 and
December 31, 1999......................................... F-3
Consolidated statements of operations for the years ended
April 30, 1997, 1998 and 1999 and for the eight months
ended December 31, 1999................................... F-4
Consolidated statements of stockholders' equity for the
years ended April 30, 1997, 1998 and 1999 and for the
eight months ended December 31, 1999...................... F-6
Consolidated statements of cash flows for the years ended
April30, 1997, 1998 and 1999 and for the eight months
ended December31, 1999.................................... F-10
Notes to consolidated financial statements.................. F-13
SCHEDULES:
Schedule I--Condensed financial information of registrant
(Parent Company).......................................... F-44
Schedule II--Valuation and qualifying accounts.............. F-48
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Alpine Group, Inc.:
We have audited the accompanying consolidated balance sheets of The Alpine
Group, Inc. (a Delaware corporation) and subsidiaries as of April 30, 1998 and
1999 and December 31, 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended April 30,
1997, 1998 and 1999 and for the eight months ended December 31, 1999. These
financial statements and the financial statement schedules referred to below are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial statement schedules
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Alpine Group, Inc. and
subsidiaries as of April 30, 1998 and 1999 and December 31, 1999, and the
results of their operations and their cash flows for the years ended April 30,
1997, 1998 and 1999 and the eight months ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
financial statements are presented for the purpose of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Atlanta, Georgia
March 3, 2000
F-2
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
APRIL 30, APRIL 30, DECEMBER 31,
1998 1999 1999
--------- ---------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 15,670 $ 33,000 $ 19,542
Marketable securities................................... 15,672 14,957 7,841
Accounts receivable..................................... 41,108 261,318 261,263
Inventories............................................. 43,190 337,122 313,571
Net assets of discontinued operations................... -- 34,557 --
Other current assets.................................... 15,880 42,464 42,262
-------- ---------- ----------
Total current assets................................ 131,520 723,418 644,479
Property, plant and equipment, net........................ 84,348 511,577 515,763
Long-term investments and other assets.................... 22,404 67,695 226,606
Net assets of discontinued operations..................... 41,480 -- --
Goodwill, net............................................. 40,657 806,343 796,781
-------- ---------- ----------
Total assets........................................ $320,409 $2,109,033 $2,183,629
======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings................................... $ -- $ 142,645 $ 140,369
Current portion of long-term debt....................... 172 65,080 85,910
Accounts payable........................................ 44,554 138,665 147,336
Accrued expenses........................................ 21,999 129,584 100,843
-------- ---------- ----------
Total current liabilities........................... 66,725 475,974 474,458
Long-term debt, less current portion...................... 96,894 1,237,353 1,253,020
Minority interest in subsidiaries......................... 41,043 58,980 66,459
Other long-term liabilities............................... 38,232 146,981 160,750
-------- ---------- ----------
Total liabilities................................... 242,894 1,919,288 1,954,687
-------- ---------- ----------
Subsidiary-obligated Manditorily Redeemable Trust
Convertible Preferred Securities of Superior Trust I
holding solely convertible debentures of Superior, net
of discount........................................... -- 133,362 133,959
Commitments and contingencies
Stockholders' equity:
9% cumulative convertible preferred stock at liquidation
value................................................. 427 427 427
Common stock, $.10 par value; 25,000,000 shares
authorized; 19,865,990 shares, 20,096,479 shares and
21,663,041 shares issued at April 30, 1998 and 1999,
and December 31, 1999, respectively................... 1,986 2,009 2,166
Capital in excess of par value.......................... 136,598 138,860 158,268
Accumulated other comprehensive income (deficit)........ (814) (5,222) 451
Retained earnings (deficit)............................. (32,834) (19,304) 27,056
-------- ---------- ----------
105,363 116,770 188,368
Shares of common stock in treasury, at cost............. (26,890) (59,398) (92,396)
Receivable from stockholders............................ (958) (989) (989)
-------- ---------- ----------
Total stockholders' equity.......................... 77,515 56,383 94,983
-------- ---------- ----------
Total liabilities and stockholders' equity........ $320,409 $2,109,033 $2,183,629
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED EIGHT
---------------------------------- MONTHS ENDED
APRIL 30, APRIL 30, APRIL 30, DECEMBER 31,
1997 1998 1999 1999
--------- --------- ---------- --------------
<S> <C> <C> <C> <C>
Net sales.................................... $463,840 $516,599 $1,143,245 $1,370,385
Cost of goods sold........................... 384,271 417,358 910,651 1,116,091
-------- -------- ---------- ----------
Gross profit............................... 79,569 99,241 232,594 254,294
Selling, general and administrative
expenses................................... 25,320 28,832 93,888 102,513
Nonrecurring and unusual charges............. -- -- 7,282 4,660
Amortization of goodwill..................... 1,726 1,715 8,369 13,778
-------- -------- ---------- ----------
Operating income........................... 52,523 68,694 123,055 133,343
Interest expense............................. (13,753) (10,755) (60,119) (85,116)
Gain on sale of subsidiary stock............. 80,397 -- -- --
Other income, net............................ 1,989 4,094 1,874 4,732
-------- -------- ---------- ----------
Income from continuing operations before
income taxes, distributions on preferred
securities of subsidiary trust, minority
interest, equity in earnings of affiliate
and extraordinary (loss)................. 121,156 62,033 64,810 52,959
Provision for income taxes................... (53,877) (24,796) (27,955) (21,746)
-------- -------- ---------- ----------
Income from continuing operations before
distributions on preferred securities of
subsidiary trust, minority interest,
equity in earnings of affiliate and
extraordinary (loss)..................... 67,279 37,237 36,855 31,213
Distributions on preferred securities of
subsidiary trust........................... -- -- (1,252) (9,998)
-------- -------- ---------- ----------
Income from continuing operations before
minority interest, equity in earnings of
affiliate and extraordinary (loss)....... 67,279 37,237 35,603 21,215
Minority interest in earnings of
subsidiary................................. (8,097) (20,296) (18,693) (11,404)
Equity in earnings of affiliate.............. -- -- -- 2,196
-------- -------- ---------- ----------
Income from continuing operations before
extraordinary (loss)..................... 59,182 16,941 16,910 12,007
Income (loss) from discontinued operations... (2,336) (194) (2,707) 35,369
-------- -------- ---------- ----------
Income before extraordinary (loss)......... 56,846 16,747 14,203 47,376
Extraordinary (loss) on early extinguishment
of debt.................................... (20,126) (1,464) (634) (990)
-------- -------- ---------- ----------
Net income............................... 36,720 15,283 13,569 46,386
Preferred stock dividends.................... (575) (69) (39) (26)
Preferred stock redemption premium........... (5,195) -- -- --
-------- -------- ---------- ----------
Net income applicable to common stock.... $ 30,950 $ 15,214 $ 13,530 $ 46,360
======== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS
--------------------------------- ENDED
APRIL 30, APRIL 30, APRIL 30, DECEMBER 31,
1997 1998 1999 1999
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
Net income per share of common stock:
Basic:
Income from continuing operations................ $ 3.28 $ 1.00 $ 1.03 $ 0.81
Income (loss) from discontinued operations....... (0.13) (0.01) (0.17) 2.39
Extraordinary (loss) on early extinguishment of
debt........................................... (1.12) (0.09) (0.04) (0.07)
Preferred stock redemption premium............... (0.29) -- -- --
------ ------ ------ ------
Net income per basic share of common stock..... $ 1.73 $ 0.90 $ 0.82 $ 3.13
====== ====== ====== ======
Diluted:
Income from continuing operations................ $ 2.98 $ 0.90 $ 0.91 $ 0.68
Income (loss) from discontinued operations....... (0.12) (0.01) (0.15) 2.17
Extraordinary (loss) on early extinguishment of
debt........................................... (1.01) (0.08) (0.04) (0.06)
Preferred stock redemption premium............... (0.26) -- -- --
------ ------ ------ ------
Net income per diluted share of common stock... $ 1.59 $ 0.81 $ 0.72 $ 2.79
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1997, 1998 AND 1999 AND THE EIGHT MONTHS ENDED
DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CAPITAL 9% CUMULATIVE 8% CUMULATIVE
IN CONVERTIBLE CONVERTIBLE
COMMON STOCK EXCESS PREFERRED STOCK PREFERRED STOCK RETAINED
COMPREHENSIVE --------------------- OF PAR ------------------- ------------------- EARNINGS
INCOME SHARES AMOUNT VALUE SHARES AMOUNT SHARES AMOUNT (DEFICIT)
------------- ---------- -------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30,
1996................ 19,307,012 $1,931 $113,843 1,927 $1,927 196,649 $ 9,831 $(78,998)
Compensation expense
related to stock
options and
grants.............. 113,651 11 2,220
Loans to
stockholders........
Dividends on preferred
stock............... (575)
Redemption of
preferred stock..... (196,649) (9,831)
Preferred stock
redemption premium.. (5,195)
Exercise of stock
options............. 405,254 40 1,918
Employee stock
purchase plan....... 8,339 1 48
Purchase of treasury
stock...............
Retirement of treasury
stock............... (1,000,000) (100) (4,570)
Comprehensive income:
Net income.......... $36,720 36,720
Foreign currency
translation
adjustment........ (1,234)
Unrealized loss on
securities
available for
sale.............. (716)
-------
Total comprehensive
income.............. $34,770
======= ---------- ------ -------- ----- ------ -------- ------- --------
Balance at April 30,
1997................ 18,834,256 $1,883 $113,459 1,927 $1,927 -- $ -- $(48,048)
========== ====== ======== ===== ====== ======== ======= ========
<CAPTION>
ACCUMULATED
OTHER RECEIVABLE
COMPREHENSIVE TREASURY STOCK FROM
INCOME --------------------- STOCK-
(DEFICIT) SHARES AMOUNT HOLDERS TOTAL
------------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Balance at April 30,
1996................ $ (82) (1,025,496) $ (4,806) $(510) $43,136
Compensation expense
related to stock
options and
grants.............. 2,231
Loans to
stockholders........ (123) (123)
Dividends on preferred
stock............... (575)
Redemption of
preferred stock..... (9,831)
Preferred stock
redemption premium.. (5,195)
Exercise of stock
options............. 1,958
Employee stock
purchase plan....... 49
Purchase of treasury
stock............... (1,586,551) (11,994) (11,994)
Retirement of treasury
stock............... 1,000,000 4,670 --
Comprehensive income:
Net income.......... 36,720
Foreign currency
translation
adjustment........ (1,234) (1,234)
Unrealized loss on
securities
available for
sale.............. (716) (716)
Total comprehensive
income..............
------- ---------- -------- ----- -------
Balance at April 30,
1997................ $(2,032) (1,612,047) $(12,130) $(633) $54,426
======= ========== ======== ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1997, 1998 AND 1999 AND THE EIGHT MONTHS ENDED
DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CAPITAL 9% CUMULATIVE ACCUMULATED
IN CONVERTIBLE OTHER
COMMON STOCK EXCESS PREFERRED STOCK RETAINED COMPREHENSIVE
COMPREHENSIVE --------------------- OF PAR ------------------- EARNINGS INCOME
INCOME SHARES AMOUNT VALUE SHARES AMOUNT (DEFICIT) (DEFICIT)
------------- ---------- -------- -------- -------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1997...... 18,834,256 $1,883 $113,459 1,927 $ 1,927 $(48,048) $(2,032)
Compensation expense related to
stock options and grants..... 93,133 9 3,669
Loans to stockholders..........
Dividends on preferred stock... (69)
Issuance of minority equity
interest in subsidiary....... 15,222
Exercise of stock options...... 553,157 56 2,562
Employee stock purchase plan... 23,241 2 222
Exercise of warrants........... 172,330 17 (17)
Conversion of convertible
preferred stock.............. 189,873 19 1,481 (1,500) (1,500)
Purchase of treasury stock.....
Comprehensive income:
Net income................... $15,283 15,283
Foreign currency translation
adjustment................. 502 502
Unrealized gain on securities
available for sale......... 716 716
-------
Total comprehensive income..... $16,501
======= ---------- ------ -------- ------ ------- -------- -------
Balance at April 30, 1998...... 19,865,990 $1,986 $136,598 427 $ 427 $(32,834) $ (814)
========== ====== ======== ====== ======= ======== =======
<CAPTION>
TREASURY STOCK RECEIVABLE
--------------------- FROM
SHARES AMOUNT STOCKHOLDERS TOTAL
---------- -------- ------------ --------
<S> <C> <C> <C> <C>
Balance at April 30, 1997...... (1,612,047) $(12,130) $(633) $54,426
Compensation expense related to
stock options and grants..... 3,678
Loans to stockholders.......... (325) (325)
Dividends on preferred stock... (69)
Issuance of minority equity
interest in subsidiary....... 15,222
Exercise of stock options...... 2,618
Employee stock purchase plan... 224
Exercise of warrants........... --
Conversion of convertible
preferred stock.............. --
Purchase of treasury stock..... (1,092,685) (14,760) (14,760)
Comprehensive income:
Net income................... 15,283
Foreign currency translation
adjustment................. 502
Unrealized gain on securities
available for sale......... 716
Total comprehensive income.....
---------- -------- ----- -------
Balance at April 30, 1998...... (2,704,732) $(26,890) $(958) $77,515
========== ======== ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1997, 1998 AND 1999 AND THE EIGHT MONTHS ENDED
DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CAPITAL 9% CUMULATIVE ACCUMULATED
IN CONVERTIBLE OTHER
COMMON STOCK EXCESS PREFERRED STOCK RETAINED COMPREHENSIVE
COMPREHENSIVE --------------------- OF PAR ------------------- EARNINGS INCOME
INCOME SHARES AMOUNT VALUE SHARES AMOUNT (DEFICIT) (DEFICIT)
------------- ---------- -------- -------- -------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1998...... 19,865,990 $1,986 $136,598 427 $427 $(32,834) $ (814)
Effect of subsidiaries' equity
transactions................. 238
Recapitalization of equity
method investment............ 9,509 1 189
Compensation expense related to
stock options and grants..... 27,675 3 947
Loans to stockholders..........
Dividends on preferred stock... (39)
Exercise of stock options...... 107,538 11 322
Employee stock purchase plan... 53,389 5 569
Exercise of warrants........... 32,378 3 (3)
Purchase of treasury stock.....
Comprehensive income:
Net income................... $13,569 13,569
Foreign currency translation
adjustment................. (3,579) (3,579)
Additional minimum pension
liability.................. (829) (829)
-------
Total comprehensive income..... $ 9,161
======= ---------- ------ -------- --- ---- -------- -------
Balance at April 30, 1999...... 20,096,479 $2,009 $138,860 427 $427 $(19,304) $(5,222)
========== ====== ======== === ==== ======== =======
<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
Recapitalization of equity
method investment............ 190
Compensation expense related to
stock options and grants..... 57 1,007
Loans to stockholders.......... (88) (88)
Dividends on preferred stock... (39)
Exercise of stock options...... 333
Employee stock purchase plan... 574
Exercise of warrants........... --
Purchase of treasury stock..... (2,219,200) (32,508) (32,508)
Comprehensive income:
Net income................... 13,569
Foreign currency translation
adjustment................. (3,579)
Additional minimum pension
liability.................. (829)
Total comprehensive income.....
---------- -------- ----- --------
Balance at April 30, 1999...... (4,923,932) $(59,398) $(989) $ 56,383
========== ======== ===== ========
</TABLE>
F-8
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1997, 1998 AND 1999 AND THE EIGHT MONTHS ENDED
DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CAPITAL 9% CUMULATIVE ACCUMULATED
IN CONVERTIBLE OTHER
COMMON STOCK EXCESS PREFERRED STOCK RETAINED COMPREHENSIVE
COMPREHENSIVE --------------------- OF PAR ------------------- EARNINGS INCOME
INCOME SHARES AMOUNT VALUE SHARES AMOUNT (DEFICIT) (DEFICIT)
------------- ---------- -------- -------- -------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1999...... 20,096,479 $2,009 $138,860 427 $427 $(19,304) $(5,222)
Compensation expense related to
stock options and grants..... 47,669 5 1,292
Exercise of stock options...... 1,475,575 148 7,210
Employee stock purchase plan... 43,318 4 400
Effect of subsidiaries' equity
transactions................. 346
Purchase of treasury stock.....
Deposit of stock into grantor
trust........................ 10,160
Dividends on preferred stock... (26)
Comprehensive income:
Net income................... $46,386 46,386
Change in unrealized gains on
securities, net of tax..... 4,363 4,363
Additional minimum pension
liability.................. 379 379
Foreign currency translation
adjustment................. 931 931
-------
Total comprehensive income..... $52,059
======= ---------- ------ -------- --- ---- -------- -------
Balance at December 31, 1999... 21,663,041 $2,166 $158,268 427 $427 $ 27,056 $ 451
========== ====== ======== === ==== ======== =======
<CAPTION>
TREASURY STOCK RECEIVABLE
--------------------- FROM
SHARES AMOUNT STOCKHOLDERS TOTAL
---------- -------- ------------ --------
<S> <C> <C> <C> <C>
Balance at April 30, 1999...... (4,923,932) $(59,398) $(989) $ 56,383
Compensation expense related to
stock options and grants..... 1,297
Exercise of stock options...... 7,358
Employee stock purchase plan... 404
Effect of subsidiaries' equity
transactions................. 346
Purchase of treasury stock..... (1,688,819) (22,838) (22,838)
Deposit of stock into grantor
trust........................ (805,783) (10,160) --
Dividends on preferred stock... (26)
Comprehensive income:
Net income................... 46,386
Change in unrealized gains on
securities, net of tax..... 4,363
Additional minimum pension
liability.................. 379
Foreign currency translation
adjustment................. 931
Total comprehensive income.....
---------- -------- ----- --------
Balance at December 31, 1999... (7,418,534) $(92,396) $(989) $ 94,983
========== ======== ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS
----------------------------------- ENDED
APRIL 30, APRIL 30, APRIL 30, DECEMBER 31,
1997 1998 1999 1999
--------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Income from continuing operations......................... $ 59,182 $ 16,941 $ 16,910 $ 12,007
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities:
Depreciation and amortization........................... 9,476 10,205 29,147 40,548
Amortization of deferred debt issuance costs and
accretion of debt discount............................ 1,996 1,441 3,221 3,431
Compensation expense related to stock options and
grants................................................ 2,231 1,757 962 1,297
Provision (benefit) for deferred income taxes........... 15,862 (830) (2,758) 22,099
Minority interest in earnings of subsidiary............. 8,097 20,296 18,693 11,404
Equity in earnings of affiliate......................... -- -- (1,544) (2,196)
Gain on sale of subsidiary stock, net of income taxes... (41,427) -- -- --
Other, net.............................................. -- (655) 211 --
Change in assets and liabilities, net of effects from
companies acquired:
Accounts receivable................................... (4,612) 1,971 (19,702) 1,596
Inventories........................................... 1,464 12,998 (16,962) 24,359
Other current assets.................................. 985 (4,733) 16,189 55
Other assets.......................................... 404 (431) 399 625
Accounts payable and accrued expenses................. (5,611) 8,452 23,801 (51,933)
Other long-term liabilities........................... (558) 275 (11) 527
--------- --------- ----------- ---------
Cash flows provided by continuing operations................ 47,489 67,687 68,556 63,819
Cash flows provided by (used for) discontinued operations... (9,615) (1,396) 6,412 1,439
--------- --------- ----------- ---------
Cash flows provided by operating activities................. 37,874 66,291 74,968 65,258
--------- --------- ----------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired........................ -- -- (1,105,408) (10,842)
Capital expenditures...................................... (10,345) (19,508) (43,901) (57,070)
(Investment in) proceeds from marketable securities....... (8,094) 135 715 7,619
Purchase of subsidiary common stock....................... -- -- (740) --
Advances to PolyVision Corporation........................ (2,467) (145) -- --
Investment in PolyVision Corporation...................... -- -- (5,000) (2,000)
Proceeds from sale of assets.............................. 2,534 5,361 2,033 12,925
Proceeds from the sale of discontinued operations......... -- -- -- 15,563
Purchase of minority interest............................. -- -- -- (31,127)
Customer loans............................................ -- -- -- (28,708)
Other..................................................... 35 -- (948) (53)
--------- --------- ----------- ---------
Cash flows used for continuing operations................... (18,337) (14,157) (1,153,249) (93,693)
Cash flows used for discontinued operations................. (104,468) (109,034) (10,204) (2,526)
--------- --------- ----------- ---------
Cash flows used for investing activities.................... (122,805) (123,191) (1,163,453) (96,219)
--------- --------- ----------- ---------
</TABLE>
F-10
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS
----------------------------------- ENDED
APRIL 30, APRIL 30, APRIL 30, DECEMBER 31,
1997 1998 1999 1999
--------- --------- ----------- -------------
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Short-term borrowings, net................................ $ -- $ -- $ 9,640 $ (2,276)
Borrowings (repayments) under revolving credit facilities,
net..................................................... 63,004 (42,307) 20,965 64,631
Long-term borrowings...................................... -- 10,665 1,154,715 277,288
Repayments of long-term borrowings........................ (100,603) (13,803) -- (303,604)
Proceeds from sale of stock of subsidiary, net of income
taxes................................................... 62,672 -- -- --
Proceeds from exercise of stock options................... 1,835 2,618 333 1,966
Debt issuance costs....................................... (4,122) (400) (31,748) (7,144)
Redemption of preferred stock............................. (15,026) -- --
Dividends on preferred stock.............................. (575) (69) (39) (26)
Dividends paid on subsidiary common stock................. -- (504) (3,014) (1,238)
Purchase of treasury stock................................ (11,994) (14,760) (32,508) (16,330)
Purchase of subsidiary common stock....................... (8,055) -- (15,870) (3,273)
Other..................................................... (319) (151) (3,163) 6,422
--------- --------- ----------- ---------
Cash flows (used for) provided by continuing operations..... (13,183) (58,711) 1,099,311 16,416
Cash flows provided by discontinued operations.............. 118,601 111,846 10,393 3,034
--------- --------- ----------- ---------
Cash flows provided by financing activities................. 105,418 53,135 1,109,704 19,450
--------- --------- ----------- ---------
Cash flows provided by discontinued operations.............. 4,518 1,416 6,601 1,947
Net (increase) decrease in discontinued operations cash and
cash equivalents.......................................... (4,518) 2,759 (3,889) (1,947)
Net increase (decrease) in continuing operations cash and
cash equivalents.......................................... 15,969 (5,181) 14,618 (13,458)
Cash and cash equivalents at beginning of year.............. 707 16,676 15,670 33,000
--------- --------- ----------- ---------
Cash and cash equivalents at end of year.................... $ 16,676 $ 15,670 $ 33,000 $ 19,542
========= ========= =========== =========
Supplemental disclosures:
Cash paid for interest, net of amount capitalized......... $ 15,477 $ 9,923 $ 47,980 $ 84,604
========= ========= =========== =========
Cash paid for income taxes................................ $ 27,251 $ 25,840 $ 22,633 $ 23,514
========= ========= =========== =========
Noncash investing and financing activities:
Exchange of common stock for preferred stock:
Preferred stock acquired................................ $ 1,500
=========
Common stock issued..................................... $ 1,500
=========
Capitalized lease obligation incurred..................... $ 375
=========
Acquisition of businesses:
Assets, net of cash acquired............................ $ 1,702,774
Liabilities assumed..................................... (447,793)
Minority equity interest in subsidiaries................ (16,283)
Issuance of Subsidiary-obligated Manditorily Redeemable
Trust Convertible Preferred Securities of Superior
Trust I holding solely convertible debentures in
exchange for subsidiary common stock held by minority
shareholders (net of discount of $33.2 million)........ (133,290)
-----------
Net cash paid......................................... $ 1,105,408
===========
PolyVision recapitalization:
Exchange of PolyVision series A preferred stock and a note
receivable including accrued and unpaid interest........ $ (17,282)
===========
For PolyVision Series B cumulative preferred stock and
PolyVision common stock................................. $ 17,282
===========
Disposition of business:
Fair market value of common stock received................ $(123,285)
Net assets of discontinued operations including purchased
minority interest....................................... 65,960
Gain on sale of discontinued operation, net of tax........ 35,369
Income taxes and other liabilities........................ 37,519
=========
Net cash received......................................... $ 15,563
=========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The accompanying consolidated financial statements include the accounts of
The Alpine Group, Inc. and its majority-owned subsidiaries (collectively
"Alpine" or the "Company", unless the context otherwise requires). These
financial statements present the consolidated balance sheets of the Company at
April 30, 1998 and 1999 and December 31, 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended April 30, 1997 ("fiscal 1997"), 1998 ("fiscal 1998") and 1999 ("fiscal
1999") and for the eight months ended December 31, 1999. All significant
intercompany accounts and transactions have been eliminated.
Alpine was incorporated in New Jersey in 1957 and reincorporated in Delaware
in 1987. Alpine's operations are carried out through Superior TeleCom Inc.
("Superior"), a 51.8% owned subsidiary, which manufactures wire and cable
products for the communications, original equipment manufacturer ("OEM") and
electrical markets. Superior is a manufacturer and supplier of
telecommunications wire and cable products to telephone companies, distributors
and system integrators; magnet wire and insulation materials for motors,
transformers and electrical controls, as well as automotive and specialty wiring
assemblies for automobiles and trucks; and building and industrial wire for
applications in commercial and residential construction and industrial
facilities. Superior operates manufacturing and distribution facilities in the
United States, Canada, the United Kingdom and Israel.
On November 27, 1998, Superior completed a cash tender offer for 81% of the
outstanding common shares of Essex International, Inc. ("Essex"). On March 31,
1999, Superior acquired the remaining 19% of Essex common stock through the
issuance of 8 1/2% trust convertible preferred stock (see Notes 5 and 19).
On August 6, 1999, Alpine sold its subsidiary, Premier Refractories
International Inc. ("Premier") to Cookson Group plc ("Cookson") (see Note 4).
Accordingly, Premier has been accounted for as a discontinued operation in the
accompanying consolidated financial statements.
CHANGE IN YEAR END
On December 20, 1999, the Company elected to change its year end to
December 31 from April 30. This change was made effective December 31, 1999.
CASH AND CASH EQUIVALENTS
All highly liquid investments purchased with a maturity at acquisition of
90 days or less are considered to be cash equivalents.
MARKETABLE SECURITIES
Short-term investments in marketable securities which are all classified as
trading securities and are stated at fair value. Net unrealized holding gains
and losses are included in other income and net realized gains and losses are
determined at the time of sale on the specific identification cost basis.
Long-term investments in marketable securities are classified as
available-for-sale. Unrealized holding gains and losses are included in other
comprehensive income net of any related tax effect.
F-12
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories of communications products are stated at the lower of cost or
market, using the first-in, first-out ("FIFO") cost method. Inventories of OEM
and electrical products are stated at the lower of cost or market, primarily
using the last-in, first-out ("LIFO") cost method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated
depreciation and amortization. Leasehold improvements are amortized over the
lesser of the estimated useful lives of the assets or the lease term.
Depreciation and amortization are provided over the estimated useful lives of
the assets using the straight-line method. The estimated lives are as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 10 to 40 years
Machinery and equipment..................................... 3 to 15 years
</TABLE>
Maintenance and repairs are charged to expense as incurred. Long-term
improvements are capitalized as additions to property, plant and equipment. Upon
retirement or other disposal, the asset cost and related accumulated
depreciation are removed from the accounts and the net amount, less any
proceeds, is charged or credited to income. Interest is capitalized during the
active construction period of major capital projects. During the eight months
ended December 31, 1999, $2.0 million was capitalized in connection with various
capital projects.
GOODWILL
The excess of the purchase price over the net identifiable assets of
businesses acquired is amortized ratably over periods not exceeding 40 years.
Accumulated amortization of goodwill at April 30, 1998 and 1999, and
December 31, 1999, was $6.6 million, $15.0 million and $28.6 million,
respectively. The Company periodically reviews goodwill to assess recoverability
from future operations using undiscounted cash flows. If the carrying amount
exceeds undiscounted cash flows, an impairment loss would be recognized for the
difference between the carrying amount and its estimated fair value.
DEFERRED FINANCING COSTS
Origination costs incurred in connection with outstanding debt financings
are included in the consolidated balance sheet in long-term investments and
other assets. These deferred financing costs are being amortized over the lives
of the related debt on a straight-line basis and are charged to operations as
additional interest expense.
AMOUNTS DUE CUSTOMERS
Included in accrued expenses at April 30, 1998 and 1999, and December 31,
1999, are certain amounts due customers totaling $0.3 million, $8.9 million, and
$12.8 million, respectively, representing cash discount liabilities to customers
who meet certain contractual sales volume criteria. Such discounts are paid
periodically to those qualifying customers.
F-13
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Substantially all revenue is recognized at the time the product is shipped,
except for limited product consignments which are not reflected in revenue until
sold to the end user.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of foreign subsidiaries are
measured using local currency as the functional currency. Assets and liabilities
denominated in foreign currencies are translated into U.S. dollars at exchange
rates in effect at the balance sheet date. The resulting translation gains and
losses are credited or charged directly to accumulated other comprehensive
income, a component of stockholders' equity, and are not included in net income
until realized through sale or liquidation of the investment. Revenues and
expenses are translated at average exchange rates prevailing during the period
reported. Foreign currency exchange gains and losses incurred on foreign
currency transactions are included in income as they occur.
SUBSIDIARY STOCK TRANSACTIONS
The Company's ownership percentage in subsidiary stock is impacted by the
Company's purchase of additional subsidiary stock, as well as subsidiary stock
transactions, including the subsidiary's purchase of its own stock and the
subsidiary's issuance of its own stock under stock-based compensation plans. The
Company reflects these subsidiary stock transactions through adjustments to the
minority interest in the earnings or losses of the subsidiary on the
consolidated statements of operations and adjustments to goodwill and
stockholders' equity on the consolidated balance sheets. The net increase to
goodwill, totaling $6.9 million during fiscal 1999 and $0.3 million during the
eight months ended December 31, 1999, is amortized over periods not exceeding
40 years.
EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net income
applicable to common stock by the weighted average number of shares of common
stock outstanding for the period. Diluted earnings per common share is
determined assuming (i) the conversion of outstanding stock options, warrants
and grants under the treasury stock method, (ii) the conversion of convertible
preferred stock and (iii) the dilution in subsidiary earnings resulting from the
assumed conversion of subsidiary stock options.
CONCENTRATIONS OF CREDIT RISK AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
During fiscal 1997, 1998 and 1999 sales to the regional Bell operating
companies and major independent telephone companies represented 87%, 84% and
36%, respectively, of net sales. At April 30, 1998 and 1999, accounts receivable
from these customers were $35.9 million and $30.6 million, respectively. No
customer accounted for more than 10% of sales during the eight months ended
December 31, 1999.
Accounts receivable include allowances for doubtful accounts of
$0.2 million, $5.0 million and $3.2 million at April 30, 1998 and 1999, and
December 31, 1999, respectively.
F-14
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The Company's consolidated financial statements are prepared in accordance
with generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the fiscal 1997, 1998 and 1999
consolidated financial statements to conform with the December 31, 1999
presentation.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In June 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of Effective Date of FASB Statement No. 133--an amendment
of FASB Statement No. 133" which delayed SFAS No. 133's effective date for one
year. SFAS No. 133, which will be effective for the Company beginning
January 1, 2001, establishes accounting and reporting standards for derivative
instruments and requires recognition of all derivatives as either assets or
liabilities in the statements of financial position and measurement of those
instruments at fair value. The Company has not yet quantified the impact of
adopting SFAS No. 133, nor the timing of, or method of adoption; however, the
Company believes the effect of adoption will not be material.
2. INVENTORIES
At April 30, 1998 and 1999 and December 31, 1999, the components of
inventories are as follows:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30, DECEMBER 31,
1998 1999 1999
--------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials................................ $ 8,672 $ 46,008 $ 50,618
Work in process.............................. 8,170 43,889 42,150
Finished goods............................... 26,348 241,275 233,142
------- -------- --------
43,190 331,172 325,910
LIFO reserve................................. -- 5,950 (12,339)
------- -------- --------
$43,190 $337,122 $313,571
======= ======== ========
</TABLE>
During the eight months ended December 31, 1999, the Company changed its
method of determining the cost of inventories for the acquired communications
segment of Essex International Inc. from the LIFO method to the FIFO method.
This change was made to conform to consistent operational and accounting
policies for the Company's communications segment. The impact of this accounting
change was not material.
F-15
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVENTORIES (CONTINUED)
Inventories valued using the LIFO method amounted to $224.7 million at
April 30, 1999 and $167.3 million at December 31, 1999.
3. PROPERTY, PLANT AND EQUIPMENT
At April 30, 1998 and 1999 and December 31, 1999, property, plant and
equipment consist of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30, DECEMBER 31,
1998 1999 1999
--------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land......................................... $ 2,851 $ 24,154 $ 25,230
Buildings and improvements................... 17,246 125,252 123,151
Machinery and equipment...................... 91,159 408,595 445,685
------- -------- --------
111,256 558,001 594,066
Less accumulated depreciation................ 26,908 46,424 78,303
------- -------- --------
$84,348 $511,577 $515,763
======= ======== ========
</TABLE>
Depreciation expense for fiscal 1997, 1998 and 1999 and for the eight months
ended December 31, 1999, was $7.8 million, $8.5 million, $20.8 million and
$26.1 million, respectively.
4. DISCONTINUED OPERATIONS
On August 6, 1999, Alpine completed the disposition of Premier (the "Premier
Disposition") through the merger of Premier with a wholly-owned subsidiary of
Cookson, a London Stock Exchange listed company. In connection with the Premier
Disposition, Cookson assumed all of Premier's existing indebtedness, issued to
Alpine approximately 32.3 million shares of Cookson common stock and paid to
Alpine $15.6 million in cash (subject to adjustment based on working capital
levels of Premier). The approximate fair market value of Cookson common stock
received by Alpine was $123 million at August 6, 1999 (based on closing market
value as quoted on the London Stock Exchange). The Cookson common stock is held
for purposes other than trading and net unrealized holding gains and losses are
included as a component of accumulated other comprehensive income on the balance
sheet. The Cookson common stock is subject to certain sale restrictions
including a restriction prohibiting Alpine from selling more than 33 1/3% of
their interest in Cookson during the first 180 days following the Premier
Disposition. In connection with the Premier Disposition, Alpine retained the
right to receive a contingent cash payment of up to $6.6 million based upon
future earnings of the American Minerals business, which was spun-off
concurrently with Premier's acquisition of American Premier Holdings, Inc. in
January 1998. Prior to the Premier Disposition, Alpine purchased the 16.6%
minority interest in Premier for a purchase price of approximately
$31.1 million.
The Company has accounted for Premier as a discontinued operation. The net
assets of Premier, totaling $41.5 million and $34.6 million, respectively, at
April 30, 1998 and 1999 are included in the consolidated balance sheets. The
operating results of Premier have been segregated from the Company's continuing
operations and are reported as a separate line item within the statements of
operations as discontinued operations. For the eight month period ended
December 31, 1999, the Company recorded income from discontinued operations of
$35.4 million (net of taxes of $27.0 million) reflecting the gain on
F-16
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. DISCONTINUED OPERATIONS (CONTINUED)
the Premier Disposition, net of operating losses incurred from May 1, 1999,
(measurement date) through the date of the Premier Disposition.
Premier's results of operations for fiscal 1997, 1998 and 1999 are
summarized as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales......................................... $115,954 $402,480 $485,960
Loss before income tax (benefit) provision of
($0.8) million, ($0.1) million and $1.6
million in fiscal 1997, 1998 and 1999,
respectively................................ (3,110) (351) (1,691)
Loss before extraordinary loss................ (2,336) (194) (2,707)
</TABLE>
5. ACQUISITIONS
ESSEX ACQUISITION
On November 27, 1998, Superior completed a cash tender offer for 81% of the
outstanding common shares of Essex, at an aggregate cash tender value of
$770 million (the "Essex Acquisition"). In connection with the Essex
Acquisition, Superior entered into a $1.15 billion amended and restated credit
facility and a $200 million senior subordinate credit facility (the "Credit
Facilities"). Proceeds from the Credit Facilities were used to (i) pay the cash
portion of the purchase price, (ii) repay certain Essex indebtedness,
(iii) refinance Superior's existing outstanding bank debt and (iv) pay related
transaction expenses. On March 31, 1999, Superior acquired the remaining
outstanding common stock of Essex through the issuance of approximately
$167 million (face amount) of 8 1/2% Subsidiary-obligated Manditorily Redeemable
Trust Convertible Preferred Securities of Superior Trust I holding solely
convertible debentures (see Note 19).
The acquisition of Essex 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 dates of
acquisition. The purchase price was allocated based upon assessments of the fair
values of assets and liabilities at the dates of acquisition, which included
accruals for planned consolidations, overhead rationalization and loss
contingencies. The excess of the purchase price over the net assets acquired is
being amortized on a straight-line basis over 40 years.
CABLES OF ZION AND CVALIM ACQUISITIONS
On May 5, 1998, Superior acquired 51% of the common stock of Cables of Zion
United Works Ltd. ("Cables of Zion"), an Israel-based cable and wire
manufacturer whose common stock is traded on the Tel Aviv Stock Exchange, for
approximately $25 million in cash. Superior 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).
On December 31, 1998, 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
F-17
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ACQUISITIONS (CONTINUED)
acquisition, pay related fees and expenses and provide for working capital
requirements. Following the Cvalim Acquisition, Cables of Zion changed its name
to Superior Cables Limited ("Superior Israel").
On October 20, 1999, Superior Israel acquired the business and certain
operating assets of Pica Plast Limited for $10.8 million in cash.
The acquisitions of Cables of Zion, Cvalim and Pica Plast were accounted for
using the purchase method and, accordingly, the results of operations of Cables
of Zion, Cvalim and Pica Plast are included in the Company's consolidated
financial statements on a prospective basis from the date of their respective
acquisitions. The purchase price was allocated based upon the estimated fair
values of assets and liabilities at the date of acquisitions. The excess of the
purchase price over the net assets acquired is being amortized on a
straight-line basis over 30 years.
PRO FORMA FINANCIAL DATA (UNAUDITED)
Unaudited condensed pro forma results of operations for fiscal 1998 and
1999, which give effect to the acquisition of Essex, Cables of Zion and Cvalim
as if the transactions had occurred on May 1, 1997, are presented below. The pro
forma amounts reflect acquisition-related purchase accounting adjustments,
including adjustments to depreciation and amortization expense and interest
expense on acquisition debt and certain other adjustments, together with related
income tax effects. The pro forma financial information does not purport to be
indicative of either the results of operations that would have occurred had the
acquisitions taken place at the beginning of the periods presented or of future
results of operations.
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
APRIL 30, APRIL 30,
1998 1999
------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
Net sales......................................... $2,277,246 $2,008,233
Income from continuing operations before income
taxes, distribution on preferred securities of
subsidiary trust, minority interest and
extraordinary (loss)............................ 113,745 57,319
Income from continuing operations before
extraordinary (loss)............................ 23,308 8,605
(Loss) from discontinued operations............... (194) (2,707)
Extraordinary (loss) on early extinguishment of
debt............................................ (1,464) (634)
Net income applicable to common stock............. 21,581 5,225
Net income per diluted share of common stock:
Income from continuing operations before
extraordinary (loss)............................ $ 1.24 $ 0.44
(Loss) from discontinued operations............... (0.01) (0.15)
Extraordinary (loss) on early extinguishment of
debt............................................ (0.08) (0.04)
---------- ----------
Net income per diluted share of common stock...... $ 1.15 $ 0.25
========== ==========
</TABLE>
F-18
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM INVESTMENTS AND OTHER ASSETS
At April 30, 1998 and 1999, and December 31, 1999, long-term investments and
other assets consist of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30, DECEMBER 31,
1998 1999 1999
--------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Equity investment and advances to PolyVision
(a)......................................... $17,199 $24,280 $ 25,837
Investment in Cookson common stock............ -- -- 130,556
Other assets.................................. 5,205 43,415 70,213
------- ------- --------
$22,404 $67,695 $226,606
======= ======= ========
</TABLE>
- ------------------------
(a) At April 30, 1998, Alpine's equity investment in PolyVision consisted of
approximately $25.2 million in liquidation value of PolyVision 8% Series A
Preferred Stock (the "PolyVision Preferred") and approximately 1.4 million
shares of PolyVision common stock (approximately 17% of PolyVision
outstanding shares). The net carrying value of Alpine's equity interests in
PolyVision was $11.5 million at April 30, 1998.
In November 1998, in connection with PolyVision's acquisition of Alliance
International Group Inc., Alpine exchanged approximately $25.2 million in
PolyVision Preferred (plus accrued dividends) and a loan receivable from
PolyVision of approximately $7.4 million for 5.3 million shares of
PolyVision's common stock and approximately $12.4 million in liquidation
value of PolyVision's Series B Convertible Preferred Stock. As part of this
transaction, Alpine also acquired $5.0 million of PolyVision's Series C
Convertible Preferred Stock for cash and received a further $0.5 million
Series B Convertible Preferred Stock and 0.2 million shares of PolyVision
common stock for professional services rendered to PolyVision in connection
with its acquisition.
The aforementioned recapitalization resulted in the Company's common share
equity ownership in PolyVision increasing to 48% from 17%, with such
recapitalization being accounted for by the Company as a step-acquisition.
The resulting excess of the fair value over the proportion of PolyVision net
assets acquired of approximately $4.1 million has been allocated to goodwill
and is being amortized ratably over 30 years. Following the
recapitalization, the Company is accounting for its investment in PolyVision
under the equity method.
During 1999, the Company acquired an additional $2.0 million face amount of
PolyVision 9% series C cumulative convertible preferred stock. At
December 31, 1999, the Company's equity investment in PolyVision consisted
of approximately $12.8 million face amount of PolyVision 9% series B
cumulative convertible preferred stock, $7.0 million face amount of
PolyVision 9% series C cumulative convertible preferred stock and
approximately 6.8 million shares of PolyVision common stock with a fair
market value of approximately $16.6 million based on PolyVision's (NYSE:
PLI) closing stock price on December 31, 1999.
F-19
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. ACCRUED EXPENSES
At April 30, 1998 and 1999, and December 31, 1999, accrued expenses consist
of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30, DECEMBER 31,
1998 1999 1999
--------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Accrued wages, salaries and employee
benefits................................... $10,350 $ 29,280 $ 27,154
Other accrued expenses....................... 11,649 100,304 73,689
------- -------- --------
$21,999 $129,584 $100,843
======= ======== ========
</TABLE>
8. SHORT-TERM BORROWINGS
At April 30, 1999, and December 31, 1999, short-term borrowings consist
principally of $127.6 million and $140.4 million, respectively, in borrowings
under Superior's accounts receivable securitization program which provides for
up to $160.0 million in short-term financing through the issuance of secured
commercial paper through a limited purpose subsidiary. Under the Superior
receivable securitization program, Superior has granted a security interest in
certain of its trade accounts receivable to secure borrowings under the
facility. The Superior receivable securitization program expires on
November 30, 2000, although it may be extended for successive one-year periods
subject to agreement. Borrowings under this agreement bear interest at the
lender's commercial paper rate (which approximated 5.32% and 6.40% at April 30,
1999, and December 31, 1999, respectively) plus 0.35%.
9. LONG-TERM DEBT
At April 30, 1998 and 1999 and December 31, 1999, long-term debt consists of
the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30, DECEMBER 31,
1998 1999 1999
--------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Superior revolving credit facility (a)..................... $69,350 $ 43,093 $ 53,735
Superior term loan A (a)................................... -- 489,500 446,433
Superior term loan B (a)................................... -- 423,786 415,542
Superior senior subordinated notes (a)..................... -- 200,000 200,000
Superior Israel credit facility (b)........................ -- 50,330 82,507
12.25% Senior Secured Notes (principal amount $12.2 at
April 30, 1998 and 1999, and December 31, 1999) (c)...... 11,361 11,553 11,665
Alpine revolving credit facility (d)....................... -- 39,700 70,000
Alpine term loan (d)....................................... 10,000 10,000 --
Other...................................................... 6,355 34,471 59,048
------- ---------- ----------
Total long-term debt....................................... 97,066 1,302,433 1,338,930
Less current portion of long-term debt..................... 172 65,080 85,910
------- ---------- ----------
$96,894 $1,237,353 $1,253,020
======= ========== ==========
</TABLE>
At December 31, 1999, the fair value of the Company's debt, based on the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities, approximates
its recorded value. The Company has entered into several interest rate swap and
interest rate cap agreements in order to limit the effect of changes in interest
rates on several of the
F-20
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (CONTINUED)
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 market value of the interest rate caps
and swaps was approximately $4.6 million at April 30, 1999, and $6.4 million at
December 31, 1999.
The aggregate principal maturities of long-term debt subsequent to
December 31, 1999, are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- --------------
(IN THOUSANDS)
<S> <C>
2000........................................... $ 85,910
2001........................................... 86,236
2002........................................... 167,942
2003........................................... 203,945
2004........................................... 401,155
Thereafter..................................... 393,742
----------
$1,338,930
==========
</TABLE>
(a) In connection with the Essex Acquisition (see Note 5), Superior amended and
restated its existing credit facilities. Superior's amended and restated
credit facilities provide for total borrowing availability of up to
$1.35 billion, consisting of a $225.0 million revolving credit 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 Superior revolving credit facility is available to Superior's principal
subsidiaries. Borrowings under the facility are allowable up to
$225 million in the aggregate and mature May 27, 2004. Interest on the
outstanding balance is based upon LIBOR plus 3.0% or the base rate (prime)
plus 2.0% (7.94% and 9.97% at April 30, 1999, and December 31, 1999,
respectively) and is payable quarterly.
The Superior 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% (8.00% and 10.5% at April 30, 1999, and
December 31, 1999, respectively), and matures on May 27, 2004.
The Superior 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% (8.81% and 9.94% at April 30, 1999, and
December 31, 1999, respectively), and matures on November 27, 2005.
On May 26, 1999, the Company refinanced the $200 million Superior senior
subordinated notes. The new subordinated notes include a $120 million term
loan A and an $80 million term loan B, which are due May 26, 2007. Interest
for the term loan A for the first 270 days ranges from LIBOR plus 2.5% to
LIBOR plus 4.0% (10.19% at December 31, 1999). Interest on the term loan B
for the first 270 days ranges from LIBOR plus 3.625% to LIBOR plus 4.0%.
After the nine-month anniversary of the borrowing date through maturity,
interest on term loans A and B is LIBOR plus 5.0% (10.19% at December 31,
1999). At April 30, 1999 and prior to the refinancing, interest on the
$200 million Superior senior subordinated notes was 9.31% based on LIBOR
plus 4.25% or base rate (prime) plus 3.25%.
All of the borrowings under the above described credit agreement are
guaranteed by each of Superior's domestic subsidiaries. The common stock of
all domestic subsidiaries of Superior and 65%
F-21
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (CONTINUED)
of the common stock of its foreign subsidiaries have been pledged to secure
the guarantees. The obligations under these Superior credit arrangements are
secured by substantially all of the assets of Superior and its domestic
subsidiaries.
(b) In connection with the December 31, 1998, acquisition of the Cvalim assets,
Superior Israel entered into an $83.0 million credit facility consisting of
a $53.0 million term loan ("Superior Israel term loan") and a $30.0 million
revolving credit facility ("Superior Israel revolving credit facility").
Proceeds from these facilities were used to finance the acquisition of the
Cvalim assets, pay related transaction expenses and provide for ongoing
working capital requirements. In October 1999, Superior Israel increased the
amount available under the credit facility by $10.0 million, which increased
the term loan availability to $63.0 million.
The Superior Israel term loan is repayable on December 31, 2008. Interest on
the Superior Israel term loan is based upon LIBOR plus 1.0% or the average
of the gross yield to maturity of all the series of fixed rate bonds issued
by the State of Israel, listed on the Tel-Aviv stock exchange and having a
remaining 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%. Interest on the Superior Israel revolving credit facility
outstanding balance is based upon either LIBOR plus 0.4%, the lending bank's
prime rate minus 1.1%, or a rate to be agreed upon by the parties. The
Superior Israel credit facility terminates on December 31, 2003. Obligations
under the Superior Israel credit facility are secured by all of the assets
of Superior Israel.
(c) The 12.25% Senior Secured Notes are due 2003 and pay interest semiannually
on January 15 and July 15 of each year. The Senior Notes were issued at a
price of 91.74% and the discount is being added to the recorded amount
through maturity utilizing the effective interest method.
(d) In November 1999, Alpine entered into a $100.0 million revolving credit
facility (the "Alpine Revolving Credit Facility") replacing the existing
$50.0 million senior secured credit agreement (the "Alpine Senior Secured
Facility") comprised of a $40.0 million revolving credit facility and a
$10.0 million senior secured term loan. Borrowings under the Alpine
Revolving Credit Facility are for ongoing working capital and corporate
needs of Alpine, and are secured by Alpine's holdings in Cookson common
stock and certain shares of Superior common stock. Interest on the Alpine
Revolving Credit Facility is based upon LIBOR plus 2.5% or the base rate
(prime) plus 1.5%, and was 9.06% at December 31, 1999. Interest on the
revolving credit facility component of the Alpine Senior Secured Facility
was based upon LIBOR plus 1.5% or the base rate (prime) and was 6.94% at
April 30, 1999. Interest on the senior secured term loan component of the
Alpine Senior Secured Facility was based upon LIBOR plus 2.0% or base rate
(prime) plus 0.5% and was 6.75% at April 30, 1999.
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 is allowed to pay on
its common stock and restrictions on additional indebtedness. On March 13, 2000,
the Superior credit facilities described in (a) above were amended with respect
to certain restrictive covenants relating to maintenance of certain financial
ratios. In connection with such amendment, Superior paid a fee of approximately
$2.1 million which will be amortized over the remaining term of the facilities.
During the eight months ended December 31, 1999, the Company recognized an
extraordinary charge in the early extinguishment of debt of $1.0 million (net of
income taxes of $0.6 million), or $0.06 per diluted share.
F-22
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (CONTINUED)
During fiscal 1999, the Company recognized an extraordinary charge on the
early extinguishment of debt of $0.6 million, or $0.04 per diluted share,
associated with the amendment and restatement of Superior's credit facilities.
During fiscal 1998, the Company retired $9.0 million face amount
($8.3 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 $1.5 million, or $0.08 per
diluted share.
During fiscal 1997, the Company refinanced a substantial portion of its
outstanding debt and entered into new credit facilities. In connection with such
refinancings, the Company recognized an after-tax extraordinary charge of
$20.1 million, or $1.01 per diluted share, on the early extinguishment of debt.
This charge represents the premium paid on the redemption of $131.9 million face
amount ($122.3 million recorded amount) of the Company's 12.25% Senior Secured
Notes, prepayment penalties related to the termination of an existing Alpine
revolving credit facility and the associated write-off of the unamortized
portion of deferred loan fees related to the debt extinguished.
F-23
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EARNINGS PER SHARE
The computation of basic and diluted earnings per share for fiscal 1997,
1998 and 1999 and for the eight months ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
APRIL 30, 1997 APRIL 30, 1998
------------------------------- -------------------------------
NET PER SHARE NET PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
-------- -------- --------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Income attributable to common stock from
continuing operations before extraordinary
(loss)...................................... $59,182 $16,941
Less: preferred stock dividends............... (575) (69)
------- -------
Basic earnings per common share from
continuing operations....................... 58,607 17,891 $3.28 16,872 16,986 $1.00
===== =====
Dilutive impact of stock options, warrants and
grants...................................... -- 604 -- 1,663
Assumed conversion of preferred stock......... 575 1,362 69 125
------- ------- ------- ------
Diluted earnings per share from continuing
operations.................................. $59,182 19,857 $2.98 $16,941 18,774 $0.90
======= ======= ===== ======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS ENDED
APRIL 30, 1999 DECEMBER 31, 1999
------------------------------- -------------------------------
NET PER SHARE NET PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
-------- -------- --------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Income attributable to common stock from
continuing operations before extraordinary
(loss)...................................... $16,910 $12,007
Less: preferred stock dividends............... (39) (26)
------- -------
Basic earnings per common share from
continuing operations....................... 16,871 16,405 $1.03 11,981 14,817 $0.81
===== =====
Dilutive impact of stock options, warrants and
grants...................................... -- 1,431 -- 1,466
Dilution in subsidiary earnings from
subsidiary stock options.................... (669) -- (852) --
Assumed conversion of preferred stock......... 39 51 26 51
------- ------- ------- ------
Diluted earnings per share from continuing
operations.................................. $16,241 17,887 $0.91 $11,155 16,334 $0.68
======= ======= ===== ======= ====== =====
</TABLE>
The Company has excluded the conversion of Superior's Trust Convertible
Preferred Securities from the Company's earnings per share calculation as the
impact would be anti-dilutive.
11. STOCK BASED COMPENSATION PLANS
The Company sponsors the Employee Stock Purchase Plan ("ESPP") which allows
eligible employees the right to purchase common stock of the Company on a
quarterly basis at the lower of 85% of the
F-24
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCK BASED COMPENSATION PLANS (CONTINUED)
common stock's fair market value on the last day of the preceding calendar
quarter or on the last day of the current calendar quarter. There are 500,000
shares of common stock reserved under the ESPP, of which 8,339 shares, 23,241
shares, 53,389 and 43,318 shares were purchased by employees during fiscal 1997,
1998 and 1999 and the eight months ended December 31, 1999, respectively.
Alpine has two long-term equity incentive plans: the 1987 Long-Term Equity
Incentive Plan (the "1987 Plan") and the 1997 Stock Option Plan (the "1997
Plan"). No further options may be granted under the 1987 Plan. The 1997 Plan has
1,500,000 shares of common stock reserved for issuance. There were 261,439
shares of common stock available for issuance under the 1997 Plan for granting
of options at December 31, 1999. Participation in the 1997 Plan is generally
limited to key employees and consultants of Alpine and its subsidiaries. The
1997 Plan provides for the granting of incentive and non-qualified stock options
and stock appreciation rights. Under the 1997 Plan, options cannot be exercised
after ten years from the date of grant. In addition to the shares granted in
fiscal 1999 under the 1997 Plan, in March 1999, the Company granted
non-qualified stock options to purchase 595,000 shares of the Company's common
stock under individual option agreements to certain key management employees,
exercisable at the fair market value of the common stock on the date of grant.
Any shares issued upon exercise of these options will be issued from the
Company's treasury stock. The Company also adopted the 1999 Stock Option Reload
Program under the 1997 Plan, which enables certain key management employees to
receive a new reload stock option equal to the total shares tendered by the
employee to the Company in order to pay the exercise price and related taxes on
the exercise of certain vested stock options. The reload stock option is priced
at the fair market value of the common stock on the exercise date.
In addition, the Company granted certain key management employees
non-qualified stock options to purchase 243,000 shares of the common stock of
PolyVision and 74,000 shares of the common stock of Superior. Any shares issued
upon exercise of these options will be made available only from issued shares of
the common stock of PolyVision and shares of the common stock of Superior owned
by the Company.
The Company continues to account for its stock-based compensation plans
(including options issued under the plans) using the intrinsic value method
prescribed by APB Opinion No. 25, under which no compensation cost for stock
options is recognized for stock option awards granted at an exercise price at or
above the common stock's fair value. Application of the provisions of APB
No. 25 resulted in a charge to earnings of $1.4 million, $0.8 million, and
$0.4 million in fiscal 1997, 1998 and 1999, and no charge during the eight
months ended December 31, 1999, respectively, for certain performance-based
stock options granted in prior years. However, had compensation expense been
determined based on the fair value of the stock option award at the grant date
as prescribed by SFAS No. 123, Alpine's net income, net income applicable to
common stock, basic net income per share of common stock and diluted net income
per
F-25
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCK BASED COMPENSATION PLANS (CONTINUED)
share of common stock for fiscal 1997, 1998 and 1999 and the eight months ended
December 31, 1999, would approximate the pro forma amounts below:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
APRIL 30, 1997 APRIL 30, 1998
----------------------- -----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net income........................................ $36,720 $35,688 $15,283 $13,315
Net income applicable to common stock............. 30,950 29,918 15,214 13,246
Basic net income per share of common stock........ 1.73 1.67 0.90 0.78
Diluted net income per share of common stock...... 1.59 1.53 0.81 0.71
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS ENDED
APRIL 30, 1999 DECEMBER 31, 1999
----------------------- -----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net income........................................ $13,569 $9,282 $46,386 $42,540
Net income applicable to common stock............. 13,530 9,243 46,360 42,514
Basic net income per share of common stock........ 0.82 0.56 3.13 2.87
Diluted net income per share of common stock...... 0.72 0.48 2.79 2.60
</TABLE>
The effects of applying SFAS No. 123 in the pro forma disclosure are not
necessarily indicative of future amounts, since the estimated fair value of
stock options is amortized to expense over the vesting period and additional
options may be granted in future years. The fair value for these options was
estimated at the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions for fiscal 1997, 1998, and 1999 and
the eight months ended December 31, 1999, respectively: dividend yield of 0% for
each year; expected volatility of 50%, 45%, 44% and 55%; risk-free interest rate
of 6.42%, 5.53%, 4.92% and 6.30%; and expected life of five years, four years,
four years and four years. The weighted average per share fair value of options
granted (using the Black-Scholes option-pricing model) during fiscal 1997, 1998
and 1999 and the eight months ended December 31, 1999, was $3.73, $5.70, $6.29
and $5.16, respectively.
The Company also adopted the Stock Compensation Plan for Non-Employee
Directors (the "Stock Plan") in January, 1999. Under the Stock Plan, each
non-employee director of the Company automatically receives 50% of the annual
retainer in either restricted common stock or non-qualified stock options, as
elected by the director. In addition, each non-employee director may also elect
to receive all or a portion of the remaining amount of the annual retainer and
any meeting fees in the form of restricted stock or stock options in lieu of
cash payment. Any shares issued pursuant to the Stock Plan will be issued from
the Company's treasury stock.
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee and consultant stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimates, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-26
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCK BASED COMPENSATION PLANS (CONTINUED)
The following table summarizes stock option activity for fiscal 1997, 1998
and 1999 and the eight months ended December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED-
SHARES AVERAGE EXERCISE
OUTSTANDING PRICE
----------- ----------------
<S> <C> <C>
Outstanding at April 30, 1996............................... 3,231,744 $ 4.82
Exercised................................................. (419,545) 4.66
Canceled.................................................. (419,576) 3.54
Granted................................................... 879,747 6.40
----------
Outstanding at April 30, 1997............................... 3,272,370 5.38
Exercised................................................. (559,880) 4.94
Canceled.................................................. (56,466) 6.32
Granted................................................... 184,001 13.83
----------
Outstanding at April 30, 1998............................... 2,840,025 5.93
Exercised................................................. (111,741) 4.15
Canceled.................................................. (32,545) 15.34
Granted................................................... 1,452,714 16.07
----------
Outstanding at April 30, 1999............................... 4,148,453 9.38
Exercised................................................. (1,475,575) 4.88
Canceled.................................................. (319,007) 18.57
Granted................................................... 584,525 13.20
----------
Outstanding at December 31, 1999............................ 2,938,396
==========
</TABLE>
Information with respect to stock-based compensation plan stock options
outstanding and exercisable at December 31, 1999 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OF OPTIONS CONTRACTUAL EXERCISE OF OPTIONS EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$2.05-$ 5.13 512,624 5.78 $ 4.39 512,624 $ 4.39
$5.57-$ 8.13 573,025 5.81 $ 7.87 417,388 $ 7.78
$8.81-$ 9.84 25,622 3.55 $ 9.00 25,622 $ 9.00
$10.25 597,000 9.22 $10.25 -- --
$10.31-$12.88 532,210 5.50 $12.42 -- --
$13.69-$21.00 697,915 8.65 $19.74 207,079 $20.03
--------- ---------
2,938,396 7.10 $11.40 1,162,713 $ 8.49
========= =========
</TABLE>
Alpine also has a Restricted Stock Plan under which a maximum of 600,000
shares of Alpine common stock have been reserved for issuance. At December 31,
1999, there are 85,431 shares available for issuance. During fiscal 1997, 1998
and 1999 and the eight months ended December 31, 1999, noncash compensation
expense of $0.9 million, $1.0 million, $0.6 million and $0.3 million,
respectively, was
F-27
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCK BASED COMPENSATION PLANS (CONTINUED)
recorded representing the amortization, over the applicable vesting period, of
the fair market value of common stock issued under the Restricted Stock Plan.
12. EMPLOYEE BENEFITS
Superior provides for postretirement employee health care and life insurance
benefits for a limited number of its employees. Superior established a maximum
amount it will pay per employee for such benefits; therefore, health care cost
trends do not affect the calculation of the postretirement benefit obligation or
its net periodic benefit cost.
The Company sponsors several defined benefit pension plans and unfunded
supplemental executive retirement plans (the "SERP"). The SERP provides
retirement benefits based on the same formula as in effect under a certain
salaried employees' plan, but only takes into account compensation in excess of
amounts that can be recognized under the salaried employees plan. The defined
benefit pension plans and the SERP generally provide for payment of benefits,
commencing at retirement (between the ages of 55 and 65), based on the
employee's length of service and earnings. Assets of the plans consist
principally of cash and cash equivalents, short-term investments, equities and
fixed income instruments.
The change in the projected benefit obligation, the change in plan assets
and the funded status of the defined benefit pension plans and the
postretirement health care benefit plans during fiscal 1997, 1998 and
F-28
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EMPLOYEE BENEFITS (CONTINUED)
1999 and for the eight months ended December 31, 1999, are presented below,
along with amounts recognized in the respective consolidated balance sheets and
consolidated statements of operations:
<TABLE>
<CAPTION>
DEFINED BENEFIT PENSION PLANS POSTRETIREMENT HEALTH CARE BENEFITS
------------------------------------------------ ------------------------------------------------
APRIL 30, APRIL 30, APRIL 30, DECEMBER 31, APRIL 30, APRIL 30, APRIL 30, DECEMBER 31,
1997 1998 1999 1999 1997 1998 1999 1999
--------- --------- --------- ------------ --------- --------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Change in benefit
obligation:
Benefit obligation at
beginning of year....... $ 3,228 $ 5,912 $ 7,997 $106,042 $ 1,282 $ 1,265 $ 1,994 $ 2,131
Impact of acquisitions and
new plans............... 2,055 -- 99,364 -- -- -- -- --
Service cost.............. 169 320 2,676 3,764 43 52 66 50
Interest cost............. 295 461 3,280 5,051 96 129 137 106
Plan amendments........... 305 -- -- -- -- -- -- --
Actuarial (gain) loss..... -- 1,441 (6,175) (14,662) -- 607 -- (152)
Impact of foreign currency
exchange................ -- -- -- (14)
Benefits paid............. (140) (137) (1,100) (3,524) (156) (59) (66) (50)
------- ------- -------- -------- ------- ------- ------- -------
Benefit obligation at end
of year................. $ 5,912 $ 7,997 $106,042 $ 96,657 $ 1,265 $ 1,994 $ 2,131 $ 2,085
======= ======= ======== ======== ======= ======= ======= =======
Change in plan assets:
Fair value of plan assets
at beginning of year.... $ 3,263 $ 3,568 $ 4,360 $ 84,108 $ -- $ -- $ -- $ --
Acquisitions.............. -- -- 77,060 -- -- -- -- --
Actual return on plan
assets.................. 233 751 3,445 5,521 -- -- -- --
Employer contribution..... 212 178 343 2,118 156 59 66 50
Benefits paid............. (140) (137) (1,100) (3,524) (156) (59) (66) (50)
Impact of foreign currency
exchange -- -- -- (75)
------- ------- -------- -------- ------- ------- ------- -------
Fair value of plan assets
at end of year.......... $ 3,568 $ 4,360 $ 84,108 $ 88,148 $ -- $ -- $ -- $ --
======= ======= ======== ======== ======= ======= ======= =======
Funded status............... $(2,344) $(3,637) $(21,934) $ (8,509) $(1,265) $(1,994) $(2,131) $(2,085)
Unrecognized actuarial
(gain) loss............... (148) 830 (5,430) (20,655) (178) 424 411 250
Unrecognized prior service
cost...................... 2,404 2,235 2,056 1,952 -- -- -- --
------- ------- -------- -------- ------- ------- ------- -------
Accrued benefit cost........ $ (88) $ (572) $(25,308) $(27,212) $(1,443) $(1,570) $(1,720) $(1,835)
======= ======= ======== ======== ======= ======= ======= =======
Amounts recognized in the
consolidated balance
sheets consist of:
Prepaid benefit cost...... $ 31 $ 35 $ -- $ -- $ -- $ -- $ -- $ --
Accrued benefit
liability............... (1,371) (2,345) (28,829) (28,393) (1,443) (1,570) (1,720) (1,835)
Additional minimum
liability............... -- --...... -- (1,165) -- -- -- --
Intangible asset.......... 1,252 1,738 2,056 1,525 -- -- -- --
Accumulated other
comprehensive income -- -- 1,465 866 -- -- -- --
Impact of foreign currency
exchange................ -- -- -- (45)
------- ------- -------- -------- ------- ------- ------- -------
Accrued benefit cost...... $ (88) $ (572) $(25,308) $(27,212) $(1,443) $(1,570) $(1,720) $(1,835)
======= ======= ======== ======== ======= ======= ======= =======
Components of net periodic
benefit cost:
Service cost.............. $ 169 $ 320 $ 2,676 $ 3,764 $ 43 $ 52 $ 66 $ 50
Interest cost............. 295 461 3,280 5,051 96 129 137 106
Expected return on plan
assets.................. (254) (281) (3,256) (4,894) -- -- -- --
Amortization of prior
service cost............ 34 161 162 114 -- 5 -- 33
Recognized net actuarial
loss.................... -- -- 56 79 -- -- 13 (13)
------- ------- -------- -------- ------- ------- ------- -------
Net periodic benefit
cost.................... $ 244 $ 661 $ 2,918 $ 4,114 $ 139 $ 186 $ 216 $ 176
======= ======= ======== ======== ======= ======= ======= =======
</TABLE>
F-29
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EMPLOYEE BENEFITS (CONTINUED)
The actuarial present value of the projected pension benefit obligation and
the postretirement health care benefits obligation at April 30, 1997, 1998 and
1999 and December 31, 1999, were determined based upon the following
assumptions:
<TABLE>
<CAPTION>
DEFINED BENEFIT PENSION PLANS POSTRETIREMENT HEALTH CARE BENEFITS
--------------------------------------------------- --------------------------------------------------
APRIL 30, APRIL 30, APRIL 30, DECEMBER 31, APRIL 30, APRIL 30, APRIL 30, DECEMBER 31,
1997 1998 1999 1999 1997 1998 1999 1999
---------- ---------- ---------- ------------ ----------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Discount rate............ 7.5%-8.0% 6.5%-7.0% 6.0%-7.0% 6.5%-8.0% 7.5%-7.75% 7.0% 7.0% 8.0%
Expected return on plan
assets................. 7.5%-8.0% 7.5%-9.5% 8.0%-9.0% 8.0%-9.0% N/A N/A N/A N/A
Compensation rate........ 4.0% 4.0% 4.0% 5.0% N/A N/A N/A N/A
</TABLE>
During March 1999, the Company implemented unfunded deferred compensation
plans whereby certain key management employees are permitted to defer the
receipt of all, or a portion of, their salary or bonus and shares issued upon
stock option exercises, as defined by the plans. The plan also provides for
matching contributions of Company common stock on shares deferred upon exercise
of stock options. Shares issued pursuant to the deferred stock component of
these plans are held in an irrevocable grantor trust. At December 31, 1999, 0.8
million shares of the Company's common stock issued upon stock option exercises
have been deferred and are included in the grantor trust. These shares and the
corresponding liability are classified as components of treasury stock and
additional paid-in capital, respectively, in the consolidated balance sheets.
The Company and its subsidiaries sponsor several defined contribution plans
covering substantially all U.S. and Israeli employees. The plans provide for
limited company matching of participants' contributions. The Company's
contributions during fiscal 1997, 1998 and 1999 and the eight months ended
December 31, 1999, were $0.5 million, $0.9 million, $3.2 million and
$2.7 million, respectively.
Superior also sponsors an unfunded, nonqualified deferred compensation plan
which permitted certain key management employees to annually elect to defer a
portion of their compensation and earn a guaranteed interest rate on the
deferred amounts. The total amount of participant deferrals and accrued
interest, which is reflected in other long-term liabilities, was $5.7 million
and $6.4 million at April 30, 1999 and December 31, 1999, respectively.
F-30
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES
The provision (benefit) for income taxes for fiscal 1997, 1998 and 1999 and
the eight months ended December 31, 1999, is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS
--------------------------------- ENDED
APRIL 30, APRIL 30, APRIL 30, DECEMBER 31,
1997 1998 1999 1999
--------- --------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Federal............................................ $24,686 $19,315 $24,044 $ (1,209)
State.............................................. 2,128 2,959 3,048 --
Foreign............................................ 232 2,484 3,210 229
------- ------- ------- --------
Total current...................................... 27,046 24,758 30,302 (980)
------- ------- ------- --------
Deferred:
Federal............................................ 15,963 (1,123) (2,501) 22,552
State.............................................. (1,385) (162) (390) (96)
Foreign............................................ 1,284 455 133 (357)
------- ------- ------- --------
Total deferred..................................... 15,862 (830) (2,758) 22,099
------- ------- ------- --------
Total income tax expense........................... $42,908 $23,928 $27,544 $ 21,119
======= ======= ======= ========
</TABLE>
The provision (benefit) for income taxes differs from the amount computed by
applying the U.S. federal income tax rate of 35% for fiscal 1997, 1998 and 1999
and the eight months ended December 31, 1999, because of the effect of the
following items:
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS
--------------------------------- ENDED
APRIL 30, APRIL 30, APRIL 30, DECEMBER 31,
1997 1998 1999 1999
--------- --------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Continuing operations:
Expected income tax expense at U.S. federal
statutory tax rate.............................. $ 42,405 $21,712 $22,684 $18,536
State income taxes, net of U.S. federal income tax
benefit......................................... 400 2,717 2,630 1,745
Taxes on foreign income at rates which differ from
the U.S. federal statutory rate................. 360 288 384 380
Distributions on preferred securities of
subsidiary trust................................ -- -- (439) (3,317)
Gain on reorganization of subsidiary.............. 8,247 -- -- --
Nondeductible goodwill amortization............... 385 382 2,706 4,780
Change in valuation allowance..................... 1,785 (738) -- --
Other, net........................................ 295 435 (10) (378)
-------- ------- ------- -------
Provision for income taxes from continuing
operations...................................... 53,877 24,796 27,955 21,746
Extraordinary loss................................ (10,969) (868) (411) (627)
-------- ------- ------- -------
Total income tax expense........................ $ 42,908 $23,928 $27,544 $21,119
======== ======= ======= =======
</TABLE>
The Company accounts for income taxes under an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for both
the expected future tax impact of temporary differences arising from assets and
liabilities whose tax bases are different from financial statement amounts and
for the expected future tax benefit to be derived from tax loss carryforwards. A
valuation allowance is established if it is more likely than not that all or a
portion of deferred tax assets will not be
F-31
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES (CONTINUED)
realized. Realization of the future tax benefits of deferred tax assets
(including tax loss carryforwards) is dependent on Alpine's ability to generate
taxable income within the carryforward period and the periods in which net
temporary differences reverse. Although no assurance can be given that
sufficient taxable income will be generated for utilization of certain of the
Company's consolidated net operating loss carryforwards or for reversal of
certain temporary differences, the Company believes it is more likely than not
that all of the net deferred tax asset, after valuation allowance, will be
realized.
Items that result in deferred tax assets and liabilities and the related
valuation allowance at April 30, 1998 and 1999 and December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30, DECEMBER 31,
1998 1999 1999
--------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Inventory................................................. $ 3,276 $ -- $ --
Sale/leaseback............................................ 1,930 1,950 1,875
Accruals not currently deductible for tax................. 2,347 23,939 18,453
Pension and postretirement benefits....................... 1,195 9,945 13,535
Compensation expense related to unexercised stock options
and stock grants........................................ 1,220 1,152 1,561
Net operating loss carryforwards.......................... 8,319 7,827 15,297
Alternative minimum tax credit carryforwards.............. 2,500 2,500 500
Other..................................................... 1,231 2,130 5,810
------- ------- --------
Total deferred tax assets................................. 22,018 49,443 57,031
Less valuation allowance.................................. 8,319 6,595 --
------- ------- --------
Net deferred tax assets................................... 13,699 42,848 57,031
------- ------- --------
Deferred tax liabilities:
Depreciation.............................................. 10,891 94,705 88,125
Inventory................................................. -- 6,807 10,830
Long-term investments..................................... 20,757 22,920 50,829
Other..................................................... 9,574 13,220 22,905
------- ------- --------
Total deferred tax liabilities.......................... 41,222 137,652 172,689
------- ------- --------
Net deferred tax liability.............................. $27,523 $94,804 $115,658
======= ======= ========
</TABLE>
At December 31, 1999, Alpine had unused federal net operating loss
carryforwards of approximately $11.2 million and significant state operating
loss carryforwards that can be used to offset future taxable income. The net
operating loss carryforwards expire beginning in 2005 through 2020. Availability
of the net operating loss carryforwards might be challenged upon taxing
authorities' examinations of the related tax returns, which could affect the
availability of such carryforwards. Alpine believes, however, that any
challenges that would limit the utilization of net operating loss carryforwards
would not have a material adverse effect on Alpine's financial position.
The Company provides taxes on undistributed earnings of certain domestic
subsidiaries and investments based on anticipated taxable distributions. U.S.
income taxes have not been provided for undistributed earnings of certain
foreign subsidiaries whose earnings are considered to be indefinitely
reinvested. If
F-32
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES (CONTINUED)
distributed, the Company would be subject to both U.S. income tax and
withholding taxes payable to various foreign countries.
14. RESTRUCTURING AND UNUSUAL CHARGES
During fiscal 1999, the Company recorded nonrecurring and unusual charges of
$7.3 million consisting of a $2.9 million restructuring charge recorded by
Superior Israel relating to planned manufacturing plant consolidations and
overhead rationalization associated with the acquisition of Cvalim and
$4.4 million in charges primarily associated with the evaluation of management
information systems at Essex.
During the eight months ended December 31, 1999, the Company recorded
unusual charges of $4.7 million, which included (i) a $1.3 million charge
related to restructuring activities at Superior Israel, (ii) $2.1 million in
charges primarily associated with the rationalization of certain Essex
manufacturing facilities, (iii) $0.9 million in charges associated with the
evaluation of management information systems and (iv) $0.4 million of start-up
costs for the Company's Torreon, Mexico magnet wire facility.
ESSEX
Since the completion of the acquisition of Essex, the Company has been
involved in the consolidation and integration of manufacturing, corporate and
distribution functions of Essex into Superior. As a result, the Company
initially accrued as part of the Essex Acquisition purchase price a
$29.7 million provision, which included $11.8 million of employee termination
and relocation cost, $11.9 million of facility consolidation cost, $4.4 million
of management information system project termination costs, and $1.6 million of
other exit costs. During the eight months ended December 31, 1999, the Company
revised its estimate and, as a result, increased the provision for employee
termination and relocation costs, facility consolidation costs, and other exit
costs by $6.1 million, $0.2 million and $1.3 million, respectively, and
decreased the provision for management information system project termination by
$1.4 million. The net increase to the accrual of $6.2 million has been reflected
as an increase in goodwill. As of December 31, 1999, $14.7 million,
$4.3 million, $3.0 million and $1.4 million have been incurred and paid related
to employee termination and relocation costs, facility consolidation costs,
management information system project costs and other exit costs, respectively.
The provision for employee termination and relocation costs was primarily
associated with selling, general and administrative functions within Essex. The
provisions for facility consolidation costs included both manufacturing and
distribution facility rationalization and the related costs associated with
employee severance. The restructuring will result in the severance of
approximately 1,100 employees, of which four have yet to be terminated at
December 31, 1999. All significant aspects of the plan are expected to be
completed by June 2000.
During fiscal 1999, the Company also wrote off $10.4 million of previously
capitalized costs related to a discontinued management information system
project at Essex. During the eight months ended December 31, 1999, the Company
adjusted the carrying value of certain fixed assets by $17.3 million to reflect
their net realizable value. These adjustments have been reflected as increases
to goodwill.
SUPERIOR ISRAEL
On December 31, 1998, Superior Israel purchased Cvalim. Included in the
allocated purchase price was a $3.5 million provision for the restructuring of
Cvalim's manufacturing and corporate functions. The provisions included
$2.6 million of employee termination and severance costs and $0.9 million of
other miscellaneous costs. During fiscal 1999, Superior Israel recorded a
$2.9 million restructuring charge, which
F-33
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. RESTRUCTURING AND UNUSUAL CHARGES (CONTINUED)
included a provision for the consolidation of seven manufacturing facilities
into five and two headquarters facilities into one. All aspects of the
restructuring plan have been completed. As of December 31, 1999, approximately
$5.1 million has been incurred and paid related to employee termination and
severance costs and $0.9 million has been incurred and paid related to other
miscellaneous costs. The provision for employee termination and severance costs
was primarily associated with manufacturing, selling, general and administrative
functions within Cvalim, and approximately 146 positions have been eliminated.
During the eight months ended December 31, 1999, Superior Israel recorded a
$1.3 million restructuring charge, which included a provision for the
consolidation of manufacturing facilities. The restructuring actions will result
in the elimination of approximately 35 positions, most of which are
manufacturing related employees. All aspects of the restructuring plan are
expected to be completed during the year 2000.
15. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE INFORMATION
The Company, to a limited extent, uses forward fixed price contracts and
derivative financial instruments to manage foreign currency exchange and
commodity price risks. The Company does not hold or issue financial instruments
for investment 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 but the
Company does not anticipate nonperformance by any of these counterparties. The
amount of such exposure is generally the unrealized gains or losses within the
underlying contracts.
FOREIGN EXCHANGE RISK MANAGEMENT
The Company engages in the sale and purchase of goods and services which
periodically require payment or receipt of amounts denominated in foreign
currencies. To protect the Company's related 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. At December 31, 1999, the Company had no forward exchange sales
contracts, but did have $1.9 million of purchase contracts whose fair value
approximated the contract amount. Foreign currency gains or losses resulting
from the Company's operating and hedging activities are recognized in earnings
in the period in which the hedged currency is collected or paid. The related
amounts due to or from counterparties are included in other liabilities or other
assets.
COMMODITY PRICE RISK MANAGEMENT
The cost of copper, the Company's most significant raw material, has been
subject to considerable volatility over the past several years. So that the
Company may manage the matching of the copper component of customer product
pricing with the copper cost component of the inventory shipped, the Company
enters into futures contracts as qualifying hedges. At December 31, 1999, the
Company had sales contracts for 12.5 million copper pounds, or $10.1 million,
with an estimated fair value of $10.8 million. Unrealized gains and losses on
the qualified hedges, as appropriate, are included in other assets and are
recognized when the related underlying copper is purchased or sold or when a
sale is no longer expected to occur.
F-34
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. COMMITMENTS AND CONTINGENCIES
Total rent expense under cancelable and noncancelable operating leases was
$1.1 million, $1.6 million, $8.0 million and $8.5 million during fiscal 1997,
1998 and 1999 and for the eight months ended December 31, 1999, respectively.
At December 31, 1999, future minimum lease payments under noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- --------------
(IN THOUSANDS)
<S> <C>
2000........................................................ $10,468
2001........................................................ 7,387
2002........................................................ 6,018
2003........................................................ 5,181
2004........................................................ 4,615
Thereafter.................................................. 8,256
-------
$41,925
=======
</TABLE>
Approximately 35% of the Company's total labor force is covered by
collective bargaining agreements.
The Company is subject to routine lawsuits incidental to its business. In
the opinion of management, based on its examination of such matters and
discussions with counsel, the ultimate resolution of all pending or threatened
litigation, claims and assessments will have no material adverse effect upon
Alpine's consolidated financial position, liquidity or results of operations.
In connection with Essex's 1988 acquisition of Essex Group, Inc., United
Technologies Corporation ("UTC"), Essex's former parent, has indemnified Essex
against all losses resulting from or in connection with damage or pollution to
the environment and arising from events, operations, or activities of Essex
prior to February 29, 1988, or from conditions or circumstances existing at
February 29, 1988, known to UTC prior to February 29, 1988. The sites covered by
the indemnity are handled directly by UTC and all payments required to be made
are paid directly by UTC. UTC also provided an additional environmental
indemnity which deals with liabilities related to environmental events,
conditions or circumstances existing at or prior to February 29, 1988, which
became known prior to February 28, 1993. As to such liabilities, the Company is
responsible for the first $4 million incurred. The Company accrues for these
costs when it is probable that a liability has been incurred and the amount of
the loss can be reasonably estimated.
Essex has been named as a defendant in a limited number of product liability
lawsuits brought by electricians and other skilled tradesmen claiming injury
from exposure to asbestos found in electrical wire products produced many years
ago. Litigation against various past insurers of Essex who had previously
refused to defend and indemnify Essex against these lawsuits was settled during
1999. Pursuant to the settlement, Essex was reimbursed for substantially all of
its costs and expenses incurred in defense of these lawsuits, and the insurers
have undertaken and are currently defending and, if it should become necessary,
indemnifying Essex against such asbestos lawsuits, subject to the express terms
and limits of their respective policies.
The Company accepts certain customer orders for future delivery at fixed
prices. As copper is the most significant raw material used in the manufacturing
process, the Company enters into forward purchase fixed price commitments for
copper to properly match its cost to the value of the copper to be
F-35
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
billed to the customers. At December 31, 1999, the Company had forward fixed
price purchase commitments for 46.4 million copper pounds.
Pursuant to the Premier Merger Agreement dated May 28, 1999 between Alpine,
Premier, Cookson and PRI Acquisition, Alpine agreed, subject to certain limited
exceptions, that for a period of five years following the date of the Premier
merger, it would not compete with Cookson in any business which is competitive
with Premier's business as of such date. Additionally, pursuant to the Premier
Merger Agreement, Alpine extended to Cookson certain customary warranties and
representations relating to Premier, its assets and operations and indemnified
Cookson and certain related parties (the "Cookson Parties") against any losses
the Cookson Parties might suffer or incur ("Losses") arising out of any breach
thereof, any breach of any covenant of Alpine and Premier or certain taxes
relating to the repayment of specified Premier indebtedness (the "Alpine
Indemnity"). Also, Alpine agreed to indemnify the Cookson Parties against any
Losses arising out of third-party environmental claims directly relating to
(i) off-site transportation, treatment, storage or disposal prior to the merger
date of "hazardous substances" generated by Premier or its predecessors or
(ii) any real property formerly owned, leased or operated by Premier and its
predecessors (collectively the "Environmental Indemnity"). Subject to certain
exceptions set out in the Premier Merger Agreement, the liabilities of Alpine
under the Alpine Indemnity are subject to (i) with respect to breaches of
representations of warranties of Alpine, individual and aggregate threshold
amounts of $50,000 and $1,000,000, respectively, and (ii) a maximum liability
cap of $50 million. In addition, the Environmental Indemnity is subject to a
maximum liability cap of $10 million. No claim under the Environmental Indemnity
may be made after May 31, 2000, and no claim under the Alpine Indemnity based
upon any breach of warranty or representation of Alpine made under the Premier
Merger Agreement may be made after May 31, 2000, except that claims based upon
any alleged breach of Alpine's warranties and representations relating to tax
and specified employee benefits matters, may be asserted until the expiration of
the respective periods set by applicable statutes of limitation.
Certain executives of the Company have employment contracts which generally
provide minimum base salaries, cash bonuses based on the Company's achievement
of certain performance objectives, stock options and restricted stock grants and
certain retirement and other employee benefits. Further, in the event of
termination or voluntary resignation for "good reason" accompanied by a "change
in control", as defined, such employment agreements provide for severance
payments not in excess of two to three times annual cash compensation and bonus
and the continuation for stipulated periods of other benefits, as defined.
17. RELATED PARTY TRANSACTIONS
At December 31, 1999, Alpine has loaned certain officers $1.0 million
relating to the tax implications associated with the exercise in prior years of
stock options and restricted stock grants. The unpaid balance, which is deducted
from stockholders' equity, bears interest at prime plus 0.5%. During fiscal
1999, the Company agreed to forgive a $300,000 loan made by the Company in
June 1987 to an executive of the Company to finance the exercise of certain
stock options, with such forgiveness to occur over a four year period, subject
to certain employment conditions.
F-36
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. PREFERRED STOCK
Alpine has authorized 500,000 shares of preferred stock with a par value of
$1.00 per share. The preferred stock may be issued at the discretion of the
Board of Directors in one or more series with differing terms, limitations and
rights.
At December 31, 1999, Alpine has outstanding 250 shares of 9% Cumulative
Convertible Senior Preferred Stock ("9% Senior Preferred Stock") and 177 shares
of 9% Cumulative Convertible Preferred Stock ("9% Preferred Stock").
The 9% Senior Preferred Stock is senior in ranking to holders of Alpine's
common stock and the 9% Preferred Stock. Each share is convertible at any time
into shares of Alpine common stock at a conversion price of $7.90 per share,
subject to customary adjustments, and is redeemable by Alpine under certain
conditions.
The 9% Senior Preferred Stock carries 100 votes per share, votes as a single
class with Alpine's common stock on all matters submitted to stockholders and is
entitled to vote as a separate class in the event of any proposal to (i) amend
any of the principal terms of the preferred stock; (ii) authorize, create, issue
or sell any class of stock senior to or on a parity with the 9% Senior Preferred
Stock as to dividends or liquidation preference; or (iii) merge into,
consolidate with, or sell all or substantially all of the assets of Alpine to
another entity. The holders of not less than 66 2/3% of the 9% Senior Preferred
Stock must approve any transaction subject to the class voting rights.
The 9% Preferred Stock is convertible into 105 1/2 shares of common stock,
subject to customary adjustments. Alpine may redeem the stock at any time, in
whole or in part at a price equal to the liquidation value per share.
During fiscal 1998, 1,500 shares of 9% Senior Preferred Stock were converted
to 189,873 shares of Common Stock based on a conversion price of $7.90 per
share. During fiscal 1997, 36,649 shares of 8% Cumulative Convertible Senior
Preferred Stock ("8% Preferred Stock") plus accrued dividends were retired in
connection with Premier's acquisition of American Premier Holdings, Inc. Also
during fiscal 1997, 160,000 shares of 8% Preferred Stock with a par value of
$8.0 million were repurchased for $13.2 million. In accordance with generally
accepted accounting principles, the repurchase price paid in excess of the par
value of such preferred stock has been recorded as a redemption premium and,
therefore, as a reduction of net income attributable to common stockholders.
19. SUPERIOR TRUST CONVERTIBLE PREFERRED SECURITIES
On March 31, 1999, Superior Trust I (the "Trust"), a trust in which Superior
owns all the common equity interests, issued 3,332,254 shares of 8 1/2% Trust
Convertible Preferred Securities ("Trust Convertible Preferred Securities") with
a liquidation value of $50 per share. The sole assets of the Trust are
Superior's 8 1/2% Convertible Subordinated Debentures ("Convertible Debentures")
due 2014 with an aggregate face amount equivalent to approximately 103% of the
liquidation value of the Trust Convertible Preferred Securities issued. Superior
has fully and unconditionally guaranteed the Trust's obligations under the Trust
Convertible Preferred Securities. The Trust Convertible Preferred Securities are
currently convertible into common stock of Superior at the rate of 1.1496 shares
of Superior's common stock for each Trust Convertible Preferred Security
(equivalent to a conversion price of $43.49 per share of common stock). This
conversion rate is subject to customary anti-dilution adjustments. Dividends on
the Trust Convertible Preferred Securities are payable quarterly by the Trust.
The Trust Convertible Preferred Securities are
F-37
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. SUPERIOR TRUST CONVERTIBLE PREFERRED SECURITIES (CONTINUED)
subject to mandatory redemption on March 30, 2014, at a redemption price of $50
per Trust Convertible Security, plus accrued and unpaid dividends.
The Trust Convertible Preferred Securities are not redeemable before
April 1, 2003. At any time on and after that date, the Trust Convertible
Preferred Securities may be redeemed by Superior at a per share redemption price
of $52.55, periodically declining to $50.00 in April 2008 and thereafter. In
addition, Superior has the option to call the Trust Convertible Preferred
Securities during the one-year period commencing on March 31, 2002, at a per
share redemption cash redemption price of $52.975, plus accrued and unpaid
dividends, if any, provided the average closing price of Superior's common
stock, for any 10 consecutive trading days preceding the date of the call,
multiplied by the then effective conversion rate equals or exceeds $65.00 per
share. Superior has reserved 3,830,788 shares of its common stock for possible
conversion of the Trust Convertible Preferred Securities.
Superior may cause the Trust to defer the payment of dividends for
successive periods of up to 20 consecutive quarters. During such periods,
accrued dividends on the Trust Convertible Preferred Securities will accrue
interest at the rate of 8 1/2% per annum and Superior may not declare or pay
dividends on its common stock. Also during such period, if holders of Trust
Convertible Preferred Securities convert such securities into Superior common
stock, the holder will not receive any cash related to the deferred dividends.
The estimated aggregate fair value of the Trust Convertible Preferred
Securities, when issued, was approximately $133.3 million based on average per
share trading values on the New York Stock Exchange. The resulting discount of
$33.3 million is being amortized using the effective interest method over the
term of the Trust Convertible Preferred Securities.
20. 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, 200,000 shares authorized, (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
F-38
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. STOCKHOLDER RIGHTS AGREEMENT (CONTINUED)
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 February 17, 1999.
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.
The Rights are not exercisable until the distribution date and will expire
at the close of business February 17, 2009, unless earlier redeemed by the
Company.
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.
21. BUSINESS SEGMENTS AND FOREIGN OPERATIONS
The Company's reportable segments are strategic businesses that offer
different products and services to different customers. These segments are
communications, OEM and electrical. The communications segment includes
(i) outside plant wire and cable for voice and data transmission in the local
loop portion of the telecommunications infrastructure and (ii) datacom or
premise wire and cable for use within homes and offices for local networks,
Internet connectivity and other applications. The OEM segment includes magnet
wire, automotive wire, and related products. The electrical segment includes
building and industrial wire and cable.
The Company evaluates segment performance based on a number of factors, with
operating income being the most critical. Intersegment sales are generally
recorded at cost, are not significant and, therefore, have been eliminated
below.
F-39
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21. BUSINESS SEGMENTS AND FOREIGN OPERATIONS (CONTINUED)
Operating results for each of the Company's three reportable segments are
presented below. Corporate and other items shown below are provided to reconcile
to the Company's consolidated statements of operations, cash flows and balance
sheets.
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS
---------------------------------- ENDED
APRIL 30, APRIL 30, APRIL 30, DECEMBER 31,
1997 1998 1999 1999
--------- --------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sale(a):
Communications................................ $463,840 $516,599 $ 626,769 $ 507,762
OEM........................................... -- -- 269,267 433,471
Electrical.................................... -- -- 247,209 429,152
-------- -------- ---------- ----------
$463,840 $516,599 $1,143,245 $1,370,385
======== ======== ========== ==========
Depreciation and amortization expense:
Communications................................ $ 7,569 $ 8,330 $ 14,100 $ 11,850
OEM........................................... -- -- 4,381 6,863
Electrical.................................... -- -- 2,895 4,432
Corporate and other........................... 1,907 1,875 7,771 17,403
-------- -------- ---------- ----------
$ 9,476 $ 10,205 $ 29,147 $ 40,548
======== ======== ========== ==========
Operating income (loss):
Communications................................ $ 64,061 $ 80,975 $ 114,751 $ 86,849
OEM........................................... -- -- 32,788 58,317
Electrical.................................... -- -- 15,827 21,935
Corporate and other........................... (9,812) (10,566) (24,660) (15,320)
Non recurring and unusual charges............. -- -- (7,282) (4,660)
Amortization of goodwill...................... (1,726) (1,715) (8,369) (13,778)
-------- -------- ---------- ----------
$ 52,523 $ 68,694 $ 123,055 $ 133,343
======== ======== ========== ==========
Total assets:
Communications................................ $239,711 $230,700 $ 488,247 $ 510,537
OEM........................................... -- -- 282,888 307,908
Electrical.................................... -- -- 275,392 289,349
Corporate and other........................... 45,576 48,229 1,027,949 1,075,835
-------- -------- ---------- ----------
285,287 278,929 2,074,476 2,183,629
Discontinued operations....................... 18,552 41,480 34,557 --
-------- -------- ---------- ----------
$303,839 $320,409 $2,109,033 $2,183,629
======== ======== ========== ==========
</TABLE>
F-40
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21. BUSINESS SEGMENTS AND FOREIGN OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS
---------------------------------- ENDED
APRIL 30, APRIL 30, APRIL 30, DECEMBER 31,
1997 1998 1999 1999
--------- --------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Capital expenditures:
Communications................................ $ 9,807 $ 18,488 $ 23,072 $ 21,901
OEM........................................... -- -- 7,694 19,505
Electrical.................................... -- -- 7,564 6,327
Corporate and other........................... 538 1,020 5,571 9,337
-------- -------- ---------- ----------
$ 10,345 $ 19,508 $ 43,901 $ 57,070
======== ======== ========== ==========
</TABLE>
- ------------------------
(a) Five customers accounted for 19%, 17%, 16%, 14%, and 14% of sales in fiscal
1997; five customers accounted for 19%, 19%, 17%, 16% and 13% of net sales
in fiscal 1998; and no customers accounted for more than 10% of net sales in
fiscal 1999 or for the eight months ended December 31, 1999.
The following provides information about domestic and foreign operations for
the fiscal years ended April 30, 1997, 1998 and 1999 and the eight months ended
December 31, 1999:
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS
---------------------------------- ENDED
APRIL 30, APRIL 30, APRIL 30, DECEMBER 31,
1997 1998 1999 1999
--------- --------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales:
United States................................. $421,126 $472,019 $ 997,792 $1,219,465
Canada........................................ 42,714 44,580 43,757 23,801
Israel........................................ -- -- 83,368 95,944
United Kingdom................................ -- -- 18,328 31,175
-------- -------- ---------- ----------
$463,840 $516,599 $1,143,245 $1,370,385
======== ======== ========== ==========
Long-lived assets:
United States................................. $ 73,575 $ 422,197 $ 399,444
Canada........................................ 10,773 12,832 13,431
Israel........................................ -- 65,416 74,093
United Kingdom................................ -- 9,490 14,093
Mexico........................................ -- 1,642 14,702
-------- ---------- ----------
$ 84,348 $ 511,577 $ 515,763
======== ========== ==========
</TABLE>
F-41
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1998
----------------------------------------------------------
QUARTER ENDED
--------------------------------------------- YEAR ENDED
JULY 31 OCTOBER 31 JANUARY 31 APRIL 30 APRIL 30
-------- ---------- ---------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales................................ $131,233 $139,212 $113,661 $132,493 $516,599
Gross profit............................. 24,342 25,342 21,680 27,877 99,241
Operating income......................... 17,223 18,153 13,648 19,670 68,694
Minority interest........................ (4,854) (5,241) (4,212) (5,989) (20,296)
Income from continuing operations........ 3,844 4,421 3,533 5,143 16,941
Discontinued operations.................. 1,023 1,165 (2,211) (171) (194)
Extraordinary (loss) on early
extinguishment of debt................. (389) (832) -- (243) (1,464)
-------- -------- -------- -------- --------
Net income......................... $ 4,478 $ 4,754 $ 1,322 $ 4,729 $ 15,283
======== ======== ======== ======== ========
Net income per diluted share of common
stock:
Income from continuing operations...... $ 0.21 $ 0.24 $ 0.18 $ 0.27 $ 0.90
Discontinued operations................ 0.05 0.06 (0.12) (0.01) (0.01)
Extraordinary (loss) on early
extinguishment of debt............... (0.02) (0.04) -- (0.01) (0.08)
-------- -------- -------- -------- --------
Net income per diluted share of
common stock (a)................. $ 0.24 $ 0.25 $ 0.07 $ 0.25 $ 0.81
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1999
----------------------------------------------------------
QUARTER ENDED
--------------------------------------------- YEAR ENDED
JULY 31 OCTOBER 31 JANUARY 31 APRIL 30 APRIL 30,
-------- ---------- ---------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales............................... $156,874 $146,097 $326,714 $513,560 $1,143,245
Gross profit............................ 34,296 33,472 63,169 101,657 232,594
Operating income........................ 23,874 23,923 22,920 52,338 123,055
Minority interest....................... (6,930) (7,086) 2,405 (7,082) (18,693)
Income from continuing operations....... 4,737 5,917 1,195 5,061 16,910
Discontinued operations................. 1,503 (209) (170) (3,831) (2,707)
Extraordinary (loss) on early
extinguishment of debt................ -- -- (634) -- (634)
-------- -------- -------- -------- ----------
Net income............................ $ 6,240 $ 5,708 $ 391 $ 1,230 $ 13,569
======== ======== ======== ======== ==========
</TABLE>
F-42
<PAGE>
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
FISCAL 1999
----------------------------------------------------------
QUARTER ENDED
--------------------------------------------- YEAR ENDED
JULY 31 OCTOBER 31 JANUARY 31 APRIL 30 APRIL 30,
-------- ---------- ---------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net income per diluted share of common
stock:
Income from continuing operations...... $ 0.24 $ 0.31 $ 0.07 $ 0.29 $ 0.91
Discontinued operations................ 0.08 (0.01) (0.01) (0.21) (0.15)
Extraordinary (loss) on early
extinguishment of debt............... -- -- (0.04) -- (0.04)
-------- -------- -------- -------- --------
Net income per diluted share of
common stock (a)................. $ 0.32 $ 0.30 $ 0.02 $ 0.08 $ 0.72
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1999
-------------------------------------------------
EIGHT
QUARTER ENDED TWO MONTHS MONTHS
--------------------- ENDED ENDED
JULY 31 OCTOBER 31 DECEMBER 31 DECEMBER 31
-------- ---------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales........................................ $515,189 $528,331 $326,865 $1,370,385
Gross profit..................................... 96,599 101,117 56,578 254,294
Operating income................................. 52,172 56,536 24,635 133,343
Minority interest................................ (6,064) (5,175) (165) (11,404)
Income from continuing operations................ 6,012 5,665 330 12,007
Discontinued operations.......................... -- 35,369 -- 35,369
Extraordinary (loss) on early extinguishment of
debt........................................... (836) -- (154) (990)
-------- -------- -------- ----------
Net income................................. $ 5,176 $ 41,034 $ 176 $ 46,386
======== ======== ======== ==========
Net income per diluted share of common stock:
Income from continuing operations.............. $ 0.34 $ 0.32 $ 0.02 $ 0.68
Discontinued operations........................ -- 2.17 -- 2.17
Extraordinary (loss) on early extinguishment of
debt......................................... (0.05) -- (0.01) (0.06)
-------- -------- -------- ----------
Net income per diluted share of common
stock (a)................................ $ 0.29 $ 2.49 $ 0.01 $ 2.79
======== ======== ======== ==========
</TABLE>
- ------------------------
(a) Net income per diluted share of common stock for the fiscal years and the
eight month period is determined by computing a year-to-date weighted
average of the number of incremental shares included in each quarterly
diluted net income per share calculation. As a result, the sum of net income
per share for the four quarters may not equal the net income per share for
the twelve-months ended April 30, 1998 and 1999 and the eight months ended
December 31, 1999.
F-43
<PAGE>
SCHEDULE I
THE ALPINE GROUP, INC.
(PARENT COMPANY)
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30, APRIL 30, DECEMBER 31,
1998 1999 1999
--------- --------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,804 $ 17,253 $ 5,237
Marketable securities..................................... 15,672 14,957 7,841
Other current assets...................................... 9,197 4,586 3,937
-------- -------- --------
Total current assets.................................. 30,673 36,796 17,015
Investment in consolidated subsidiaries..................... 85,335 87,372 59,754
Property, plant and equipment, net.......................... 1,227 1,277 1,849
Long-term investments and other assets...................... 14,764 30,561 164,411
-------- -------- --------
Total assets.......................................... $131,999 $156,006 $243,029
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 33 $ 39 $ 79
Accounts payable.......................................... 739 853 46
Accrued expenses.......................................... 3,996 6,409 9,030
Advances and loans from subsidiaries...................... 2,410 4,272 (612)
-------- -------- --------
Total current liabilities............................. 7,178 11,573 8,543
Long-term debt, less current portion........................ 22,011 61,865 82,877
Other long-term liabilities................................. 25,295 26,185 56,626
-------- -------- --------
Total liabilities..................................... 54,484 99,623 148,046
-------- -------- --------
Stockholders' equity:
9% cumulative convertible preferred stock at liquidation
value................................................... 427 427 427
Common stock, $.10 par value; authorized 25,000,000
shares; 19,865,990 shares, 20,096,479 shares and
21,663,041 shares issued at April 30, 1998 and 1999, and
December 31, 1999, respectively......................... 1,986 2,009 2,166
Capital in excess of par value............................ 136,598 138,860 158,268
Accumulated other comprehensive income (deficit).......... (814) (5,222) 451
(Accumulated deficit) retained earnings................... (32,834) (19,304) 27,056
-------- -------- --------
105,363 116,770 188,368
Shares of common stock in treasury, at cost; 1998,
2,704,732 shares; 1999, 4,923,932 shares................ (26,890) (59,398) (92,396)
Receivable from stockholders.............................. (958) (989) (989)
-------- -------- --------
Total stockholders' equity.............................. 77,515 56,383 94,983
-------- -------- --------
Total liabilities and stockholders' equity............ $131,999 $156,006 $243,029
======== ======== ========
</TABLE>
F-44
<PAGE>
SCHEDULE I
(CONTINUED)
THE ALPINE GROUP, INC.
(PARENT COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT
MONTHS
YEAR ENDED APRIL 30, ENDED
------------------------------ DECEMBER 31,
1997 1998 1999 1999
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
Revenues:
Interest income................................... $ 1,902 $ 3,808 $ 316 3,461
Intercompany interest............................. 14,298 37 39 --
Gain on sale of subsidiary........................ 80,397 -- -- --
Other income...................................... 73 43 10,686 --
-------- ------- ------- -------
96,670 3,888 11,041 3,461
-------- ------- ------- -------
Expenses:
General and administrative........................ 8,086 5,064 7,806 5,518
Interest expense.................................. 14,825 2,665 4,037 4,471
-------- ------- ------- -------
22,911 7,729 11,843 9,989
-------- ------- ------- -------
73,759 (3,841) (802) (6,528)
(Provision) benefit for income taxes................ (34,912) 1,435 73 2,503
-------- ------- ------- -------
38,847 (2,406) (729) (4,025)
Equity in net income of affiliates................ -- -- -- 2,196
Equity in net income (loss) of subsidiaries, net,
before extraordinary (loss)..................... 17,289 18,764 14,298 47,588
-------- ------- ------- -------
Income before extraordinary (loss).................. 56,136 16,358 13,569 45,759
Extraordinary (loss) on early extinguishment of
debt.............................................. (19,416) (1,075) -- 627
-------- ------- ------- -------
Net income........................................ $ 36,720 $15,283 $13,569 $46,386
======== ======= ======= =======
</TABLE>
F-45
<PAGE>
SCHEDULE I
(CONTINUED)
THE ALPINE GROUP, INC.
(PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT
MONTHS
YEAR ENDED APRIL 30, ENDED
------------------------------- DECEMBER 31,
1997 1999 1999 1999
--------- -------- -------- ------------
<S> <C> <C> <C> <C>
Cash flows provided by operating activities....... $ 5,298 $ 2,234 $ 7,600 $(27,954)
--------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures............................ (538) (1,020) (311) (791)
Proceeds from (investment in) marketable
securities.................................... (8,094) 135 715 7,619
Purchase of subsidiary common stock............. -- -- (740) --
Payments received from subsidiary preferred
stock......................................... 11,300 -- -- --
Dividends received from subsidiaries, net of
tax........................................... 78,159 507 1,525 --
Loan/advances to PolyVision Corporation......... (2,467) (145) -- --
Investment in Polyvision Corporation............ -- -- (5,000) (2,000)
Other........................................... -- 248 --
--------- -------- -------- --------
Cash flows provided by (used for) investing
activities...................................... 78,360 (275) (3,811) 4,828
--------- -------- -------- --------
Cash flows from financing activities:
(Repayments) borrowings under revolving credit
facility, net................................. (48,654) -- 39,700 30,300
Long-term borrowings............................ -- 10,665 -- 785
Repayments of long-term borrowings.............. (135,535) (9,840) (32) (10,033)
Debt issuance costs............................. -- (400) (280) (850)
Dividends on preferred stock.................... (575) (69) (39) (25)
Proceeds from stock options exercised........... 1,835 2,618 333 1,195
Advances and loans to subsidiaries, net......... 141,232 108 -- 35
Redemption of preferred stock................... (15,026) -- --
Purchase of treasury shares..................... (11,994) (14,760) (32,508) (16,330)
Other........................................... -- (101) 486 6,033
--------- -------- -------- --------
Cash flows (used for) provided by financing
activities...................................... (68,717) (11,779) 7,660 11,110
--------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... 14,941 (9,820) 11,449 (12,016)
Cash and cash equivalents at beginning of year.... 683 15,624 5,804 17,253
--------- -------- -------- --------
Cash and cash equivalents at end of year.......... $ 15,624 $ 5,804 $ 17,253 $ 5,237
========= ======== ======== ========
Supplemental cash flow disclosures:
Cash paid for interest.......................... $ 18,134 $ 2,521 $ 3,194 $ 4,065
========= ======== ======== ========
Cash paid (refunded) for income taxes, net...... $ 18,895 $ (3,592) $ (8,426) $ 8,450
========= ======== ======== ========
</TABLE>
F-46
<PAGE>
SCHEDULE I
(CONTINUED)
THE ALPINE GROUP, INC.
(PARENT COMPANY)
APPENDIX A
<TABLE>
<CAPTION>
APRIL 30, APRIL 30, DECEMBER 31,
1998 1999 1999
--------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt consists of:
12.25% Senior Secured Notes (due 2003, principal amount
$12.2 million at April 30, 1998 and 1999, respectively)... $11,361 $11,553 $11,665
Term loan (due 2001, interest at LIBOR plus 2.0%)........... 10,000 10,000 --
Revolving credit facility................................... -- 39,700 70,000
Other....................................................... 683 651 1,291
------- ------- -------
22,044 61,904 82,956
Less current portion........................................ 33 39 79
------- ------- -------
$22,011 $61,865 $82,877
======= ======= =======
</TABLE>
Minimum current maturities of long-term debt outstanding as of April 30,
1999 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ----------- --------------
(IN THOUSANDS)
<S> <C>
2000........................................................ $ 79
2001........................................................ 85
2002........................................................ 70,093
2003........................................................ 11,768
2004........................................................ 110
Thereafter.................................................. 821
-------
$82,956
=======
</TABLE>
F-47
<PAGE>
SCHEDULE II
THE ALPINE GROUP, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED APRIL 30, 1999 AND
THE EIGHT MONTHS ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS(A) END OF PERIOD
- ----------- ------------ ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED APRIL 30, 1999:
Allowance for restructuring
activities........................ $ -- $2,881 $33,088(b) $ (4,854) $31,115
EIGHT MONTHS ENDED DECEMBER 31,
1999:
Allowance for restructuring
activities........................ 31,115 1,321 6,231(b) (24,341) 14,326
</TABLE>
- ------------------------
(a) Payments for restructuring liabilities
(b) Accrued as a component of acquisition purchase price
F-48
<PAGE>
Exhibit 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports dated March 3, 2000, included in this
Form 10-K/A, into The Alpine Group, Inc.'s previously filed Registration
Statements on Forms S-8 (File Nos. 333-16703, 2-70015, 33-62544 and
333-60071) and on Forms S-3 (File Nos.33-30246, 33-53434, 333-60073,
333-00301, 33-63819 and 33-81996).
Arthur Andersen LLP
Atlanta, Georgia
April 4, 2000
