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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO ________
COMMISSION FILE NUMBER 1-9078
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THE ALPINE GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-1620387
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE MEADOWLANDS PLAZA 07073
EAST RUTHERFORD, NEW JERSEY (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code 201-549-4400
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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 whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT NOVEMBER 11, 2003
----- --------------------------------
Common Stock, $.10 Par Value 12,040,069
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934 and, therefore, do not include all
information and footnotes required by generally accepted accounting principles.
However, in the opinion of management, all adjustments (which, except as
disclosed elsewhere herein, consist only of normal recurring accruals) necessary
for a fair presentation of the results of operations for the relevant periods
have been made. Results for the interim periods are not necessarily indicative
of the results to be expected for the year. These financial statements should be
read in conjunction with the summary of significant accounting policies and the
notes to the consolidated financial statements included in the Company's Annual
Report on Form 10-K and 10K/A for the year ended December 31, 2002.
1
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2003 2002
--------- ---------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ................................................................ $ 3,874 $ 8,139
Accounts receivable (less allowance for doubtful accounts of $381 and $413 at ............ 37,072 62,864
September 30, 2003 and December 31, 2002, respectively)
Inventories .............................................................................. 38,513 81,198
Other current assets ..................................................................... 4,021 10,443
--------- ---------
Total current assets .................................................................. 83,480 162,644
Property, plant and equipment, net .......................................................... 17,540 15,384
Long-term investments and other assets ...................................................... 4,108 5,093
--------- ---------
Total assets .......................................................................... $ 105,128 $ 183,121
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt ........................................................ $ 100 $ 2,151
Accounts payable ......................................................................... 14,653 16,588
Accrued expenses ......................................................................... 13,451 18,850
Deferred and current income taxes ........................................................ 9,593 15,454
--------- ---------
Total current liabilities ............................................................. 37,797 53,043
Long-term debt, less current portion ........................................................ 17,222 69,886
Deferred income taxes ....................................................................... 19,046 20,533
Other long-term liabilities ................................................................. 1,968 1,887
Warrant ..................................................................................... 1,000 1,000
Accumulated losses in excess of net investment in Superior Telecom Inc. ..................... 865,887 865,887
Mandatory redeemable Series A cumulative convertible preferred stock (8,287 shares issued and
outstanding at September 30, 2003), net of $1,203 beneficial conversion feature........... 1,946 --
Stockholders' deficit:
9% cumulative convertible preferred stock at liquidation value ........................... 427 427
Common stock, $.10 par value, 25,000,000 shares authorized (22,084,694 shares issued at
September 30, 2003 and December 31, 2002) ............................................. 2,208 2,208
Capital in excess of par value ........................................................... 162,616 165,195
Accumulated other comprehensive deficit .................................................. (11,624) (11,597)
Accumulated deficit ...................................................................... (899,097) (890,221)
--------- ---------
(745,470) (733,988)
Treasury stock, at cost (11,115,251 shares at September 30, 2003 and 7,963,203
December 31, 2002) .................................................................... (93,767) (94,574)
Receivable from stockholders ............................................................. (501) (553)
--------- ---------
Total stockholders' deficit ........................................................... (839,738) (829,115)
--------- ---------
Total liabilities and stockholders' deficit ......................................... $ 105,128 $ 183,121
========= =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
2003 2002
--------- ---------
Net sales ............................................................... $ 76,204 $ 368,186
Cost of goods sold ...................................................... 68,772 322,349
-------- ---------
Gross profit ......................................................... 7,432 45,837
Selling, general and administrative expenses ............................ 8,954 38,572
Restructuring and other charges ......................................... 3,348 1,077
Impairment charges ...................................................... -- 114,497
-------- ---------
Operating loss ....................................................... (4,870) (108,309)
Interest expense ........................................................ (668) (30,111)
Gain (loss) on investment in securities ................................. -- (1,589)
Other income (expense), net ............................................. 1,795 (466)
-------- ---------
Loss before income taxes, distributions on preferred securities
of subsidiary trust, minority interest
and equity in earnings of affiliate ............................... (3,743) (140,475)
Income tax benefit ...................................................... 1,398 48,167
-------- ---------
Loss before distributions on preferred securities of subsidiary trust,
minority interest and equity in earnings of affiliate ............. (2,345) (92,308)
Distributions on preferred securities of subsidiary trust ............... -- (4,172)
-------- ---------
Loss before minority interest and equity in earnings of affiliate .... (2,345) (96,480)
Minority interest in losses of subsidiaries ............................. -- 1,111
Equity in loss of affiliate ............................................. (353) --
-------- ---------
Net loss ................................................................ (2,698) (95,369)
Preferred stock dividends ............................................... (71) (9)
-------- ---------
Net loss applicable to common stock .................................. $ (2,769) $ (95,378)
======== =========
Net loss per share of common stock--basic and diluted ................... $ (0.21) $ (6.41)
======== =========
Weighted average shares outstanding--basic and diluted .................. 13,023 14,882
======== =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
2003 2002
--------- -----------
Net sales ........................................................................................... $ 261,009 $ 1,136,761
Cost of goods sold .................................................................................. 234,554 996,343
--------- -----------
Gross profit ..................................................................................... 26,455 140,418
Selling, general and administrative expenses ........................................................ 31,281 113,870
Restructuring and other charges ..................................................................... 8,324 34,156
Impairment charges .................................................................................. -- 114,497
--------- -----------
Operating loss ................................................................................... (13,150) (122,105)
Interest expense .................................................................................... (2,679) (83,321)
Gain (loss) on investment in securities ............................................................. -- (4,085)
Other income (expense), net ......................................................................... 1,749 435
--------- -----------
Loss before income taxes, distributions on preferred securities of subsidiary
trust, minority interest, equity in earnings of affiliate and cumulative
effect of accounting change for
goodwill impairment ........................................................................... (14,080) (209,076)
Income tax benefit .................................................................................. 5,380 76,976
--------- -----------
Loss before distributions on preferred securities of subsidiary trust, minority interest, equity . (8,700) (132,100)
in earnings of affiliate and cumulative effect of accounting change for goodwill impairment
Distributions on preferred securities of subsidiary trust ........................................... -- (12,395)
--------- -----------
Loss before minority interest, equity in earnings of affiliate and cumulative effect of accounting (8,700) (144,495)
change for goodwill impairment
Minority interest in losses of subsidiaries ......................................................... -- 3,035
Equity in loss of affiliate ......................................................................... (86) --
--------- -----------
Loss before cumulative effect of accounting change for goodwill impairment ....................... (8,786) (141,460)
Cumulative effect of accounting change for goodwill impairment, net of minority interest ............ -- (388,086)
--------- -----------
Net loss ............................................................................................ (8,786) (529,546)
Preferred stock dividends ........................................................................... (90) (28)
--------- -----------
Net loss applicable to common stock .............................................................. $ (8,876) $ (529,574)
========= ===========
Net loss per share of common stock-basic and diluted:
Loss before cumulative effect of accounting change for goodwill impairment .................... $ (0.62) $ (9.55)
Cumulative effect of accounting change for goodwill impairment ................................ -- (26.17)
--------- -----------
Net loss--basic and diluted ................................................................. $ (0.62) $ (35.72)
========= ===========
Weighted average shares outstanding--basic and diluted .............................................. 14,354 14,827
========= ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30, 2003
SHARES AMOUNT
---------- --------
9% cumulative convertible preferred stock:
Balance at beginning of period ......................... 427 $ 427
Balance at end of period ............................ 427 427
---------- --------
Common stock:
Balance at beginning of period ......................... 22,084,694 2,208
Balance at end of period ............................ 22,084,694 2,208
---------- --------
Capital in excess of par value:
Balance at beginning of period ......................... 165,195
Stock grants ........................................... (3,782)
Beneficial conversion feature on preferred stock ....... 1,203
--------
Balance at end of period ............................ 162,616
--------
Accumulated other comprehensive deficit:
Balance at beginning of period ......................... (11,597)
Foreign currency translation adjustment ................ (8)
Change in unrealized gains on securities, net of tax ... (19)
--------
Balance at end of period ............................ (11,624)
--------
Accumulated deficit:
Balance at beginning of period ......................... (890,221)
Net loss ............................................... (8,786)
Dividends on preferred stock ........................... (90)
--------
Balance at end of period ............................ (899,097)
--------
Treasury stock:
Balance at beginning of period ......................... (7,963,203) (94,574)
Exchange offering ...................................... (3,479,656) (2,959)
Stock options and grants ............................... 327,608 3,766
---------- --------
Balance at end of period ............................ (11,115,251) (93,767)
---------- --------
Receivable from stockholders:
Balance at beginning of period ......................... (553)
Compensation expense related to stock options and grants 52
--------
Balance at end of period ............................ (501)
--------
Total stockholders' deficit ............................... $ (839,738)
==========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
2003 2002
-------- ---------
Cash flows from operating activities:
Loss before cumulative effect of accounting change for goodwill impairment ..................... $ (8,786) $(141,460)
-------- ---------
Adjustments to reconcile loss before cumulative effect of accounting change to net cash provided
by (used for) operating activities:
Depreciation and amortization ............................................................... 798 35,051
Deferred distributions on Trust Convertible Preferred Securities ............................ -- 11,486
Loss (gain) on investment in securities ..................................................... (81) 4,085
Gain on sale of fixed assets ................................................................ (1,634)
Amortization of deferred debt issuance costs and accretion of debt discount ................. 454 11,536
Gain on early extinguishment of debt ........................................................ -- (2,222)
Interest costs satisfied by payment-in-kind notes ........................................... -- 14,172
Write-down of idled property, plant and equipment ........................................... -- 18,279
Impairment charge on long-lived assets to be sold ........................................... -- 114,497
Gain on settlement of derivatives ........................................................... -- (917)
Compensation expense related to stock options and grants .................................... 36 1,455
Minority interest in losses of subsidiary ................................................... -- (3,035)
Equity in loss of affiliates ................................................................ 86 --
Change in assets and liabilities:
Accounts receivable, net .................................................................. 25,792 (12,219)
Inventories, net .......................................................................... 42,685 36,809
Other current and non-current assets ...................................................... 5,858 (14,567)
Accounts payable and accrued expenses ..................................................... (8,258) (33,414)
Deferred and current income taxes ......................................................... (7,334) (46,456)
Other, net ................................................................................ 77 (6,796)
-------- ---------
Cash flows provided by (used for) operating activities ............................................ 49,693 (13,716)
-------- ---------
Cash flows from investing activities:
Capital expenditures ........................................................................... (6,829) (7,536)
Proceeds from sale of investment ............................................................... 1,296 23,530
Proceeds from sale of assets ................................................................... 6,429 --
Superior Israel customer loans ................................................................. -- 6,156
Restricted cash ................................................................................ -- 3,835
Other .......................................................................................... -- 271
-------- ---------
Cash flows provided by investing activities ....................................................... 896 26,256
-------- ---------
Cash flows from financing activities:
Borrowings (repayments) under revolving credit facilities, net ................................. (55,598) 14,600
Short-term borrowings, net ..................................................................... -- 12,586
Repayments of long-term borrowings ............................................................. (2,160) (61,107)
Long-term borrowings ........................................................................... -- 1,475
Debt issuance and amendment costs .............................................................. (150) (3,939)
Issue of preferred stock, net .................................................................. 3,149 --
Purchase of treasury shares .................................................................... (5) (76)
Other, net ..................................................................................... (90) (1,011)
-------- ---------
Cash flows used for financing activities .......................................................... (54,854) (37,472)
Effect of exchange rate on cash ................................................................... -- 385
Net increase (decrease) in cash and cash equivalents .............................................. (4,265) (24,547)
Cash and cash equivalents at beginning of period .................................................. 8,139 52,534
-------- ---------
Cash and cash equivalents at end of period ........................................................ $ 3,874 $ 27,987
======== =========
Supplemental disclosures:
Cash paid for interest ......................................................................... $ 2,501 $ 67,320
Cash received for income taxes, net ............................................................ $ (1,385) $ (21,547)
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
1. GENERAL
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of The Alpine Group, Inc. and its consolidated subsidiaries
(collectively, unless the context otherwise requires, "Alpine" or the
"Company").
Prior to December 11, 2002, Alpine's operations include the
consolidated results of its then controlled subsidiary Superior TeleCom Inc.
("Superior") and Superior's then majority-owned subsidiary Superior Cables Ltd.
("Superior Israel"). As a result of the vesting of certain Superior restricted
stock arrangements in 2002, Alpine's common equity ownership in Superior
declined from 50.2% at December 31, 2001 to 48.9%. Notwithstanding the decline
in Alpine's direct equity ownership in Superior, through December 11, 2002
Alpine had a controlling interest in Superior based on its additional indirect
equity ownership position (including certain common share voting interests
controlled by Alpine). In connection with Alpine's acquisition of Superior's
electrical wire business and DNE Systems Inc. (the "Electrical
Acquisition")--(see Note 2), certain changes were made with respect to Alpine's
indirect voting interests such that Alpine no longer controlled Superior.
Additionally, Alpine acquired approximately 47% of Superior Israel from Superior
as part of the Electrical Acquisition. Accordingly, effective for periods after
December 11, 2002, Superior and Superior Israel are accounted for under the
equity method and are no longer consolidated with Alpine.
As a result of the net losses incurred by Superior in 2002, Alpine
recorded losses in excess of its investment in Superior of $865.9 million
through December 11, 2002. This negative investment is required under generally
accepted accounting principles to be reflected in Alpine's consolidated balance
sheet.
On March 3, 2003, Superior and its U.S. subsidiaries filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code. As
part of the Chapter 11 proceedings, Superior filed its original Joint Plan of
Reorganization on July 30, 2003. On August 28, 2003, Superior filed an amended
Joint Plan of Reorganization and disclosure statement (the "Amended Plan"). The
Amended Plan, was confirmed by order of the Bankruptcy Court on October 22, 2003
and was consummated on November 10, , 2003. The Amended Plan cancelled all
equity and debt interests held in Superior by, and otherwise provides for no
distribution to Alpine, thereby eliminating Alpine's entire investment in
Superior. Accordingly, during the fourth quarter of 2003 the historical negative
investment in Superior will be eliminated from Alpine's balance sheet resulting
in a gain of $865.9 million, less approximately $12 million of Deferred Other
Comprehensive Deficit related to Superior.
GOODWILL
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets" effective January 1,
2002. SFAS No. 142 required that the amortization of goodwill and certain other
intangible assets cease as of January 1, 2002 and that the related recorded
value of goodwill be allocated to the identified reporting units of the Company
and its consolidated subsidiaries (in this case, Superior) and be reviewed
annually for impairment.
The transitional rules for implementing SFAS No. 142 provided that an
initial assessment as to whether there was an implied impairment to the carrying
value of goodwill was to be completed within six months of adoption of SFAS No.
142, with the final determination of goodwill impairment completed by the end of
2002. SFAS No. 142 required any goodwill impairment resulting from initial
application to be reflected through a charge to income as a cumulative effect of
an accounting change, as of January 1, 2002.
7
1. GENERAL (CONTINUED)
Superior completed its determination of initial goodwill impairment in
August 2002 and recorded a non-cash goodwill impairment charge of $424 million
including $166 million related to Superior's Electrical segment and $258 million
related to Superior's original equipment manufacturers ("OEM") segment. The
goodwill impairment charge at Superior was recorded retroactively to January 1,
2002 as a cumulative effect of accounting change for goodwill impairment in
accordance with SFAS No. 142. Additionally, as a result of initial
implementation, Alpine recorded a further goodwill impairment charge of $3
million relating to additional goodwill associated with its investment in
Superior. The cumulative effect of the accounting change as presented in the
accompanying statement of operations for the nine months ended September 30,
2002 is summarized as follows (millions):
Superior's goodwill impairment loss.............................. $424
Additional goodwill impairment recorded by Alpine................ 3
Less: Impairment allocable to Superior's minority interest....... (39)
--------
$388
========
The remaining goodwill was written off as being impaired in the fourth
quarter of 2002 and there was no goodwill remaining as of September 30, 2003.
STOCK-BASED COMPENSATION PLANS
The Company applies the intrinsic-value based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations including FASB
Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25, issued in March 2000, to
account for its stock-based compensation plans. Under this method, compensation
expense is recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. SFAS No. 123, Accounting for
Stock-Based Compensation, established accounting and disclosure requirements
using a fair-value based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123, the Company has elected to
continue to apply the intrinsic-value based method of accounting described
above, and has adopted only the disclosure requirements of SFAS No. 123 and 148
Accounting for Stock-Based Compensation - Transition and Disclosure an amendment
of FASB statement No. 123. The following table illustrates the effect on net
loss if the fair value based method had been applied to all outstanding and
unvested awards in each period (in thousands, except per share amounts).
THREE MONTHS ENDED
SEPTEMBER 30,
2003 2002
------- --------
Net loss, as reported ........................................................ $(2,698) (95,369)
Add /(deduct) stock-based employee compensation (income) / expense included in
reported net loss, net of tax ............................................. (253) 462
(Deduct) / add total stock-based employee compensation income / (expense)
determined under fair value based method for all awards, net of related tax
effects ................................................................... 172 (762)
------- --------
Pro forma net loss ........................................................... $(2,779) $(95,669)
======= ========
Net loss per share:
Basic and diluted--as reported ............................................ $ (0.21) $ (6.41)
Basic and diluted--pro forma .............................................. $ (0.21) $ (6.43)
8
1. GENERAL (CONTINUED)
NINE MONTHS ENDED
SEPTEMBER 30,
2003 2002
------- ---------
Net loss, as reported ...................................................... $(8,786) $(529,546)
Add / (deduct) stock-based employee compensation (income) / expense included
in reported net loss, net of tax ........................................ (10) 1,399
Deduct total stock-based employee compensation expense determined under fair
value based method for all awards, net of related tax effects ........... 155 (2,368)
------- ---------
Pro forma net loss ......................................................... $(8,951) $(530,515)
======= =========
Net loss per share:
Basic and diluted--as reported .......................................... $ (0.61) $ (35.72)
Basic and diluted--pro forma ............................................ $ (0.62) $ (35.78)
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 the nine months ended September
30, 2003 and 2002, respectively: dividend yield of 0% for each period; expected
volatility of 99% for each period, risk-free interest rate of 1.8% and 2.8% and
expected life of four years and five years. The weighted average per share fair
value of options granted (using the Black-Scholes option-pricing model) for the
nine months ended September 30, 2003 and 2002 was $0.52 and $0.99, respectively.
During the nine months ended September 30, 2003, approximately 1.4
million stock options and 0.4 million shares of restricted stock were granted to
directors and certain employees and approximately 2.4 million stock options were
cancelled or forfeited. As of September 30, 2003 there were 1.9 million stock
options outstanding.
Included in treasury stock shares at September 30, 2003 and December
31, 2002 are 1,069,110 and 805,783 shares of stock, respectively, issued upon
the exercise of stock options or in connection with deferred stock awards and
held in irrevocable grantor trusts in connection with a deferred stock account
plan sponsored by the Company.
NEW ACCOUNTING STANDARDS
The Company adopted SFAS No. 143, "Accounting for Asset Retirement
Obligations" effective January 1, 2003. SFAS No. 143 requires entities to record
the fair value of a liability for an asset retirement obligation in the period
in which it is incurred. When the liability is initially recorded, the entity
capitalizes the cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period and
the capitalized cost is depreciated over the useful life of the related asset.
Upon settlement of the liability, the entity either settles the obligation for
the amount recorded or incurs a gain or loss. The adoption of SFAS No. 143 did
not have a material impact on the results of operations or financial position of
the Company.
The Company adopted SFAS No. 145, Rescission of FASB Statements No. 4,
44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections
effective January 1, 2003. SFAS No. 145 amends existing guidance to eliminate
the requirement that gains and losses on early extinguishment of debt must be
classified as extraordinary items and permits such classification only if the
debt extinguishment meets the criteria for classification as an extraordinary
item under APB Opinion No. 30, Reporting the Results of Operations--Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions. SFAS No. 145 also amends
SFAS No. 13 to require sale-leaseback accounting for certain lease modifications
that have economic effects similar to sale-leaseback transactions. As a result
of the adoption of SFAS No. 145, the Company reclassified to other income
(expense) a $2.2 million gain on the early extinguishment of debt previously
recognized as an extraordinary item in the Company's consolidated statement of
operations for the nine months ended September 30, 2002.
9
1. GENERAL (CONTINUED)
The Company adopted SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities effective January 1, 2003. SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity. The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002. The restructuring costs
incurred during the three and nine months ended September 30, 2003 have been
accounted for in accordance with SFAS No. 146.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS
No. 150 established standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity, and
imposes certain additional disclosure requirements. The provisions of SFAS No.
150 are generally effective for all financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. SFAS No. 150 did not have a
significant effect on the consolidated financial statements of the Company.
The Company adopted FASB Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107
and a rescission of FASB Interpretation No. 34 effective January 1, 2003. This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002. Implementation of Interpretation No. 45 did not have a material effect
on the Company's financial statements. The Company historically has been a party
to a guaranty of Superior's obligations under a capital lease with respect to
one of Superior's manufacturing facilities. The lease currently provides for
monthly payments of $56,000 subject to tri-annual adjustments for changes in the
consumer price index. The initial lease term expires in 2018. The Company
believes the facility and underlying lease are valuable assets of Superior and
it is anticipated that incident to its reorganization Superior will assume the
lease and perform as tenant thereunder.
In January 2003, the FASB issued FIN No. 46 Consolidation of Variable
Interest Entities FIN 46 requires that companies that control another entity
through interests other than voting interests should consolidate the controlled
entity. FIN 46 is effective for variable interest entities created after January
31, 2003 and to any variable interest entities in which the Company obtains an
interest after that date. FIN 46 is effective for the first interim or annual
periods ending after December 15, 2003 for variable interest entities in which
the Company held a variable interest that is acquired before February 1, 2003.
This pronouncement has no impact on the Company's financial statements with
respect to variable interest entities created after February 1, 2003. The
company has not completed its evaluation of the impact, if any, that might
result from variable entities created prior to February 1, 2003.
DERIVATIVES
The cost of copper, the Company's most significant raw material, has
been subject to significant volatility over the past several years. In
anticipation of a significant reduction in inventory levels in 2003, the Company
entered into copper futures sales contracts to minimize the price risk
associated with declining copper costs. At September 30, 2003, future sales
contracts for 8.5 million pounds of copper, or $6.7 million were outstanding,
with a mark-to-market loss of $0.2 million, which has been recorded to earnings.
These future contracts were liquidated in October 2003 since inventory levels
at year-end are not projected to decline below the September 30, 2003 levels.
2. ELECTRICAL ACQUISITION
On December 11, 2002, Alpine, through Alpine Holdco Inc. ("Alpine
Holdco"), a wholly-owned subsidiary of Alpine, acquired the following assets and
securities from Superior and its subsidiaries: (1) substantially all of the
assets, subject to related accounts payable and accrued liabilities, of
Superior's electrical wire business, which is currently owned and operated by
Essex Electric Inc. ("Essex Electric"), a wholly-owned subsidiary of Alpine
Holdco; (2) all of the outstanding shares of capital stock of DNE Systems, Inc.
("DNE"), a manufacturer of multiplexers and other communications and electronic
products; and (3) all of the outstanding shares of capital stock of Texas SUT
Inc. and Superior Cable Holdings (1997) Ltd., which together owned approximately
47% of Superior Israel, the largest Israeli-based producer of wire and cable
products. This acquisition is referred to as the "Electrical Acquisition." The
aggregate purchase price was approximately $87.4 million in cash (including $2.5
million of out-of-pocket costs) plus the issuance of a warrant to Superior to
purchase 19.9% of the common stock of Essex Electric (the "Warrant"). The
warrant is only exercisable during the 30 day period prior to its expiration on
December 11, 2007 or upon the earlier occurrence of certain specified
transactions. The total exercise price is $0.6 million. The warrant was valued
at $1 million based upon a Black-Scholes option pricing model. The portion of
the Electrical
10
2. ELECTRICAL ACQUISITION (Continued)
Acquisition attributable to the non-controlling interest in Superior was
accounted for as a purchase and Alpine's consolidated financial statements for
periods subsequent to the acquisition date reflect the pro rata allocation of
the purchase price. Assets acquired and liabilities assumed with respect to
Alpine's 48.9% interest in Superior were recorded at their historical cost
basis.
On September 30, 2003, Alpine Holdco purchased 681 additional shares of
Essex Electric. In October 2003, Superior Telecom Inc. exercised their rights
under the Warrant and related securityholders agreement and purchased 169 shares
of Essex Electric for $0.5 million.
In connection with the Electrical Acquisition, Alpine Holdco, Essex
Electric and Superior entered into a Supply and Transitional Services Agreement
(the "Supply Agreement"). Under the Supply Agreement, Essex Electric, among
other things, agreed to purchase from Superior certain specified quantities of
its overall requirements of copper rod. The purchase price for copper rod
specified in the Supply Agreement is based on the COMEX price plus an adder to
reflect conversion to copper rod. The costs of freight are paid by Essex
Electric. The Supply Agreement also states that Superior will provide certain
administrative services to Essex Electric, including accounting, legal, risk
management, personnel, data processing, and employee relations services. Charges
for these services are generally based on actual usage or an allocated portion
of the total cost to Superior. The total cost of copper rod purchased under the
Supply Agreement was $24.1 million and $83.6 million and the cost for
administrative services was $1.0 million and $3.6 million, respectively, for the
three and nine months ended September 30, 2003. On November 7, 2003, the Supply
Agreement was replaced by a new agreement among the parties (the "New Supply
Agreement") which provides for the supply by Superior of copper rod for 2004 and
data processing services and certain other administrative services until fully
transitioned to Alpine Holdco. The New Supply Agreement expires on December 31,
2004 but may be terminated at any time prior to that by mutual consent of Alpine
and Superior. Additionally, the parties may terminate various services provided
for under the New Supply Agreement upon certain prior notice as provided
therein. Superior may terminate its obligations to supply copper rod upon 30
days notice given to Essex Electric any time after January 1, 2004 if Essex
Electric has purchased less than certain minimum quantities of copper rod for a
quarter as specified in the New Supply Agreement.
In anticipation of the Electrical Acquisition, Superior evaluated for
impairment the long-lived assets of its Electrical wire business, DNE and
Superior Israel as of September 30, 2002 pursuant to SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets". In accordance with SFAS
No. 144, such impairment test was based on probability weighted estimated future
cash flows related to such assets including assessment of cash proceeds
associated with the proposed sale to Alpine of the Electrical wire business, DNE
and Superior's investment in Superior Israel. As a result of such review,
Superior determined that identified long-lived assets of the Electrical wire
business and Superior Israel were impaired and accordingly, Superior reflected a
pre-tax charge, principally related to the Electrical wire business, of $114.5
million during the three months ended September 30, 2002. Superior's impairment
charge was fully recognized (without allocating any of the loss proportionately
to minority interest) in Alpine's consolidated income statement and balance
sheet for the quarter ended September 30, 2002.
3. ASSET SALES
In February 2003, the Company sold its plant in Lafayette, Indiana
together with the related equipment and inventory which comprised substantially
all of its industrial wire business. The total purchase price was approximately
$12.6 million in cash which approximated the book value of the assets sold.
Additionally, in connection with this sale, the Company is leasing its Orleans,
Indiana plant to the purchaser for an annual rental of $350,000. The lease
expires in February 2004, after which time the Orleans facility will be held for
sale by the Company.
In September 2003, the Company sold its plant in Anaheim, California
subject to a leaseback arrangement which, at the company's option may extend
through December 31, 2004. The total gain on the sale was $2.6 million, $1.7
million of which was recognized in the third quarter and $0.9 million was
deferred and will be amortized over the leaseback period.
11
4. INVENTORIES
At September 30, 2003 and December 31, 2002, the components of
inventories were as follows:
SEPTEMBER 30, DECEMBER 31,
2003 2002
-------- -------
(IN THOUSANDS)
Raw materials ........................ $ 5,218 $ 4,933
Work in process ...................... 7,489 10,167
Finished goods ....................... 28,848 66,098
-------- -------
41,555 81,198
LIFO reserve ......................... (3,042) --
-------- -------
$ 38,513 $81,198
======== =======
Inventories valued using the LIFO method amounted to $32.7million and
$74.1 million at September 30, 2003 and December 31, 2002, respectively.
5. COMPREHENSIVE LOSS
The components of comprehensive loss for the three and nine months
ended September 30, 2003 and 2002 were as follows:
THREE MONTHS ENDED
SEPTEMBER 30,
2003 2002
--------- ---------
(IN THOUSANDS)
Net loss .............................................. $ (2,698) $ (95,369)
--------- ---------
Foreign currency translation adjustment ............... -- (2,258)
Change in unrealized gains (losses) on derivatives, net -- (2,852)
Realized losses on securities, net of tax ............. -- 953
Change in unrealized losses on securities, net of tax . -- (953)
--------- ---------
Comprehensive loss .................................... $ (2,698) $(100,479)
========= =========
NINE MONTHS ENDED
SEPTEMBER 30,
2003 2002
--------- ---------
(IN THOUSANDS)
Net loss .............................................. $ (8,786) $(529,546)
--------- ---------
Foreign currency translation adjustment ............... (8) (222)
Change in unrealized gains (losses) on derivatives, net -- (2,722)
Realized losses on securities, net of tax ............. -- 4,277
Change in unrealized losses on securities, net of tax . (19) (4,277)
--------- ---------
Comprehensive loss .................................... $ (8,813) $(532,490)
========= =========
The components of accumulated other comprehensive deficit at September
30, 2003 and December 31, 2002 were as follows:
12
5. COMPREHENSIVE LOSS (CONTINUED)
SEPTEMBER 30, DECEMBER 31,
2003 2002
-------- --------
(IN THOUSANDS)
Foreign currency translation adjustment ........ $ (4,030) $ (4,022)
-------- --------
Additional minimum pension liability ........... (7,594) (7,594)
Other .......................................... -- 19
-------- --------
$(11,624) $(11,597)
======== ========
6. RESTRUCTURING AND OTHER CHARGES
During the three and nine month periods ended September 30, 2003 the
company recorded $3.3 and $8.3 million, respectively of restructuring and other
charges. Charges for the three months ended September 30, 2003 included $1.3
million related to relocation and installation of certain equipment from closed
facilities into the Florence, AL manufacturing location. Also incurred during
the third quarter 2003 were costs associated with winding-down the Sikeston, MO
operation, starting up new manufacturing processes at Florence and freight to
relocate displaced products totaling $1.5 million. The remaining $0.5 million
was for costs related to wind-down of other facilities previously closed and
other miscellaneous expenses related to the Company's restructuring.
The nine month charges include the aforementioned charges in the third quarter,
as well as approximately $0.7 and $0.3 million of employee severance costs and
facility exist costs, respectively, related to the sale of the assets comprising
the Company's industrial wire business (see Note 3). Other major charges for the
year include $0.9 million related to the closure of the Company's St. Joseph, MO
regional distribution center, including the buyout of the lease obligation and
employee severance. The remainder of the year-to-date charges consist primarily
of employee severance costs related to discontinued operations at Columbia City,
IN, and Sikeston, MO and the reduction of Essex Electric administrative staff.
The following table illustrates the restructuring reserve and the 2003
related activities:
DECEMBER 31, SEPTEMBER 30,
2002 CHARGES PAYMENTS 2003
------- ------- ------- -------
(IN THOUSANDS)
Employee severance ......................... $ 1,227 $ 2,464 $(3,249) $ 442
Facility exit costs ........................ 200 3,386 (3,406) 180
Equipment and inventory relocation costs and
other costs ............................. -0- 2,474 (2,474) -0-
------- ------- ------- -------
$ 1,427 $ 8,324 $(9,129) $ 622
======= ======= ======= =======
During the nine months ended September 30, 2002, Superior recorded
restructuring and other charges of $32.8 million related to (i) the closure of
its Communications Group Elizabethtown, Kentucky and Winnipeg, Canada
manufacturing facilities; (ii) the closure of its OEM Group Rockford, Illinois
manufacturing facility; (iii) the shutdown of its Electrical Group Canadian
operations and (iv) operational restructuring activities at Superior Israel.
These actions were taken to more closely align productive capacity with market
demand levels and to reduce overall manufacturing costs. The $32.8 million
charge included an $18.3 million write-down of idled property, plant and
equipment, $9.0 million of employee separation costs and $5.5 million of other
facility related closure costs. Additionally, during the nine months ended
September 30, 2002, Alpine recorded restructuring and other charges of $1.4
million related to certain termination and retirement benefits paid in
connection with Alpine's corporate administrative staffing reductions.
13
7. DEBT
Long-term debt at September 30, 2003 and December 31, 2002 is
summarized as follows:
SEPTEMBER 30, DECEMBER 31,
2003 2002
------- -------
(IN THOUSANDS)
Revolving credit facility ............................. $13,373 $68,971
6% junior subordinated notes, net of discount of $1,339 3,006 --
Other ................................................. 943 3,066
------- -------
17,322 72,037
Less current installments ............................. 100 2,151
------- -------
$17,222 $69,886
======= =======
In connection with the Electrical Acquisition (see Note 2), Alpine
Holdco entered into a Loan and Security Agreement (the "Loan Agreement"), dated
as of December 11, 2002, by and among Alpine Holdco, Essex Electric, DNE and its
wholly-owned subsidiaries, DNE Manufacturing and Service Company and DNE
Technologies, Inc. (collectively the "Companies"), certain financial
institutions party thereto as lenders, Congress Financial Corporation, as
documentation agent, and Foothill Capital Corporation, as arranger and
administrative agent. Following consummation of the acquisition, the borrowers
under the Loan Agreement are Essex Electric, DNE Manufacturing and Services
Company and DNE Technologies, Inc.
The terms of the Loan Agreement provide for a maximum committed amount
of $100 million, with borrowing availability determined by reference to a
borrowing base. Interest is payable monthly in cash in arrears and is based on,
at Alpine Holdco's option, LIBOR or prime rates plus a variable margin that is
subject to periodic adjustment based on utilization and on a ratio relating to
leverage amounts. The weighted average interest rate at September 30, 2003 and
December 31, 2002 was 4.35% and 5.02%, respectively. The Loan Agreement also
provides for maintenance of financial covenants and ratios relating to minimum
EBITDA and tangible net worth and restrictions on capital expenditures, payment
of cash dividends and incurrence of indebtedness. Outstanding obligations under
the Loan Agreement are guaranteed by DNE and are secured by a lien on all of the
Companies' tangible and intangible assets, other than the investment in Superior
Israel and certain equipment used by DNE in connection with its U.S. government
contracts. The obligations under the Loan Agreement are without recourse to
Alpine. The Loan Agreement matures in five years and the Companies may terminate
the Loan Agreement at any time upon 45 days' prior written notice and payment of
all outstanding borrowings, together with unpaid interest, and a termination fee
equal to 0.75% of the maximum committed amount. At any time after the second
anniversary of the closing of the Loan Agreement the Companies may, upon 30
days' prior written notice, permanently reduce the maximum commitments without
penalty or premium. At September 30, 2003, outstanding borrowings under the Loan
Agreement were $13.4 million and the Companies had $25.1million of borrowing
availability.
Alpine Holdco has implemented restructuring actions to rationalize
manufacturing capacity, lower costs and reduce working capital. These actions
are expected to result in restructuring costs of approximately $12 million
during 2003. These restructuring activities are anticipated to have a negative
impact on operating income and, as a result, the Company amended the Loan
Agreement in May 2003 to reflect the planned restructuring activities. The
amended Loan Agreement permits necessary expenditures and modifies certain
financial covenants to accommodate the impact of these restructuring actions.
Based on the terms of the amended Loan Agreement, the Company believes it will
comply with all financial covenants. The financial convenants expire at December
31, 2003. The Company and the lender, in the second amendment to the Loan
Agreement, have agreed to negotiate new covenants for 2004 that reflect the
current reduced borrowing levels and forecasted operations of the Company.
14
7. DEBT (CONTINUED)
On August 4, 2003, the Company completed an exchange offer whereby
holders of its common stock exchanged 3,479,656 shares for $4.3 million
principal amount of 6% Junior Subordinated Notes (the "Subordinated Notes")
issued by the Company plus a nominal amount of cash in lieu of fractional notes.
The Subordinated Notes were initially recorded at an amount equal to the fair
value of the common stock exchanged resulting in an initial discount of $1.4
million. The discount is being accreted over the term of the Subordinated Notes
using a level interest method. The Subordinated Notes accrue interest at 6% per
annum payable in cash semiannually each December 31 and June 30. The
Subordinated Notes are the Company's general unsecured obligations subordinated
and subject in right of payment to all of the Company's existing and future
senior indebtedness, which excludes trade payables incurred in the ordinary
course of business. The Company will be required to repay 1/8 of the outstanding
principal amount of the Subordinated Notes commencing on June 30, 2007 and
semiannually thereafter, so that all of the Subordinated Notes will be repaid by
December 31, 2010. The Subordinated Notes are redeemable, at the Company's
option, in whole at any time or in part from time to time, at the principal
amount to be redeemed plus accrued and unpaid interest thereon to the redemption
date, together with a premium if the Subordinated Notes are redeemed prior to
2007. In addition, the Company must offer to redeem all of the Subordinated
Notes at the redemption price then in effect in the event of a change of
control. The Subordinated Notes were issued under an indenture which does not
subject the Company to any financial covenants.
8. SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
On June 23, 2003 the Company completed a private placement of 8,287
shares of a new issue of Series A Cumulative Convertible Preferred Stock (the
"Series A Preferred Stock") to its directors and certain officers for a purchase
price of $380 per share, or an aggregate of approximately $3.1 million. Holders
of the Series A Preferred Stock are entitled to receive, when, as and if
declared by the board of directors out of funds legally available for payment,
cash dividends at an annual rate of $30.40 per share. Each share of Series A
Preferred Stock is convertible at the option of the holder into 691 shares of
Alpine common stock from and after November 11, 2003; provided that the
purchasing officers and directors have agreed not to convert until such time as
they are advised by the Company that it has a sufficient number of authorized
but unissued shares of common stock of the Company to permit such conversion..
The Company may cause conversion of the Series A Preferred Stock into common
stock after the earlier of (i) consummation of the rights offering discussed
below, and (ii) March 31, 2004, if the Company's common stock is then listed on
the New York Stock Exchange or the American Stock Exchange or is traded on the
Nasdaq National Market System and the average closing price of a share of the
Company's common stock for any 20 consecutive trading days equals or exceeds
300% of the conversion price then in effect. The Series A Preferred Stock is
subject to mandatory redemption by the Company ratably on the last day of each
quarter during the three-year period commencing on December 31, 2009 at the
liquidation value of $380 per share, plus accrued and unpaid dividends.
Additionally, if the Company experiences a change in control it will, subject to
certain limitations, offer to redeem the Series A Preferred Stock at a cash
price of $380 per share plus (i) accrued and unpaid dividends and (ii) if the
change of control occurs prior to December 31, 2007, all dividends that would be
payable from the redemption date through December 31, 2007.
Holders of the Series A Preferred Stock are entitled to vote their
shares on an as-converted basis together with the Company's common stockholders.
In addition, the Company may not (a) enter into a merger, sale of all or
substantially all of its assets or similar transaction without the approval of
holders of at least a majority of the shares of Series A Preferred Stock, or (b)
alter or change the powers, preferences or special rights (including, without
limitation, those relating to dividends, redemption, conversion, liquidation
preference or voting) of the shares of Series A Preferred Stock so as to affect
them materially and adversely, or issue any senior stock, without the approval
of holders of at least a majority of the shares of Series A Preferred Stock. In
the event of any liquidation, dissolution or winding up of Alpine, after the
payment of the liquidation preference in respect of any senior stock, holders of
the Series A Preferred Stock will be entitled to receive the liquidation price
of $380 per share plus an amount equal to (a) if the liquidation, dissolution or
winding up occurs prior to December 31, 2007, all dividends that would be
payable on a share of Series A Preferred Stock from the date of liquidation,
dissolution or winding up through December 31, 2007 and (b) any accrued and
unpaid dividends to the payment date, before any payment is made to the holders
of common stock or any other junior securities, subject to certain exceptions.
On November 10, 2003, the Company completed the sale of 9,977 shares of
Series A Preferred Stock pursuant to a rights offering to holders of the
Company's common stock. Holders of the Company's common stock were offered a
right to purchase one share of Series A Preferred Stock at a price of $380 per
share for each 500 shares of common stock held on September 29, 2003. The terms
of the Series A Preferred Stock are the same as that purchased by the officers
and directors in the private placement discussed in the preceding paragraph
except that the purchased shares of Series A Preferred stock are currently
convertible. Total proceeds received from the sale were $3.8 million.
15
9. LOSS PER SHARE
The computation of basic and diluted loss per share for the three and
nine months ended September 30, 2003 and 2002 is as follows:
THREE MONTHS ENDED SEPTEMBER 30,
2003 2002
---- ----
PER SHARE PER SHARE
NET LOSS SHARES AMOUNT NET LOSS SHARES AMOUNT
Net loss ..................................... $(2,698) $(95,369)
Less: preferred stock dividends .............. (71) (9)
------- --------
Basic and diluted loss per common share before
cumulative effect of accounting change .... $(2,769) 13,023 $ (0.21) $(95,378) 14,882 $ (6.41)
======= ======== ======== ======== ======== ========
NINE MONTHS ENDED SEPTEMBER 30,
2003 2002
---- ----
PER SHARE PER SHARE
NET LOSS SHARES AMOUNT NET LOSS SHARES AMOUNT
Net loss .................................. $(8,786) $(529,546)
Less: preferred stock dividends ........... (90) (28)
------- ---------
Basic and diluted net loss per common share $(8,876) 14,354 $ (0.61) $(529,574) 14,827 $ (35.72)
======= ======== ======== ========= ====== =========
The Company has excluded the assumed conversion of Superior's Trust
Convertible Preferred Securities and the Series A Preferred Stock from the
diluted earnings per share calculation as the impact would be anti-dilutive.
Stock options and unvested stock awards with respect to 2.9 million and 4.0
million shares of common stock outstanding at September 30, 2003 and 2002,
respectively, and the warrant issued in connection with the Electrical
Acquisition have not been included in the computation of diluted earnings per
share because to do so would be anti-dilutive for all periods presented.
10. BUSINESS SEGMENTS
The Company's reportable segments have historically included the
communications, OEM and electrical businesses of Superior. The communications
segment included (i) outside plant wire and cable for voice and data
transmission in telecommunications networks (ii) copper and fiber optic datacom
or premise wire and cable for use within homes and offices for local networks,
Internet connectivity and other applications, and (iii) prior to December 11,
2002 all of Superior Israel's and DNE's products. The OEM segment included
magnet wire and related products. The electrical segment includes primarily
building wire products. As a result of the Electrical Acquisition and the
deconsolidation of Superior effective December 11, 2002, the Company's
reportable segments consist of the electrical segment and DNE. Accordingly, the
segment information for the three and nine months ended September 30, 2002
presented below has been restated to separately present segment information for
DNE.
16
10. BUSINESS SEGMENTS (CONTINUED)
The Company evaluates segment performance based on a number of factors,
with operating income, excluding restructuring and impairment charges, being the
most critical. Intersegment sales are generally recorded at cost, are not
significant and, therefore, have been eliminated below.
Operating results for each of the Company's reportable segments are
presented below. Corporate and other items shown below are provided to reconcile
to the Company's consolidated statements of operations and balance sheets.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2003 2002
---------- ---------- ---------- ----------
(IN THOUSANDS)
Net sales: (a)
Electrical (a) $ 69,485 $ 116,048 $ 238,993 $ 360,910
DNE .......... 6,719 7,989 22,016 29,808
Communications -- 121,979 -- 363,785
OEM .......... -- 122,170 -- 382,258
---------- ---------- ---------- ----------
$ 76,204 $ 368,186 $ 261,009 $1,136,761
========== ========== ========== ==========
(a) Electrical had one customer that made up 19% of the Electrical
sales and 18% of Total net sales for the three month period
ended September 30, 2003. That same customer comprised 15% and
14% of Electrical and Total net sales, respectively, for the
nine month period ended September 30, 2003.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2003 2002
--------- --------- --------- ---------
(IN THOUSANDS)
Operating income (loss):
Electrical .................... $ (2,813) $ (997) $ (7,980) $ (6,976)
DNE ........................... 1,250 1,028 4,277 3,992
Communications ................ -- 6,020 -- 18,500
OEM ........................... -- 9,296 -- 31,703
Corporate and other ........... 41 (8,082) (1,123) (20,671)
Restructuring and other charges (3,348) (1,077) (8,324) (34,156)
Impairment charges ............ -- (114,497) -- (114,497)
--------- --------- --------- ---------
$ (4,870) $(108,309) $ (13,150) $(122,105)
========= ========= ========= =========
SEPTEMBER 30, DECEMBER 31,
2003 2002
-------- --------
(IN THOUSANDS)
Total assets:
Electrical ............................ $ 88,127 $158,793
DNE ................................... 9,429 12,326
Corporate and other ................... 7,572 12,002
-------- --------
$105,128 $183,121
======== ========
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
On December 11, 2002, Alpine, through its wholly-owned subsidiary,
Alpine Holdco Inc. ("Alpine Holdco"), acquired the following assets and
securities from Superior TeleCom Inc. ("Superior") and its subsidiaries: (1)
substantially all of the assets, subject to related accounts payable and accrued
liabilities, comprising Superior's electrical wire business; (2) all of the
outstanding shares of capital stock of DNE Systems, Inc. ("DNE"), a manufacturer
of multiplexers and other communications and electronic products; and (3) all of
the outstanding shares of capital stock of Texas SUT Inc. and Superior Cable
Holdings (1997) Ltd., which together owned approximately 47% of Superior Cables
Ltd. ("Superior Israel"), the largest Israeli-based producer of wire and cable
products. The acquisition is hereinafter referred to as the "Electrical
Acquisition."
Prior to December 11, 2002, Alpine's operations include the
consolidated results of its then controlled subsidiary Superior and Superior's
then majority-owned subsidiary Superior Israel. As a result of the vesting of
certain Superior restricted stock grants in 2002, Alpine's common equity
ownership in Superior declined from 50.2% at December 31, 2001 to 48.9%.
Notwithstanding the decline in Alpine's direct equity ownership in Superior,
Alpine had a controlling interest in Superior based on its additional indirect
equity ownership position (including certain common share voting interests
controlled by Alpine). In connection with the Electrical Acquisition, certain
changes were made with respect to Alpine's indirect voting interests such that
Alpine no longer controlled Superior. Accordingly, effective for periods after
December 11, 2002, Superior Israel, in which Alpine, as a result of the
Electrical Acquisition, now has a 47% indirect equity interest, and Superior are
accounted for under the equity method and are no longer consolidated with
Alpine.
Alpine's consolidated net income (loss) has historically reflected its
share of Superior's net income (loss), after giving effect to the impact of
minority interest. However, in the case of net losses incurred by a consolidated
subsidiary, the amount of such losses allocable to minority interest in the
consolidated statement of operations is limited under generally accepted
accounting principles to the carrying value of minority interest in the
consolidated balance sheet. As a result of the loss incurred by Superior upon
adoption of SFAS 142, effective January 1, 2002 the minority interest was
completely eliminated and therefore Alpine's consolidated statement of
operations reflects 100% of the net losses incurred by Superior after January 1,
2002 and through December 11, 2002. Due to Superior's net losses in 2002, Alpine
had a negative investment in Superior of $865.9 million when Superior was
deconsolidated. This negative investment is required under generally accepted
accounting principles to be reflected in Alpine's consolidated balance sheet.
On March 3, 2003, Superior and its U.S. subsidiaries filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code. As
part of the Chapter 11 proceedings, Superior filed its original Joint Plan of
Reorganization on July 30, 2003. On August 28, 2003, Superior filed an amended
Joint Plan of Reorganization and disclosure statement (the "Amended Plan"). The
Amended Plan was confirmed by order of the Bankruptcy Court on October 22, 2003
and was consummated on November 10, 2003. The Amended Plan cancelled all equity
and debt interests held in Superior by, and otherwise provides for no
distribution to, Alpine thereby eliminating Alpine's entire investment in
Superior. Accordingly, during the fourth quarter of 2003 the historical negative
investment in Superior will be eliminated from Alpine's balance sheet resulting
in a gain of $865.9 million, less approximately $12 million of Deferred Other
Comprehensive Deficit, related to Superior.
Following the Electrical Acquisition, the Company's principal
operations consist of the electrical wire business previously constituting
Superior's Electrical Group, the operations of DNE, and the Company's equity
method investments in Superior (through November 10, 2003) and Superior Israel.
The Company's operations for 2002 include the consolidated operations of
Superior through December 11, 2002 and the continuing operations of the
businesses acquired in the Electrical Acquisition for periods subsequent to
December 11, 2002. As a result of the deconsolidation of Superior effective
December 11, 2002, the Company's consolidated operations no longer include the
results of Superior's Communications Group (other than DNE) and OEM Group
segments. Segment financial data (including sales and operating income by
segment) for the three and nine month periods ended September 30, 2003 and 2002
is included in Note 10 to the accompanying consolidated financial statements.
IMPACT OF COPPER PRICE FLUCTUATIONS ON OPERATING RESULTS
Copper is one of the principal raw materials used by the Company.
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 the Company, in most cases, has the ability to adjust prices
billed for its products to properly match the copper cost component of its
inventory shipped.
18
RESULTS OF OPERATIONS--THREE MONTH PERIOD ENDED SEPTEMBER 30, 2003 AS COMPARED
TO THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2002
Consolidated sales for the quarter ended September 30, 2003 were $76.2
million, a decrease of 79% as compared to sales of $368.2 million for the
quarter ended September 30, 2002. The decrease is due primarily to the effects
of the deconsolidation of Superior. Revenues for Superior's Communications Group
and OEM Group for the three months ended September 30, 2002 were $122.0 million
and $122.2 million, respectively. Excluding the Communications Group and OEM
Group, sales decreased $47.8 million or 39% due primarily to Essex Electric's
strategic decision to lower sales volume through its restructuring activities in
response to market softness and resultant competitive pressures.
Essex Electric sales were $69.5 million for the September 30, 2003
quarter representing a decrease of $46.5 million or 40% (45% on a copper price
adjusted basis) as compared to the quarter ended September 30, 2002. The
comparative sales decline was due principally to (i) the Company's decision to
reduce volume in response to continuing weak industry-wide pricing conditions
caused by severe competitive pressures in the building wire market, (ii) reduced
demand in the non-residential building wire market segment, and (iii) the
February 2003 sale of the automotive and industrial wire business. Automotive
and industrial wire product sales accounted for approximately $8.3million of the
Essex Electric's sales for the three months ended September 30, 2002.
DNE sales were $6.7 million for the three months ended September 30,
2003, a decrease of 16% as compared to sales of $8.0 million for the comparable
prior year period. The sales decrease during this period was primarily due to a
decline in contract manufacturing sales of $2.1 million as a result of DNE's
decision to exit this market.
Gross profit for the September 30, 2003 quarter was $7.4 million, a
decline of $38.4 million as compared to gross profit for the quarter ended
September 30, 2002 due to the deconsolidation of Superior. The gross profit
margin in the September 30, 2003 quarter was 9.8% which, after excluding the
Communications Group and OEM Group, compares to a gross profit margin of 9.4%
for the three months ended September 30, 2002. The increased margin percentage
was due primarily to slightly improved pricing in the third quarter of 2003
compared with the same period in 2002. The DNE margin percentage improved
slightly due to changes in product mix.
Selling, general and administrative expense ("SG&A expense") for the
three month period ended September 30, 2003 was $9.0 million, a decrease of 77%,
as compared to SG&A expense of $38.6 million for the three months ended
September 30, 2002. The comparative decrease for the three month period ended
September 30, 2003 was due primarily to the effects of the deconsolidation of
Superior as well as decreases at Essex Electric resulting from implementation of
its restructuring plan.
Restructuring and other charges of $3.3 million for the three months
ended September 30, 2003 included $1.3 million related to relocation and
installation of certain equipment from closed facilities into the Florence
manufacturing location. Also incurred during the third quarter 2003 were costs
associated with winding-down the Sikeston operation, starting up new
manufacturing processes at Florence and freight to relocate displaced products
totaling $1.5 million. The remaining $0.5 million was for costs related to the
winding-down of other facilities previously closed and other miscellaneous
expenses related to the Company's restructuring.
The Company incurred restructuring and other charges of $1.1 million
for the three month period ended September 30, 2002 related to (i) the closure
of Superior's Communications Group manufacturing facilities in Elizabethtown,
Kentucky and Winnepeg, Canada, (ii) the closure of Superior's OEM Group
Rockford, Illinois manufacturing facility, (iii) the shutdown of the Electrical
Group Canadian operations, and (iv) operational restructuring activities at
Superior Israel.
In anticipation of the Electrical Acquisition, Superior TeleCom
evaluated for impairment the long-lived assets of its Electrical wire business,
DNE and Superior Israel as of September 30, 2002 pursuant to SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". In accordance
with SFAS No. 144, such impairment test was based on probability weighted
estimated future cash flows related to such assets including assessment of cash
proceeds associated with the proposed sale to Alpine of the Electrical Group,
DNE and Superior's investment in Superior Israel. As a result of such review,
Superior TeleCom determined that identified long-lived assets of the Electrical
Group and Superior Israel were impaired and accordingly, reflected a pre-tax
charge, principally related to the Electrical Group, of $114.5 million in the
nine months ended September 30, 2002.
19
The Company incurred an operating loss of $4.9 million for the
September 30, 2003 three month period compared to an operating loss of $108.3
million for the 2002 quarter. The operating loss in 2002 included restructuring
and other charges and asset impairment charges $115.6 million, as compared to
$3.3 million of such charges for the September 30, 2003 quarter. The comparative
decline in operating loss is due to the decrease in restructuring and other
charges and impairment charges offset by the effects of the deconsolidation of
Superior as operating income for the Communications Group and the OEM Group
amounted to $15.3 million for the third quarter of 2002. Additionally, the
operating loss for Essex Electric increased by $1.8 million for the three month
period ended September 30, 2003 as compared to the 2002 quarter as a result of
the decreased sales and gross margin volume discussed above.
Interest expense for the three month period ended September 30, 2003
was $0.7 million, representing a decrease of $29.4 million from the prior year
three month period ended September 30, 2002. The decrease is due to the
deconsolidation of Superior. Excluding interest expense related to borrowings of
Superior, interest expense for the 2002 quarter was $0.1 million. The increase
in 2003 is due to higher borrowings incurred to finance the Electrical
Acquisition.
The Company reported a loss of $0.4 million for the three months ended
September 30, 2003 representing its equity in the net loss of its equity-method
investee, Superior Israel. The Company's investment in Superior Israel has been
reduced to zero as of September 30, 2003 and accordingly, Alpine will not record
its equity in any future net losses of Superior Israel unless it has a positive
investment in Superior Israel.
RESULTS OF OPERATIONS--NINE MONTH PERIOD ENDED SEPTEMBER 30, 2003 AS
COMPARED TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2002
Consolidated sales for the nine months ended September 30, 2003 were
$261.0 million, a decrease of 77% as compared to sales of $1,136.8 million for
the comparable prior year period. The decrease is due primarily to the effects
of the deconsolidation of Superior. Revenues for Superior's Communications Group
and OEM Group for the nine months ended September 30, 2002 were $363.8 million
and $382.3 million, respectively. Excluding the Communications Group and OEM
Group, sales decreased $129.7 million or 33% due primarily to Essex Electric's
strategic decision to lower sales volume through its restructuring activities in
response to market softness and resultant competitive pressures.
Essex Electric sales were $239.0 million for the nine months ended
September 30, 2003 representing a decrease of $121.9 million or 34% (36% on a
copper price adjusted basis) as compared to the nine months ended September 30,
2002. The comparative sales decline was due principally to (i) the Company's
decision to reduce volume in response to weak industry-wide pricing conditions
caused by severe competitive pressures in the building wire market, (ii) reduced
demand in the non-residential building wire market segment, and (iii) the
February 2003 sale of the automotive and industrial wire business. Automotive
and industrial wire product sales accounted for approximately $7.9 million and
$25.2 million of Essex Electric's sales for the nine months ended September 30,
2003 and 2002, respectively.
DNE sales were $22.0 million for the nine months ended September 30,
2003, a decrease of 26% as compared to sales of $29.8 million for the comparable
prior year period. The sales decrease during this period was primarily due to a
decline in contract manufacturing sales of $7.5 million as a result of DNE's
decision to exit this market.
Gross profit for the nine months September 30, 2003 was $26.5 million,
a decline of $114.0 million as compared to gross profit for the comparable 2002
period due to the deconsolidation of Superior. The gross profit margin in 2003
was 10.1% which, after excluding the Communications Group and OEM Group,
compares to a gross profit margin of 8.4% for the nine months ended September
30, 2002. The increased margin percentage reflects margin improvements at DNE
due to changes in product mix and slightly higher gross margin percentage at
Essex Electric.
Selling, general and administrative expense ("SG&A expense") for the
nine month period ended September 30, 2003 was $31.3 million, a decrease of 73%,
as compared to SG&A expense of $113.9 million for the nine months ended
September 30, 2002. The comparative decrease for the nine month period ended
September 30, 2003 was due primarily to the effects of the deconsolidation of
Superior as well as decreases at Essex Electric resulting from implementation of
its restructuring plan.
The nine month restructuring and other charges include the
aforementioned charges of $8.3 million in the third quarter, as well as
approximately $0.7 and $0.3 million of employee severance costs and facility
exist costs, respectively, related to the sale of the assets comprising the
Company's industrial wire business (see Note 3). Other major charges for the
year include $0.9 million related to the closure of the Company's St. Joseph, MO
regional distribution center, including the buyout of the lease obligation and
employee severance. The remainder of the year-to-date charges consist primarily
of employee severance costs related to discontinued operations at Columbia City,
IN, and Sikeston, MO and to the reduction of Essex Electric administrative
staff.
20
In anticipation of the Electrical Acquisition, Superior TeleCom
evaluated for impairment the long-lived assets of its Electrical wire business,
DNE and Superior Israel as of September 30, 2002 pursuant to SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". In accordance
with SFAS No. 144, such impairment test was based on probability weighted
estimated future cash flows related to such assets including assessment of cash
proceeds associated with the proposed sale to Alpine of the Electrical Group,
DNE and Superior's investment in Superior Israel. As a result of such review,
Superior TeleCom determined that identified long-lived assets of the Electrical
Group and Superior Israel were impaired and accordingly, reflected a pre-tax
charge, principally related to the Electrical Group, of $114.5 million in the
third quarter of 2002.
The Company incurred an operating loss of $13.2 million for the nine
month period ended September 30, 2003 compared to an operating loss of $122.1
million for the comparable 2002 period. The operating loss in 2002 included
restructuring and other charges and asset impairment charges of $148.7 million
as compared to $8.3 million of such charges for the 2003 period. The comparative
decline in operating loss is due to the decrease in restructuring and other
charges offset by the effects of the deconsolidation of Superior as operating
income for the Communications Group and the OEM Group amounted to $50.2 million
for the nine months ended September 30, 2002. Additionally, the operating loss
for Essex Electric increased by $2.2 million for the nine-month period ended
September 30, 2003 as compared to the same nine-month period in 2002 as a result
of the decreased sales and gross margin percentages discussed above.
Interest expense for the nine month period ended June 30, 2003 was $2.7
million, representing a decrease of $80.6 million from the prior year comparable
period. The decrease is due to the deconsolidation of Superior. Excluding
interest expense related to borrowings of Superior, interest expense for the
2002 nine month period was $0.6 million. The increase in 2003 is due to an
increase in the Company's indebtedness resulting from borrowings incurred to
finance the Electrical Acquisition.
The Company reported a loss of $0.1 million for the nine months ended
September 30, 2003, representing its equity in the net loss of its equity-method
investee, Superior Israel. The Company's investment in Superior Israel has been
reduced to zero as of September 30, 2003 and accordingly, Alpine will not record
it's equity in any future net losses of Superior Israel unless it has a positive
investment in Superior Israel.
The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets
effective January 1, 2002. SFAS No. 142 required that the amortization of
goodwill and certain other intangible assets cease as of January 1, 2002 and
that the related recorded value of goodwill be allocated to the identified
reporting units of the Company and its consolidated subsidiaries and be reviewed
annually for impairment. The transitional rules for implementing SFAS No. 142
provided that any goodwill impairment resulting from initial application of this
new rule be reflected through a charge to income as a cumulative effect of an
accounting change, applied retroactively to January 1, 2002. The impact of
economic and industry specific conditions affecting Superior's business segments
resulted in substantially reduced fair values and thus initial implementation of
SFAS No. 142 gave rise to a non-cash goodwill impairment charge at Superior of
$424 million which was recorded retroactively to January 1, 2002 as a cumulative
effect of accounting change. The charge was comprised of $166 million related to
Superior's Electrical segment and $258 million related to Superior's OEM
segment. Additionally, as a result of initial implementation, Alpine recorded a
further goodwill impairment charge of $3 million relating to additional goodwill
associated with its investment in Superior. The total cumulative effect of the
change in accounting principle, after allocating $39 million to the minority
interest, was $388 million.
LIQUIDITY AND CAPITAL RESOURCES
ALPINE HOLDCO
The Electrical Acquisition was financed by approximately $10 million of
Alpine's cash and cash equivalents and borrowings by Alpine Holdco under a Loan
and Security Agreement (the "Loan Agreement"), dated as of December 11, 2002, by
and among Alpine Holdco, Essex Electric, DNE and its wholly-owned subsidiaries,
DNE Manufacturing and Service Company and DNE Technologies, Inc. (collectively
the "Companies"), certain financial institutions party thereto as lenders,
Congress Financial Corporation, as documentation agent, and Foothill Capital
Corporation, as arranger and administrative agent. Upon consummation of the
acquisition approximately $78 million was outstanding under the Loan Agreement.
Following consummation of the acquisition, the borrowers under the Loan
Agreement are Essex Electric, DNE Manufacturing and Services Company and DNE
Technologies, Inc.
The terms of the Loan Agreement provide for a maximum committed amount
of $100 million, with borrowing availability determined by reference to a
borrowing base. Interest is payable monthly in cash in arrears and is based on,
at Alpine Holdco's option, LIBOR or prime rates plus a variable margin that is
subject to periodic adjustment based on utilization and on a ratio relating to
leverage amounts. The Loan Agreement also provides for maintenance of financial
covenants and ratios relating to minimum EBITDA and tangible net worth and
restrictions on capital expenditures, payment of cash dividends and incurrence
of indebtedness. Outstanding obligations under the Loan Agreement are guaranteed
by DNE and are secured by a lien on all of the Companies' tangible and
intangible assets, other than the investment in Superior Israel and certain
equipment used by DNE in conjunction with its U.S. government contracts. The
obligations under the Loan Agreement are without recourse to Alpine. The Loan
Agreement matures in five years and the Companies
21
may terminate the Loan Agreement at any time upon 45 days' prior written notice
and payment of all outstanding borrowings, together with unpaid interest, and a
termination fee equal to 0.75% of the maximum committed amount. At any time
after the second anniversary of the closing of the Loan Agreement the Companies
may, upon 30 days' prior written notice, permanently reduce the maximum
commitments without penalty or premium. At September 30, 2003, outstanding
borrowings under the Loan Agreement were $13.4 million and the Companies had
$25.1 million of borrowing availability. Due to significantly reduced borrowing
levels the Company is in the process of discussing changes to the credit
agreement with the lenders.
In February 2003, Essex Electric sold inventory and certain property
and equipment related to its industrial wire business for total cash proceeds of
approximately $12.6 million. In September, 2003, Essex Electric sold its
Anaheim, California plant for net cash proceeds of approximately $5.5 million.
The proceeds from these sales were primarily used to reduce amounts borrowed
under the Loan Agreement.
ALPINE CORPORATE
During 2002 Alpine redeemed $10.1 aggregate face amount of its 12.25%
Senior Subordinated Notes for a cash payment of $7.6 million. Further, in
February 2002, Alpine repaid loans totaling $22 million upon early settlement of
certain forward sale derivative contracts related to 10.5 million ordinary
shares of Cookson (FTSE: CKSN.L). In April 2003, Alpine sold its remaining
investment in Cookson ordinary shares for proceeds totaling approximately $1.3
million. On July 15, 2003 the entire remaining principal amount of the
outstanding 12.5% Senior Subordinated Notes together with all accrued and unpaid
interest was repaid.
On June 23, 2003 Alpine completed a private placement of 8,287 shares
of a new issue of Series A Cumulative Convertible Preferred Stock (the "Series A
Preferred Stock") to its directors and certain officers for a purchase price of
$380 per share, or an aggregate of approximately $3.1 million. Holders of the
Series A Preferred Stock are entitled to receive, when, as and if declared by
the board of directors out of funds legally available for payment, cash
dividends at an annual rate of $30.40 per share. Each share of Series A
Preferred Stock is convertible at the option of the holder into 691 shares of
Alpine common stock beginning on November 11, 2003, subject to customary
adjustments. However, the officers and directors have agreed not to exercise the
convertible option until advised by the Company that it has a sufficient number
of authorized but unissued shares of common stock to permit such conversion. The
Company may cause conversion of the Series A Preferred Stock into common stock
after November 11, 2003, if the Company's common stock is then listed on the New
York Stock Exchange or the American Stock Exchange or is traded on the Nasdaq
National Market System and the average closing price of a share of the Company's
common stock for any 20 consecutive trading days equals or exceeds 300% of the
conversion price then effect. The Series A Preferred Stock is subject to
mandatory redemption by the Company ratably on the last day of each quarter
during the three-year period commencing on December 31, 2009 at the liquidation
value of $380 per share, plus accrued and unpaid dividends. Additionally, if the
Company experiences a change in control it will, subject to certain limitations,
offer to redeem the Series A Preferred Stock at a cash price of $380 per share
plus (i) accrued and unpaid dividends and (ii) if the change of control occurs
prior to December 31, 2007, all dividends that would be payable from the
redemption date through December 31, 2007.
Holders of the Series A Preferred Stock are entitled to vote their
shares on an as-converted basis together with the Company's common stockholders.
In addition, the Company may not (a) enter into a merger, sale of all or
substantially all of its assets or similar transaction without the approval of
holders of at least a majority of the shares of Series A Preferred Stock, or (b)
alter or change the powers, preferences or special rights (including, without
limitation, those relating to dividends, redemption, conversion, liquidation
preference or voting) of the shares of Series A Preferred Stock so as to affect
them materially and adversely, or issue any senior stock, without the approval
of holders of at least a majority of the shares of Series A Preferred Stock. In
the event of any liquidation, dissolution or winding up of Alpine, after the
payment of the liquidation preference in respect of any senior stock, holders of
the Series A Preferred Stock will be entitled to receive the liquidation price
of $380 per share plus an amount equal to (a) if the liquidation, dissolution or
winding up occurs prior to December 31, 2007, all dividends that would be
payable on a share of Series A Preferred Stock from the date of liquidation,
dissolution or winding up through December 31, 2007 and (b) any accrued and
unpaid dividends to the payment date, before any payment is made to the holders
of common stock or any other junior securities, subject to certain exceptions.
Proceeds from the sale of the Series A Preferred Stock were used to reduce
existing indebtedness and for general corporate purposes.
On November 10, 2003, the Company completed the sale of 9,977 shares of
Series A Preferred Stock and shares pursuant to a rights offering to holders of
the Company's common stock. Holders of the Company's common stock were offered a
right to purchase one share of Series A Preferred Stock at a price of $380 per
share for each 500 shares of common stock held on September 29, 2003. The terms
of the Series A Preferred Stock are the same as that purchased by the officers
and directors in the private placement discussed above; however the Series A
Preferred Stock purchased through the rights offering are currently convertible.
Total proceeds received from the sale were $3.8 million. The recording of
dividends, if any, on the Series A Preferred Stock will reduce the Company's
earnings per share in the period recorded.
On August 4, 2003, the Company completed an exchange offer whereby
holders of its common stock exchanged 3,479,656 shares for $4.3 million
principal amount of 6% Junior Subordinated Notes (the "Subordinated Notes")
issued by the Company plus a nominal amount of cash in lieu of fractional notes.
The Subordinated Notes accrue interest at 6% per annum payable in cash
semiannually
22
each December 31 and June 30. The Subordinated Notes are the Company's general
unsecured obligations subordinated and subject in right of payment to all of the
Company's existing and future senior indebtedness, which excludes trade payables
incurred in the ordinary course of business. The Company will be required to
repay 1/8 of the outstanding principal amount of the Subordinated Notes
commencing on June 30, 2007 and semiannually thereafter, so that all of the
Subordinated Notes will be repaid by December 31, 2010. The Subordinated Notes
are redeemable, at the Company's option, in whole at any time or in part from
time to time, at the principal amount to be redeemed plus accrued and unpaid
interest thereon to the redemption date, together with a premium if the
Subordinated Notes are redeemed prior to 2007. In addition, the Company must
offer to redeem all of the Subordinated Notes at the redemption price then in
effect in the event of a change of control. The Subordinated Notes were issued
under an indenture which does not subject the Company to any financial
covenants.
As of September 30, 2003 Alpine has unrestricted corporate cash and
cash equivalents of approximately $3.4 million. Alpine's current and anticipated
sources of liquidity include existing cash and cash equivalents, cash proceeds
and from Alpine's private placement of its Series A Preferred Stock in June and
its rights offering in November 2003. Additionally, pursuant to a management
agreement with Alpine Holdco dated December 11, 2002, so long as no event of
default exists or is created by such payment under the Loan Agreement, Alpine is
paid by Alpine Holdco an annual management fee of $0.9 million payable monthly,
and is reimbursed for all direct costs incurred by it related to the business of
Alpine Holdco. Alpine's ability to receive distributions from Alpine Holdco is
limited by the Loan Agreement to a maximum of $1.0 million of the aforementioned
management fee and amounts representing Alpine's tax liability in respect of the
operations of Alpine Holdco plus $250,000 per year. Alpine is also entitled to
be reimbursed for all direct costs incurred by it related to the business of
Holdco.
Alpine estimates that capital expenditures for 2003 will approximate
between $8 to $9 million. Alpine historically has been a party to a guaranty of
Superior's obligations as tenant under a capital lease covering one of
Superior's facilities. The Company believes that incident to its plan of
reorganization Superior will assume the lease and the Company expects Superior
to perform as tenant thereunder. Alpine Holdco has implemented restructuring
actions to rationalize manufacturing capacity, lower costs and reduce working
capital. These actions are expected to result in restructuring costs of
approximately $12 million during 2003. These restructuring activities are
anticipated to have a negative impact on operating income and, as a result, the
Company amended the Loan Agreement in May 2003 to reflect the planned
restructuring activities. The amended Loan Agreement permits necessary
expenditures and modifies certain financial covenants to accommodate the impact
of these restructuring activities. Based on the terms of the amended Loan
Agreement, the Company believes it will comply with all financial covenants.
Alpine believes that existing cash and cash equivalents, cash provided by
operations and working capital reductions together with borrowings under the
Loan Agreement and proceeds from its private placement and rights offering will
be sufficient to meet its capital requirements for the upcoming twelve months.
CONTRACTUAL OBLIGATIONS
As of September 30, 2003, the Company's long-term debt obligations and
future minimum payments under operating leases with terms over one year were as
follows (in thousands):
LESS THAN 1 MORE THAN 5
YEAR 2-3 YEARS 4-5 YEARS YEARS TOTAL
------ ------ ------ ------ ------
Loan Agreement (a) ............. -- -- 13,373 -- 13,373
6% Junior Subordinated Notes (b) -- -- 4,345 -- 4,345
Other Debt ..................... 100 241 284 318 943
Series A Preferred Stock (c) ... 3,149 3,149
Operating leases ............... 3,109 4,546 2,841 4,638 15,134
------ ------ ------ ------ ------
Total ........................ 3,209 4,787 20,843 8,105 36,944
====== ====== ====== ====== ======
(a) The Loan Agreement matures in December 2007. The total commitment
is for $100 million. The interest rates on this facility are
variable based upon LIBOR or Prime Rates plus certain fixed
margins. The average rate, including margin, as of September 30,
2003 was 4.35%
(b) The 6% Junior Subordinated Notes are presented on a gross basis
(before discount). The $3,006 included in the Long Term Debt in
the Balance Sheet and in footnote 7 is net of a $1,334 unamortized
discount, which represents the difference between the exchange
offer rate of $1.25 per share and the $.85 closing price of
Alpine's common stock upon consummation of the exchange offer on
August 4, 2003. The discount is being amortized through the date
of maturity of the notes, including $52 in the third quarter of
2003. These notes are payable in semi-annual installments of $0.5
million beginning June 2007.
(c) The Series A Preferred Stock is subject to mandatory redemption by
the Company ratably on the last day of each quarter during the
three-year period commencing on December 31, 2009 at the
liquidation value of $380 per share. The
23
Series A Preferred Stock may be converted into common stock of the
Company at the option of the holder any time or by the Company
upon the occurrence of certain specified events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk primarily relates to interest
rates on long-term debt (see preceding table on Contractual Obligations) and
copper futures used to minimize the price risk associated with copper prices
(see Derivatives). The cost of copper, the Company's most significant raw
material has been subject to significant volatility over the past several years.
In anticipation of a significant reduction in inventory levels in 2003, the
Company entered into copper futures sales contracts to minimize the price risk
associated with declining copper costs. At September 30, 2003, future sales
contracts for 8.5 million pounds of copper, or $6.7million were outstanding,
with a mark - to- market loss of $0.2 million, which has been recorded to
earnings. These futures contracts were liquidated in October 2003 since
inventory levels at year-end are not projected to decline below the September
30, 2003 levels.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form
10-Q, an evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures was carried out by the Company
under the supervision and with the participation of the Company's management,
including the Chief Executive Officer and Chief Financial Officer. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures have been designed and are
being operated in a manner that provides reasonable assurance that the
information required to be disclosed by the Company in reports filed under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms. A
system of controls, no matter how well designed and operated, cannot provide
absolute assurance that the objectives of the system of controls are met, and no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within a company have been detected. There have
been no changes in the Company's internal control over financial reporting that
occurred during the most recent fiscal quarter that have materially affected, or
are reasonably likely to materially affect, the Company's internal control over
financial reporting.
- -----------
Except for the historical information herein, the matters discussed in
this Form 10-Q include forward-looking statements that may involve a number of
risks and uncertainties. Actual results may vary significantly based on a number
of factors, including, but not limited to, risks in product and technology
development, market acceptance of new products and continuing product demand,
prediction and timing of customer orders, the impact of competitive products and
pricing, changing economic conditions, including changes in short-term interest
rates and foreign exchange rates, and other risk factors detailed in the
Company's most recent filings with the Securities and Exchange Commission.
24
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
31.1* Certification of the Company's Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2* Certification of the Company's Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1* Certification of the Company's Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2* Certification of the Company's Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(B) REPORTS ON FORM 8-K
None
- -----------
* Filed herewith
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE ALPINE GROUP, INC.
Date: November ,2003 By: /s/ DAVID A. OWEN
---------------------------------
David A. Owen
Chief Financial Officer
(duly authorized officer and principal
financial and accounting officer)
26