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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 MARCH 31, 2004
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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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
incorporation or organization) Identification No.)
ONE MEADOWLANDS PLAZA
EAST RUTHERFORD, NEW JERSEY 07073
(Address of principal executive offices) (Zip code)
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 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 APRIL 28, 2004
Common Stock, $.10 Par Value 12,885,633
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1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited 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 accounting principles generally accepted in the United
States of America. However, in the opinion of management, all adjustments
(which, except as disclosed elsewhere herein, consist only of normal recurring
accruals) necessary for a fair presentation of the results of operations for the
relevant periods have been made. Results for the interim periods are not
necessarily indicative of the results to be expected for the year. These
financial statements should be read in conjunction with the summary of
significant accounting policies and the notes to the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2003.
2
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
MARCH 31, DECEMBER 31,
2004 2003
------------------------------
ASSETS
Current assets:
Cash and cash equivalents................................................................. $ 595 $ 465
Marketable securities, at fair value...................................................... 6,608 6,761
Accounts receivable (less allowance for doubtful accounts of $349 and $308 at
March 31, 2004 and December 31, 2003 respectively)................................. 54,259 34,560
Inventories, net (Note 4)................................................................. 31,273 42,287
Other current assets...................................................................... 3,790 3,761
------------------------------
Total current assets................................................................. 96,525 87,834
Property, plant and equipment, net........................................................... 18,053 17,007
Other long-term assets....................................................................... 2,636 2,947
------------------------------
Total assets......................................................................... $117,214 $107,788
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility (Notes 7)....................................................... $26,801 $ 17,189
Current portion of long-term debt (Note 8)................................................ 137 137
Accounts payable.......................................................................... 20,610 21,853
Accrued expenses.......................................................................... 11,203 12,752
Deferred income taxes and income taxes payable............................................ 8,658 7,644
------------------------------
Total current liabilities............................................................ 67,409 59,575
Long-term debt, less current portion (Note 8)................................................ 3,791 3,777
Deferred income taxes........................................................................ 17,078 17,595
Other long-term liabilities.................................................................. 1,633 1,633
Warrant...................................................................................... 1,200 1,000
Minority interest in subsidiary.............................................................. 2,843 2,686
Mandatorily redeemable series A cumulative preferred stock (18,264 shares issued; 18,159
and 18,174 outstanding at March 31, 2004 and December 31, 2003 respectively) (Note 9).... 5,658 5,664
Stockholders' equity:
9% cumulative convertible preferred stock at liquidation value............................ 427 427
Common stock, $.10 par value; (25,000,000 authorized; 22,157,249 and 22,146,884 shares
issued at March 31, 2004 and December 31, 2003, respectively)..................... 2,215 2,214
Capital in excess of par value............................................................ 166,156 165,706
Accumulated other comprehensive income (loss)............................................. (3) 57
Accumulated deficit....................................................................... (56,873) (58,201)
Treasury stock, at cost (11,105,598 and 11,109,872 shares at March 31, 2004 and
December 31, 2003, respectively)................................................... (93,853) (93,861)
Receivable from stockholders.............................................................. (467) (484)
------------------------------
Total stockholders' equity............................................................. 17,602 15,858
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Total liabilities and stockholders' equity........................................... $117,214 $107,788
==============================
The accompanying notes are an integral part of these consolidated financial statements.
3
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------------
2004 2003
-------------------------
Net sales....................................................................................... $88,833 $97,541
Cost of goods sold.............................................................................. 74,939 87,810
--------------------------
Gross profit................................................................................. 13,894 9,731
Selling, general and administrative expenses.................................................... 8,540 11,476
Restructuring and other charges................................................................. 1,748 2,586
--------------------------
Operating income (loss)...................................................................... 3,606 (4,331)
Interest expense................................................................................ (619) (1,151)
Other income (expense), net..................................................................... (100) (30)
--------------------------
Income (loss) before income taxes, minority interest, and equity in earnings of affiliate... 2,887 (5,512)
Income tax (provision) benefit.................................................................. (1,255) 2,125
--------------------------
Income (loss) before minority interest and equity in earnings of affiliate................... 1,632 (3,387)
Minority interest in income of subsidiary...................................................... (157) --
Equity in earnings of affiliate................................................................. -- 1,073
--------------------------
Net income (loss)............................................................................... 1,475 (2,314)
Preferred stock dividends....................................................................... (147) (9)
--------------------------
Net income (loss) applicable to common stock................................................ $ 1,328 $(2,323)
==========================
Net income (loss) per share of common stock:
Net income (loss) - basic.................................................................... $0.11 $(0.16)
Net Income (loss) - diluted.................................................................. $0.06 $(0.16)
Weighted average shares outstanding:
Basic........................................................................................ 12,119 14,931
Diluted...................................................................................... 25,572 14,931
The accompanying notes are an integral part of these consolidated financial statements.
4
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31, 2004
----------------------------
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.............................................................. 22,146,884 $ 2,214
Shares issued pursuant to Series A Preferred Stock conversion............................... 10,365 1
----------------------------
Balance at end of period................................................................. 22,157,249 $ 2,215
Capital in excess of par value:
Balance at beginning of period.............................................................. 165,706
Compensation expense related to stock options / grants net of vested shares................. 445
Shares issued pursuant to Series A Preferred Stock conversion............................... 5
---------------
Balance at end of period................................................................. 166,156
Accumulated other comprehensive deficit:
Balance at beginning of period.............................................................. 57
Change in unrealized losses on securities, net of tax....................................... (60)
---------------
Balance at end of period................................................................. (3)
---------------
Accumulated deficit:
Balance at beginning of period.............................................................. (58,201)
Net income.................................................................................. 1,475
Dividends on preferred stock................................................................ (147)
---------------
Balance at end of period................................................................. (56,873)
---------------
Treasury stock:
Balance at beginning of period.............................................................. (93,861)
Stock options and grants.................................................................... 8
---------------
Balance at end of period................................................................. (93,853)
Receivable from stockholders:
Balance at beginning of period.............................................................. (484)
Forgiveness of officer loans................................................................ 17
---------------
Balance at end of period................................................................. (467)
---------------
Total stockholders' equity..................................................................... $ 17,602
===============
The accompanying notes are an integral part of these consolidated financial statements.
5
THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2004 2003
---------------------------------
Cash flows from operating activities:
Net income (loss).......................................................................... $1,475 $ (2,314)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating
activities:
Depreciation and amortization........................................................... 252 259
Amortization of deferred debt issuance costs and accretion of debt discount............. 156 121
Compensation expense related to stock options and grants................................ 462 194
Gain on sale of fixed assets............................................................ (239) --
Minority interest in income of subsidiary............................................... 157 --
Increase in fair value of warrant....................................................... 200 --
Equity in earnings of affiliates........................................................ -- (1,073)
Change in assets and liabilities:
Accounts receivable, net.............................................................. (19,699) 8,171
Inventories, net...................................................................... 11,014 16,574
Other current and non-current assets.................................................. 64 (1,605)
Accounts payable and accrued expenses................................................. (2,559) (2,238)
Income taxes....................................................................... 497 (2,172)
Other, net............................................................................ (33) 25
---------------------------------
Cash flows provided by (used for) operating activities........................................ (8,253) 15,942
---------------------------------
Cash flows from investing activities:
Capital expenditures....................................................................... (1,328) (3,279)
Proceeds from sale of assets............................................................... 68 2,850
---------------------------------
Cash flows used for investing activities...................................................... (1,260) (429)
---------------------------------
Cash flows from financing activities:
Borrowings (repayments) under revolving credit facilities, net............................. 9,612 (18,199)
Repayments of long-term borrowings......................................................... (31) (22)
Other, net................................................................................. 62 (9)
---------------------------------
Cash flows provided by (used for) financing activities........................................ 9,643 (18,230)
Net increase (decrease) in cash and cash equivalents.......................................... 130 (2,717)
Cash and cash equivalents at beginning of period.............................................. 465 8,139
---------------------------------
Cash and cash equivalents at end of period.................................................... $ 595 $5,422
=================================
Supplemental disclosures:
Cash paid for interest..................................................................... $ 891 $1,298
Cash paid for income taxes, net............................................................ $ 772 $245
The accompanying notes are an integral part of these consolidated financial statements.
6
THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(UNAUDITED)
1. GENERAL
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements represent the
accounts of The Alpine Group, Inc. and the consolidation of all of its
majority-controlled subsidiaries (collectively "Alpine" or the "Company", unless
the context otherwise requires). The Company records all affiliate companies
with ownership of greater than 20%, but not majority-controlled, using the
equity method of accounting.
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.
On March 3, 2003, Superior and its U.S. subsidiaries filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code. On
October 22, 2003, Superior's Joint Plan of Reorganization, as amended and
related disclosure statement was confirmed by order of the United States
Bankruptcy Court for the District of Delaware and became effective on November
10, 2003 (the "Plan of Reorganization"). The Plan of Reorganization provided for
the cancellation of all equity and debt interests held in Superior by the
Company.
As a result of the accumulated net losses incurred by Superior, Alpine had
recorded losses in excess of its investment in Superior of $865.9 million at
December 11, 2002. This negative investment was required under accounting
principles generally accepted in the United States of America to be reflected in
Alpine's consolidated balance sheet, notwithstanding the fact that Alpine was
not obligated to fund any operating losses or deficits of Superior. Upon
implementation of the Plan of Reorganization, Alpine eliminated its negative
investment in Superior and recognized a corresponding gain of $865.9 million in
the fourth quarter of 2003. This gain was partially offset by the reversal of
$11.6 million of accumulated other comprehensive loss related to Superior
resulting in a net gain of $854.3 million.
Alpine was incorporated in New Jersey in 1957 and reincorporated in
Delaware in 1987. Alpine is a holding company which over the past five years has
held major investments in industrial manufacturing companies. Subsequent to the
Electrical Acquisition, Alpine's principal operations consist of Essex Electric
Inc., engaged in the manufacture and sale of electrical wire and cable, DNE
Systems, Inc., a manufacturer of multiplexers and other communications and
electronic products and a 47% equity interest in Superior Israel.
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 Financial
Accounting Standards Board (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.
Statement of Financial Accounting Standards (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. The
following table illustrates the effect on net income (loss) if the fair value
based method had been applied to all outstanding and unvested awards in each
period.
7
THREE MONTHS ENDED
MARCH 31,
------------------------------
2004 2003
------------------------------
Net income (loss), as reported.......................................................... $1,475 $(2,314)
Add stock-based employee compensation expense included
in reported net income (loss), net of tax.............................................. 288 115
Deduct total stock-based employee compensation expense determined under fair value
based method for all awards, net of related tax effects............................. (376) (168)
------------------------------
Pro forma net income (loss)............................................................. 1,387 (2,367)
Preferred stock dividends (147) (9)
------------------------------
Proforma net income (loss) - applicable to common stock............................... $1,240 $(2,376)
==============================
Net income (loss) per share:
Basic - as reported.................................................................. $0.11 $(0.16)
Basic - pro forma.................................................................... $0.10 $(0.16)
Diluted - as reported................................................................ $0.06 $(0.16)
Diluted - pro forma.................................................................. $0.05 $(0.16)
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 three months ended March 31,
2004 and 2003, respectively: dividend yield of 0% for both periods; expected
volatility of 97% and 99%, risk-free interest rate of 2.6% for both periods, and
expected life of two years for both periods. The weighted average per share fair
value of options granted (using the Black-Scholes option-pricing model) for the
three months ended March 31, 2004 and 2003 was $0.92 and $0.49, respectively. A
total of 112,098 stock options were granted during the three month period ended
March 31, 2004.
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee and consultant stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimates, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
The Company amortizes the value of the restricted stock grants evenly over
the vesting periods, based upon the market value of the stock as of the date of
the grant.
NEW ACCOUNTING STANDARDS
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 months ended March 31, 2004 and 2003, have been
accounted for in accordance with SFAS No. 146.
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. Since 1993, Alpine has been a party to a guaranty of Superior's lease
obligations relating to Superior's manufacturing facility in Brownwood, Texas.
8
The lease currently provides for monthly payments of $56,000 subject to
adjustments for changes in the consumer price index. The lease term expires in
2018 but may be extended through 2033. As such, the maximum potential amount of
future payments under the guaranty through 2018 would be approximately $10
million. Any further extensions would amount to a guarantee of approximately
$0.7 million per year. Since the guaranty was not issued prior to and has not
been modified after December 31, 2002, a liability for the fair value of the
obligation is not recorded in the consolidated financial statements. While
Alpine's continuing obligations, if any, under the guaranty are not free from
doubt, the Company believes the facility and underlying lease are valuable
assets of Superior and expects that Superior will perform as tenant thereunder
and continue to pay its obligations. In addition, Alpine would have a claim for
indemnification and reimbursement from Superior in respect of any amounts paid
by Alpine as guarantor. The Company is not a party to any other guarantees and
implementation of Interpretation No. 45 did not have a material effect on the
Company's financial statements.
DERIVATIVES
All derivatives are recognized on the balance sheet at fair value. On the
date the derivative contract is entered, the Company designates the derivative
as either (i) a fair value hedge of a recognized asset or liability, (ii) a cash
flow hedge of a forecasted transaction, (iii) a hedge of a net investment in a
foreign operation, or (iv) a non-designated derivative instrument. The Company
has in the past engaged in certain derivatives that are classified as fair value
hedges, cash flow hedges and non-designated derivative instruments. Changes in
the fair value of derivatives that are designated as fair value hedges and the
underlying exposure being hedged are adjusted to fair value and are recorded in
the consolidated statements of operations in the same line item. Changes in the
fair value of cash flow hedges are recorded in accumulated other comprehensive
income with any ineffective portion immediately recognized in earnings. Changes
in the fair value of non-designated derivative contracts are reported in current
earnings. At December 31, 2003, the Company had approximately $13 million of
copper futures contracts, representing 12 million copper pounds, outstanding as
non-designated derivative instruments. These contracts were entered into to
hedge 12 million copper pounds of inventory purchased in December 2003, for sale
in the first quarter of 2004. These contracts were recorded at fair value at
December 31, 2003 with any price fluctuations reflected in current earnings in
2003 and were liquidated in the first quarter of 2004, when the underlying asset
(i.e. inventory) was sold.
The Company does not currently utilize any hedging instruments that would
qualify for hedge accounting treatment. If such transactions were to arise, the
Company would formally document all relationships between hedging instruments
and hedged items, as well as the risk management objectives and strategy for
undertaking various hedge transactions.
2. ELECTRICAL ACQUISITION
On December 11, 2002, Alpine, through Alpine Holdco Inc. ("Alpine Holdco")
a newly formed, wholly-owned subsidiary of Alpine, acquired the following assets
and securities from Superior: (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 newly formed, then wholly-owned subsidiary of Alpine Holdco; (2)
all of the outstanding shares of capital stock of DNE Systems, Inc. ("DNE
Systems") 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 own 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 199 shares of the common stock of Essex Electric. The warrant is
recorded as a liability in the consolidated balance sheet and is evaluated and
adjusted to fair value on a quarterly basis, with $0.2 million of expense
recorded in other income (expense) for the three months ended March 31, 2004.
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 generally involving a change in control of or a sale of the assets
of Alpine Holdco or Essex Electric.
In connection with the Electrical Acquisition, Alpine Holdco, Essex
Electric and Superior entered into a Supply and Transitional Services Agreement
(the "Transitional Agreement"). Under the Transitional Agreement, Essex
Electric, among other things, agreed to purchase from Superior certain specified
quantities of its overall requirements of copper rod. The specified quantities
represent a range of Essex Electric's estimated total annual copper rod
requirements for use in its wire manufacturing process. The purchase price for
copper rod specified in the Transitional Agreement was based on the COMEX price
plus an adder to reflect conversion to copper rod. The Transitional Agreement
also provided for Superior's provision of certain administrative services to
Alpine Holdco and Essex Electric. Charges for these services were generally
based on actual usage or an allocated portion of the total cost to Superior. On
November 7, 2003, the Transitional Agreement was replaced by a new supply and
services agreement between Superior Essex Inc. (the successor company to
Superior pursuant to the Plan of Reorganization) and Essex Electric (the "Supply
Agreement"). The Supply Agreement includes the supply by Superior Essex Inc. to
Essex Electric of copper rod, on similar pricing terms, for 2004 and the
provision of certain specified administrative services for a limited time in
2004. The Supply Agreement expires on December 31, 2004 but may be terminated at
9
any time prior to that by mutual consent of Superior Essex Inc. and Essex
Electric. Additionally, the parties may terminate various services provided for
under the agreement upon certain prior notice as provided therein. Superior
Essex Inc. may terminate its obligations to supply copper rod upon 30 days'
notice given any time after January 1, 2004 if Essex Electric has purchased less
than certain minimum quantities of copper rod, tested on a quarterly basis,
specified in the agreement. The total cost of copper rod purchased under the
Transitional Agreement and the Supply Agreement in the first quarter of 2004 and
2003 was $15.5 million and $38.6 million, respectively, and the cost for
administrative services for the first quarter of 2004 and 2003 was $0.6 million
and $1.3 million, respectively.
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, the Company is leasing its Orleans, Indiana plant to the purchaser
for an annual rental of $350,000. The original lease expired in February 2004
but has been extended on a month-to-month basis. The net carrying value of the
Orleans plant was $0.8 million at March 31, 2004.
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, $2.0
million of which was recognized in 2003, $0.2 million in the first quarter of
2004 and the remainder will be amortized over the remaining leaseback period.
4. INVENTORIES
At March 31, 2004 and December 31, 2003, the components of inventories
were as follows:
MARCH 31, DECEMBER 31,
2004 2003
----------------------------------
(IN THOUSANDS)
Raw materials.............................. $7,428 $17,890
Work in process............................ 8,588 6,803
Finished goods............................. 31,618 26,601
----------------------------------
47,634 51,294
LIFO reserve............................... (16,361) (9,007)
----------------------------------
$31,273 $42,287
==================================
Inventories valued using the LIFO method amounted to $42.2 million and
$37.2 million at March 31, 2004 and December 31, 2003, respectively.
5. COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss) for the three months ended
March 31, 2004 and 2003 were as follows:
THREE MONTHS ENDED
MARCH 31,
-------------------------------------
2004 2003
---- ----
(IN THOUSANDS)
Net income (loss).......................... $1,475 $(2,314)
Change in unrealized
losses on securities, net of tax (60) (111)
-------------------------------------
Comprehensive income (loss)................ $1,415 $(2,425)
=====================================
10
6. RESTRUCTURING AND OTHER CHARGES
During the three month periods ended March 31, 2004 and 2003, the Company
recorded $1.7 and $2.6 million respectively, of restructuring and other charges.
The first quarter 2004 charges include $0.6 million related to the relocation
and installation of certain equipment from closed facilities into the Florence,
Alabama manufacturing location, $0.6 million related to freight costs to
relocate inventory, $0.3 million in facility costs relating to idled warehousing
space and $0.2 million related to the wind-down of other previously closed
facilities, start-up costs at the Florence location and other miscellaneous
expenses related to the Company's restructuring.
The following table illustrates the restructuring reserve and the 2004
related activities:
DECEMBER 31, MARCH 31,
2003 CHARGES PAYMENTS 2004
-----------------------------------------------------------
(IN THOUSANDS)
Employee severance......................................... $972 $-- $(642) $330
Facility exit costs........................................ 29 498 (527) --
Equipment and inventory relocation costs and other costs... -- 1,249 (1,249) --
-----------------------------------------------------------
$1,001 $1,747 $(2,418) $330
===========================================================
7. REVOLVING CREDIT FACILITY
In connection with the Electrical Acquisition (see Note 5), 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 Manufacturing
and Service Company ("DNE Manufacturing") and DNE Technologies, Inc. ("DNE
Technologies") as borrowers and DNE Systems as Credit party (such parties
sometimes collectively are called "Companies") certain financial institutions
party thereto as lenders, Congress Financial Corporation, as documentation
agent, and Foothill Capital Corporation, as arranger and administrative agent.
The Revolving Credit Facility was last amended on December 8, 2003.
The terms of the Revolving Credit Facility provided for a maximum
committed amount of $100 million at its inception which, at the request of the
Companies was reduced to $70 million on December 8, 2003. Borrowing availability
is determined by reference to a borrowing base which permits advances to be made
at various net valuation rates against various assets of the Companies. Interest
is payable monthly in cash in arrears and is based on, at Alpine Holdco's
option, LIBOR or prime rates plus a fixed margin. The weighted average interest
rate at March 31, 2004 and December 31, 2003 was 4.6% and 4.5%, respectively.
The Revolving Credit Facility also provides for maintenance of financial
covenants and ratios relating to minimum EBITDA and tangible net worth, and
includes restrictions on capital expenditures, payment of cash dividends and
incurrence of indebtedness. Alpine Holdco was in compliance with all applicable
covenants at March 31, 2004. Outstanding obligations under the Revolving Credit
Facility 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 Systems in connection with its U.S. government contracts. The obligations
under the Revolving Credit Facility are without recourse to Alpine. Unless
previously accelerated as a result of default, the Revolving Credit Facility
matures in December 2007. However, in accordance with Emerging Issues Task Force
Issue 95-22, Balance Sheet Classification of Borrowings outstanding under
Revolving Credit Agreements That Include Both a Subjective Acceleration Clause
and a Lock-Box Arrangement, borrowings under the Revolving Credit Facility have
been classified as a current liability.
The Companies may terminate the Revolving Credit Facility 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 December 11, 2004, the Companies may, upon
30 days prior written notice, permanently reduce the maximum committed amount
without penalty or premium. At March 31, 2004 and December 31, 2003, outstanding
borrowings under the Revolving Credit Facility were $26.8 million and $17.2
million, respectively. At March 31, 2004 the Companies had $26.5 million of
borrowing availability. No dividends may be paid by Alpine Holdco without prior
consent of the lenders.
11
8. LONG-TERM DEBT
At March 31, 2004 and December 31, 2003, long-term debt consists of the
following:
MARCH 31, DECEMBER 31,
2004 2003
-------------------------
(IN THOUSANDS)
6% Junior Subordinated Notes, net of $1.2 million discount.............. $3,103 $3,059
Other 825 855
---------- -----------
3,928 3,914
Less current portion of long-term debt.................................. 137 137
---------- -----------
$3,791 $3,777
========== ===========
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 the effective
interest rate 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 one-eighth 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.
The "Other" debt caption represents two loans established in 1997 and 1999
with Raytheon Aircraft Credit Corporation to finance the purchase of a 12.5%
interest in each of two aircraft. The loans are, respectively, payable monthly
through October 2009 and May 2011.
9. 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 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
12
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.
10. INCOME (LOSS) PER SHARE
The computation of basic and diluted income (loss) per share for the
three months ended March 31, 2004 and 2003 is as follows:
THREE MONTHS ENDED MARCH 31,
2004 2003
----------------------------------------- ------------------------------------
NET INCOME SHARES PER SHARE NET LOSS SHARES PER SHARE
AMOUNT AMOUNT
----------------------------------------- ------------------------------------
Net income (loss).......................... $1,475 $(2,314)
Less: preferred stock dividends............ (147) (9)
------------- -------------
Basic income (loss) per common share....... $1,328 12,119 $0.11 $(2,323) 14,931 $(0.16)
Effect of dilutive securities:
Restricted stock plans................... 351
Stock option plans....................... 486
Convertible preferred stock.............. 147 12,616
------------------------
Diluted income (loss) per share $1,475 25,572 $0.06 $(2,323) 14,931 $(0.16)
Diluted earnings per share for the three month period ended March 31, 2004
excludes the effect of 0.2 million stock options and 0.3 million restricted
stock grants that may be exercised in the future, because such effects would be
antidilutive. Stock options outstanding with respect to 2.9 million shares of
common stock for the three months ended March 31, 2003 have not been included in
the computation of diluted earnings per share because to do so would be
anti-dilutive for that period.
The dilutive impact of the warrant held by Superior (to acquire common
shares of Essex Electric) is estimated to be minimal for the three months ended
March 31, 2004 and antidilutive for the three months ended March 31, 2003.
13
11. BUSINESS SEGMENTS
The Company's reportable segments consist of electrical wire (Essex
Electric) and communications and electronic products (DNE). The Company
evaluates segment performance based on a number of factors, with operating
income before restructuring and other charges, being the most critical.
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
MARCH 31,
2004 2003
---- ----
(IN THOUSANDS)
Net sales:
Electrical........................................ $81,937 $89,353
DNE............................................... 6,896 8,188
--------------------------------
$88,833 $97,541
================================
Operating income (loss):
Electrical........................................ 4,824 $(2,721)
DNE............................................... 1,228 1,492
Corporate and other............................... (699) (516)
Restructuring and other charges................... (1,747) (2,586)
--------------------------------
$3,606 $(4,331)
================================
MARCH 31, DECEMBER 31,
2004 2003
---- ----
(IN THOUSANDS)
Total assets:
Electrical........................................... $ 95,145 $87,923
DNE.................................................. 11,756 9,459
Corporate and other.................................. 10,313 10,406
----------------------------------
$117,214 $107,788
==================================
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Alpine Group, Inc. ("Alpine") is a holding company which over the past
five years has owned controlling equity interests in industrial businesses which
have been operated as subsidiaries. Alpine currently owns approximately 90% of
Essex Electric Inc. ("Essex Electric"), which is engaged in the manufacture and
sale of electrical wire and DNE Systems, Inc. ("DNE Systems"), which is involved
in the manufacture and sales of multiplexers and other communications and
electronic products.
On December 11, 2002, Alpine's wholly-owned subsidiary, Alpine Holdco Inc.
("Alpine Holdco") acquired these businesses from Superior TeleCom Inc.
("Superior") and all of the outstanding shares of capital stock of Texas SUT
Inc. and Superior Cable Holdings (1997) Ltd., which together own approximately
47% of Superior Cables Ltd., the largest Israeli based producer of wire and
cable products, which we sometimes refer to as "Superior Israel". The purchase
included the issuance of a warrant (the "Warrant") to Superior to purchase 199
shares of the common stock of Essex Electric Inc. We sometimes refer to this
acquisition as the "Electrical Acquisition". In September 2003, Alpine Holdco
subscribed for and purchased 681 newly issued shares of common stock of Essex
Electric. In October 2003, Superior exercised its rights under a securityholders
agreement to subscribe for and purchase 169 shares of newly issued common stock
of Essex Electric. As a result Alpine Holdco and Superior currently own
approximately 90% and 10%, respectively, of the total outstanding stock of Essex
Electric. Superior's Warrant to purchase 199 shares of the capital stock of
Essex Electric currently represents approximately 9.9% of the capital stock of
Essex Electric.
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 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.
15
RESULTS OF OPERATIONS--THREE MONTH PERIOD ENDED MARCH 31, 2004 AS COMPARED TO
THE THREE MONTH PERIOD ENDED MARCH 31, 2003
Consolidated sales for the quarter ended March 31, 2004 were $88.8
million, a decrease of 9% compared to sales of $97.5 million for the quarter
ended March 31, 2003. The comparative sales decrease is due to lower shipments
of electrical wire by Essex Electric resulting from its determination to
consolidate production facilities and reduce manufacturing capacity and to
reduce its exposure to certain geographic markets, distribution channels and
product lines during this phase of its restructuring and repositioning.
Essex Electric sales declined 8% from $89.3 million to $81.9 million due
to the impact of the restructuring program and the sale of its automotive and
industrial wire product lines in 2003, which contributed approximately $8.0
million in sales in the quarter ended March 31, 2003. After adjusting for and
eliminating the comparative difference in the market price of copper, Essex
Electric's principal manufacturing cost item, sales for the quarter ended March
31, 2004 declined 32% from the quarter ended March 31, 2003 and the volume of
copper equivalent pounds shipped declined 37%. These anticipated declines are
due largely to the impact of the restructuring and repositioning program being
implemented at Essex Electric.
DNE sales declined from $8.2 million in the first quarter of 2003 to $6.9
million for the three months ended March 31, 2004, a decrease of 16% due
primarily to DNE's planned exiting in 2003 from contract manufacturing
activities.
Gross profit for the March 31, 2004 quarter was $13.9 million, a 43%
increase of $4.2 million as compared to gross profit of $9.7 million for the
quarter ended March 31, 2003. The gross profit margin in the March 31, 2004
quarter was 16%, compared to a gross profit margin of 10% for the three months
ended March 31, 2003. The increased margin percentage reflects higher pricing
and product mix changes, along with higher demand levels in the markets in which
Essex Electric competes, and improved margins at DNE due to changes in product
mix.
Selling, general and administrative expense ("SG&A expense") for the three
month period ended March 31, 2004 was $8.5 million, a decrease of 26%, as
compared to SG&A expense of $11.5 million for the three months ended March 31,
2003 due primarily to cost reductions at Essex Electric in connection with
implementation of its restructuring.
Restructuring and other charges at Essex Electric of $1.7 million for the
three months ended March 31, 2004 are described in Note 6.
The Company's operating income for the March 31, 2004 three month period
was $3.6 compared to an operating loss of $4.3 million for the comparable 2003
quarter. The increase in operating income is due to higher pricing and product
mix changes at Essex Electric and margin improvements at DNE.
Interest expense for the three month period ended March 31, 2004 was $0.6
million, representing a decrease of $0.5 million from the prior year three month
period. The decrease is due to a decrease of approximately $44.0 million in the
average borrowings under the Revolving Credit Facility offset partially by the
interest expense on the 6% Junior Subordinated Notes issued in August 2003.
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 "Revolving Credit Facility"), dated as of December
11, 2002, by and among Alpine Holdco, Essex Electric, DNE Manufacturing Company
and DNE Technologies, Inc. as borrowers and DNE Systems as credit party (such
parties sometimes collectively are called 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 Revolving Credit Facility. The Revolving
Credit Facility was last amended on December 8, 2003.
The terms of the Revolving Credit Facility provided for a maximum
committed amount of $100 million at its inception which, at the request of the
Companies, was reduced to $70 million on December 8, 2003. Borrowing
availability is determined by reference to a borrowing base which permits
advances to be made at various net valuation rates against various assets of the
Companies. Interest is payable monthly in cash in arrears and is based on, at
Alpine Holdco's option, LIBOR or prime rate plus a fixed margin. The weighted
average interest rate at March 31, 2004 was 4.6%. The Revolving Credit Facility
also provides for maintenance of financial covenants and ratios relating to
minimum EBITDA and tangible net worth, and includes restrictions on capital
expenditures, payment of cash dividends and incurrence of indebtedness.
16
Outstanding obligations under the Revolving Credit Facility 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 Systems in
connection with its U.S. government contracts. The obligations under the
Revolving Credit Facility are without recourse to Alpine. Unless previously
accelerated as a result of default, the Revolving Credit Facility matures in
five years. However in accordance with Emerging Issues Task Force Issue 95-22,
Balance Sheet Classification of Borrowings outstanding under Revolving Credit
Agreements That Include Both a Subjective Acceleration Clause and a Lock-Box
Arrangement, borrowings under the Revolving Credit Facility have been classified
as a current liability. The Companies may terminate the Revolving Credit
Facility 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 December 11,
2004, the Companies may, upon 30 days prior written notice, permanently reduce
the maximum committed amount without penalty or premium. At March 31, 2004 and
December 31, 2003, outstanding borrowings under the Revolving Credit Facility
were $26.8 million and $17.2 million, respectively. At March 31, 2004 the
Companies had $26.5 million of borrowing availability. No dividends may be paid
by Alpine Holdco without prior consent of the lenders. Alpine Holdco was in
compliance with all applicable covenants at March 31, 2004.
The Company estimates that Alpine Holdco capital expenditures for 2004
will approximate between $6 to $8 million. Alpine Holdco has implemented
restructuring initiatives to rationalize manufacturing capacity, lower
expenditures and reduce working capital, which are expected to result in costs
of approximately $6 million during 2004. Incurrence of these costs is
permissible under the terms of the Revolving Credit Facility. Based upon the
amended terms of the Revolving Credit Facility and the projected performance of
the Companies, Alpine believes that the Companies will be in compliance with the
financial covenants provided for thereunder. However, in the event of any
noncompliance under the Revolving Credit Facility, Alpine believes that it would
be able to obtain the necessary waivers from its lenders. Furthermore, if
necessary, Alpine believes it could obtain refinancing on terms and conditions
generally consistent or in the aggregate, similar to those contained in the
Revolving Credit Facility. However, there can be no assurance that Alpine can
obtain such waivers or that alternate financing would be available.
Additionally, Alpine believes that existing cash and cash equivalents, cash
provided by operations and anticipated working capital reductions together with
borrowings available under the Revolving Credit Facility will be sufficient to
meet the capital needs of the Companies the next twelve months.
ALPINE CORPORATE
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 market 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 one-eighth 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. As such, there are no principal payments due in 2004. 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 that does not subject the Company to any financial covenants.
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. 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. Since the market price of the common
stock on the commitment date (June 23, 2003) was $0.76 per share and the
conversion price is $0.55 per share, a beneficial conversion feature of $1.2
million was recorded as a reduction to the Mandatory redeemable series A
cumulative preferred stock line of the balance sheet with the offset to capital
in excess of par. The conversion feature will be recorded as a dividend at the
time there are 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 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.
17
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 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. Since the market price of the common
stock on the date of issuance (November 10, 2003) was $0.92 per share and the
conversion price is $0.55 per share, a beneficial conversion feature of $2.6
million was recorded. This was recorded as a dividend since the shares were
immediately convertible, offset with a credit to Capital in excess of par.
As of March 31, 2004 Alpine has unrestricted cash, cash equivalents and
marketable securities of approximately $7.2 million. Alpine's current and
anticipated sources of liquidity include existing cash and cash equivalents, and
management fees from Alpine Holdco. 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 Revolving Credit Facility, Alpine is
entitled to receive from Alpine Holdco an annual management fee (together with
any unpaid management fees from prior years), which was increased from $1.0
million to $1.8 million, (effective January 1, 2004) 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 restricted under the
terms of the Revolving Credit Facility to a maximum of $1.8 million of the
aforementioned management fee, 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.
Since 1993, Alpine has been a party to a guaranty of Superior's lease
obligations relating to Superior's manufacturing facility in Brownwood, Texas.
The lease currently provides for monthly payments of $56,000 subject to
adjustments for changes in the consumer price index. The lease term expires in
2018 but may be extended through 2033. As such, the maximum potential amount of
future payments under the guaranty through 2018 would be approximately $10
million. Any further extensions would amount to a guarantee of approximately
$0.7 million per year. While Alpine's continuing obligations, if any, under the
guaranty are not free from doubt, the Company believes the facility and
underlying lease are valuable assets of Superior and expects that Superior will
perform as tenant thereunder and continue to pay its obligations. In addition,
Alpine would have a claim for indemnification and reimbursement from Superior in
respect of any amounts paid by Alpine as guarantor.
Superior Israel's operations are funded and financed separately, with
recourse to Superior Israel but otherwise on a non-recourse basis to Alpine.
18
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 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. . At December 31, 2003, the Company had approximately $13
million of copper futures contracts, representing 12 million copper pounds,
outstanding as non-designated derivative instruments. These contracts were
entered into to hedge 12 million copper pounds of inventory purchased in
December 2003, for sale in the first quarter of 2004. These contracts were
recorded at fair value at December 31, 2003 with any price fluctuations
reflected in current earnings in 2003, and were liquidated in the first quarter
of 2004, when the underlying asset (i.e. inventory) was sold.
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 other risk factors detailed in the Company's most recent filings with
the Securities and Exchange Commission.
19
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
(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* Certification of the Company's Chief Executive Officer and 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
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* Filed herewith
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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: May 4, 2004 By:
/s/ David A. Owen
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David A. Owen
Chief Financial Officer
(duly authorized officer and principal
financial and accounting officer)
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