10-Q 1 v057556_10q.htm Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 

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, 2006

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_______to_______

Commission file number 1-9078
 

THE ALPINE GROUP, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
22-1620387
(I.R.S. Employer Identification No.)
   
One Meadowlands Plaza
East Rutherford, New Jersey
(Address of principal executive offices)
07073
(Zip code)
   

Registrant's telephone number, including area code 201-549-4400
 

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 o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o 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 1, 2006
Common Stock, $.10 Par Value
 
11,193,809
 

 

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 accounting principles generally accepted in the United States of America. However, in the opinion of management, all adjustments 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, 2005.


 

THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
 
 
 
September 30,
2006
 
December 31,
2005
 
ASSETS
         
Current assets:
             
Cash and cash equivalents
 
$
427
 
$
642
 
Marketable securities, at fair value (Note 1)
   
42,907
   
22,976
 
Restricted cash and marketable securities (Note 1) 
   
2,810
   
 
Accounts receivable
   
2,729
   
1,802
 
Inventories, net (Note 2)
   
299
   
666
 
Notes receivable from affiliate (Note 1)
   
5,083
   
1,399
 
Current assets of discontinued operations (Note 4) 
   
1,609
   
89,683
 
Other current assets
   
2,082
   
2,317
 
               
Total current assets
   
57,946
   
119,485
 
Property, plant and equipment, net
   
798
   
1,181
 
Investment in affiliate (Note 1)
   
11,313
   
 
Deferred income taxes
   
2,635
   
2,635
 
Assets of discontinued operations (Note 4)
   
   
17,337
 
Other non-current assets
   
2,384
   
2,212
 
               
Total assets
 
$
75,076
 
$
142,850
 
               
LIABILITIES AND STOCKHOLDERS' EQUITY
             
Current liabilities:
             
Current portion of long-term debt
 
$
65
 
$
 
Accounts payable
   
780
   
1,022
 
Accrued expenses
   
2,737
   
4,021
 
Deferred income taxes and income taxes payable
   
1,694
   
2,024
 
Current liabilities of discontinued operations (Note 4)
   
16,403
   
71,118
 
               
Total current liabilities
   
21,679
   
78,185
 
               
Long-term debt (Note 5)
   
400
   
2,456
 
Other long-term liabilities (Note 6)
   
19,009
   
18,530
 
Warrant
   
   
1,311
 
Minority interest in subsidiary
   
   
5,528
 
Liabilities of discontinued operations
   
   
2,322
 
Mandatorily redeemable series A cumulative preferred stock (12,357 and 13,955 shares outstanding at September 30, 2006 and December 31, 2005, respectively (Note 7)
   
4,656
   
5,263
 
               
Stockholders' equity:
             
9% cumulative convertible preferred stock at liquidation value
   
177
   
177
 
Common stock, $.10 par value; (50,000,000 authorized; 26,623,695 and 25,239,696 shares issued at September 30, 2006 and December 31, 2005, respectively) 
   
2,662
   
2,524
 
Capital in excess of par value
   
170,138
   
169,156
 
Accumulated other comprehensive income (Note 3)
   
858
   
219
 
Accumulated deficit
   
(28,070
)
 
(48,827
)
               
Treasury stock, at cost (17,431,952 and 10,873,427 shares at September 30, 2006 and December 31, 2005, respectively) 
   
(116,139
)
 
(93,648
)
Receivable from stockholders
   
(294
)
 
(346
)
               
Total stockholders' equity
   
29,332
   
29,255
 
               
Total liabilities and stockholders' equity
 
$
75,076
 
$
142,850
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

 

THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

   
Three Months Ended September 30, 
 
   
2006
 
2005
 
Net sales
 
$
8,804
 
$
3,356
 
Cost of goods sold
   
8,768
   
3,262
 
               
Gross profit
   
36
   
94
 
Selling, general and administrative expenses
   
1,021
   
1,267
 
               
Operating loss
   
(985
)
 
(1,173
)
Interest expense
   
(22
)
 
(211
)
Dividend and interest income
   
434
   
165
 
Realized gains (losses) on sales of securities
   
(63
)
 
362
 
Other income (expense), net
   
29
   
(54
)
               
Loss before income taxes, equity in earnings of affiliate and discontinued operations 
   
(607
)
 
(911
)
Income tax benefit
   
72
   
184
 
               
Loss before equity in earnings of affiliate and discontinued operations 
   
(535
)
 
(727
)
Equity in earnings of affiliate
   
1,313
   
 
               
Income (loss) from continuing operations 
   
778
   
(727
)
               
               
Discontinued operations (Note 4):
             
Income (loss) from operations of discontinued Essex Electric
   
(124
)
 
2,958
 
Income tax (provision) benefit
   
50
   
(1,445
)
               
Net income (loss) on discontinued operations
   
(74
)
 
1,513
 
               
Net income
   
704
   
786
 
Preferred stock dividends
   
(98
)
 
(111
)
               
Net income applicable to common stock 
 
$
606
 
$
675
 
               
               
Net income (loss) per share of common stock:
             
   Basic
             
Income (loss) from continuing operations applicable to common stock 
 
$
0.06
 
$
(0.05
)
Income (loss) from discontinued operations, net of tax 
   
(0.01
)
 
0.09
 
               
Net income 
 
$
0.05
 
$
0.04
 
               
Diluted
             
Income (loss) from continuing operations applicable to common stock
 
$
0.04
 
$
(0.05
)
Income (loss) from discontinued operations, net of tax
   
(0.01
)
 
0.09
 
               
Net income 
 
$
0.03
 
$
0.04
 
               
               
Weighted average shares outstanding: 
             
Basic
   
11,116
   
15,961
 
Diluted
   
21,087
   
15,961
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

 

THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

   
Nine Months Ended September 30, 
 
   
2006
 
2005
 
Net sales
 
$
22,872
 
$
10,106
 
Cost of goods sold
   
22,859
   
9,752
 
               
Gross profit
   
13
   
354
 
Selling, general and administrative expenses
   
3,268
   
3,557
 
               
Operating loss
   
(3,255
)
 
(3,203
)
Interest expense
   
(693
)
 
(615
)
Gain on sale of stock of affiliate
   
1,237
   
 
Dividend and interest income
   
1,422
   
502
 
Realized gains on sales of securities
   
509
   
389
 
Other income (expense), net
   
(18
)
 
63
 
               
Loss before income taxes, equity in earnings of affiliate and discontinued operations 
   
(798
)
 
(2,864
)
Income tax benefit
   
304
   
581
 
               
Loss before equity in earnings of affiliate and discontinued operations 
   
(494
)
 
(2,283
)
               
Equity in earnings of affiliate 
   
1,313
   
 
               
Income (loss) from continuing operations 
   
819
   
(2,283
)
               
               
Discontinued operations (Note 4):
             
Gain (loss) from operations of discontinued Essex Electric (including gain on sale of $25,639)
   
34,813
   
(2,169
)
Income tax (provision) benefit
   
(14,572
)
 
614
 
               
Net gain (loss) on discontinued operations
   
20,241
   
(1,555
)
               
Net income (loss)
   
21,060
   
(3,838
)
Preferred stock dividends
   
(303
)
 
(335
)
               
Net income (loss) applicable to common stock 
 
$
20,757
 
$
(4,173
)
               
               
Net income (loss) per share of common stock:
             
   Basic:
             
Income (loss) from continuing operations applicable to common stock 
 
$
0.04
 
$
(0.16
)
Income (loss) from discontinued operations, net of tax 
   
1.52
   
(0.10
)
               
Net income (loss) 
 
$
1.56
 
$
(0.26
)
               
   Diluted:
             
Income (loss) from continuing operations 
 
$
0.04
 
$
(0.16
)
Income (loss) from discontinued operations 
   
0.85
   
(0.10
)
               
Net income (loss) 
 
$
0.89
 
$
(0.26
)
               
               
Weighted average shares outstanding: 
             
Basic 
   
13,272
   
15,790
 
Diluted 
   
23,732
   
15,790
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

 

THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
(unaudited)
   
 Nine Months Ended September 30, 2006
 
   
Shares
 
Amount
 
Common stock:
             
Balance at beginning of period
   
25,239,696
 
$
2,524
 
Shares issued pursuant to Series A Preferred Stock conversion
   
1,187,326
   
118
 
Exercise of stock options
   
196,673
   
20
 
               
Balance at end of period
   
26,623,695
   
2,662
 
               
Capital in excess of par value:
             
Balance at beginning of period
         
169,156
 
Compensation expense related to restricted stock and certain stock options, less vested shares released from Treasury 
         
335
 
Shares issued pursuant to Series A Preferred Stock conversion
         
489
 
Exercise of stock options
         
158
 
               
Balance at end of period
         
170,138
 
               
9% cumulative convertible preferred stock:
             
Balance at beginning of period 
   
177
   
177
 
               
Balance at end of period 
   
177
   
177
 
               
Accumulated other comprehensive income:
             
Balance at beginning of period
         
219
 
Change in unrealized losses on securities, (net of tax benefit of $426)
         
639
 
               
Balance at end of period
         
858
 
               
Accumulated deficit:
             
Balance at beginning of period
         
(48,827
)
Net income
         
21,060
 
Dividends on preferred stock
         
(303
)
               
Balance at end of period
         
(28,070
)
               
Treasury stock:
             
Balance at beginning of period
   
(10,873,427
)
 
(93,648
)
Stock options and grants 
   
126,145
   
70
 
Modified Dutch Auction redemptions 
   
(6,684,670
)
 
(22,561
)
               
Balance at end of period
   
(17,431,952
)
 
(116,139
)
               
Receivable from stockholders:
             
Balance at beginning of period
         
(346
)
Forgiveness of officer loans
         
52
 
               
Balance at end of period
         
(294
)
               
Total stockholders' equity
       
$
29,332
 
               
Comprehensive income 
       
$
21,699
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

 

THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

   
Nine Months Ended September 30,
 
   
2006
 
2005
 
Cash flows from operating activities:
             
Net income (loss)
 
$
21,060
 
$
(3,838
)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
             
Gain on sale of Essex Electric assets
   
(25,639
)
 
 
Depreciation
   
242
   
964
 
Amortization of deferred debt issuance costs and accretion of debt discount
   
605
   
375
 
Compensation expense related to stock options and grants
   
449
   
605
 
Loss on sale of capital assets and subsidiary stock
   
161
   
693
 
Gain on sale of stock of affiliate
   
(1,237
)
 
 
Realized gains on investments in marketable securities
   
(509
)
 
(337
)
Equity in earnings of affiliate
   
(1,313
)
 
 
Minority interest in income (loss) of subsidiary
   
1,617
   
(325
)
Loss on purchase of minority interest in subsidiary
   
43
   
 
Decrease in fair value of warrant
   
   
6
 
Change in assets and liabilities:
             
Accounts receivable, net
   
66,466
   
(19,984
)
Inventories, net
   
8,852
   
7,542
 
Other current and non-current assets
   
462
   
655
 
Accounts payable and accrued expenses
   
(34,580
)
 
4,769
 
Income taxes 
   
2,663
   
(6,728
)
Other, net
   
481
   
575
 
               
Cash flows provided by (used for) operating activities
   
39,823
   
(15,028
)
               
Cash flows from investing activities:
             
Capital expenditures
   
(161
)
 
(2,297
)
Proceeds from sale of assets
   
228
   
1,035
 
Proceeds from sale of investments
   
85,689
   
15,264
 
Advances under loans to affiliate
   
(3,685
)
 
(1,773
)
Proceeds from sale of Essex Electric assets, net of transaction costs
   
53,981
   
 
Proceeds from sale of stock of affiliate
   
1,237
   
 
Purchase of marketable securities
   
(106,862
)
 
(1,705
)
Purchase of minority interest and warrant
   
(8,500
)
 
 
Investment in affiliate
   
(10,000
)
 
 
               
Cash flows provided by investing activities
   
11,927
   
10,524
 
               
Cash flows from financing activities:
             
Borrowings (repayments) under revolving credit facilities, net
   
(26,725
)
 
4,222
 
Repayments of long-term borrowings
   
(2,563
)
 
(387
)
Dividends on preferred stock
   
(302
)
 
(334
)
Proceeds from exercise of stock options
   
186
   
 
Reverse - forward split
   
   
(17
)
Proceeds from minority interest investment in subsidiary
   
   
1,241
 
Common stock redemptions from Modified Dutch Auction
   
(22,561
)
 
 
               
Cash flows provided by (used for) financing activities
   
(51,965
)
 
4,725
 
               
Net increase (decrease) in cash and cash equivalents
   
(215
)
 
221
 
Cash and cash equivalents at beginning of period
   
642
   
611
 
               
Cash and cash equivalents at end of period
 
$
427
 
$
832
 
               
Supplemental disclosures:
             
Cash paid for interest
 
$
449
 
$
2,295
 
Cash paid for income taxes, net
 
$
11,039
 
$
4,988
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

7

 

THE ALPINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006
(unaudited)

1. General

Basis of presentation and description of business

The accompanying condensed 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). Alpine Holdco, Inc., (“Alpine Holdco”) is a wholly owned subsidiary of Alpine. The Company accounts for all affiliate companies with ownership greater than 20%, but not majority-controlled on an ongoing basis, using the equity method of accounting.

Alpine was incorporated in New Jersey in 1957 and reincorporated in Delaware in 1987. Alpine is a holding company which over the recent past has owned and operated industrial manufacturing companies. Alpine's operations consist of Essex Electric Inc. (“Essex Electric”), a wholly owned subsidiary, currently engaged in the business of copper scrap reclamation and an equity investment in Superior Cables Ltd. (“SCL”), an Israeli based producer of wire and cable products. Prior to January 31, 2006, Essex Electric was engaged primarily in the manufacture and sale of electrical building wire and cable. On January 31, 2006 substantially all of the assets of Essex Electric were sold (see Note 4). During June 2006, Alpine and other investors recapitalized SCL resulting in Alpine’s current 52% ownership of SCL. Alpine currently intends to reduce its ownership to below 50%. Consequently, Alpine’s majority ownership of SCL is temporary and its investment in SCL is accounted for on the equity method in accordance with Statement of Financial Accounting Standards (“SFAS”) 94, Consolidation of All Majority - Owned Subsidiaries.
 
Segment Information

For all periods reflected in these financial statements, the Company’s operations consist of only one segment - copper scrap reclamation and plastic resin compounding for the wire and cable industry. On October 27, 2006, Essex Electric announced the closing of its plastic resin compound plant. All consolidated net sales and long-lived assets for all periods presented herein were based in the United States. During the quarter ended September 30, 2006, two customers accounted for 51.2% and 35.0% of the total net sales of the Company, respectively. During the quarter ended September 30, 2005 two customers accounted for 59.4% and 16.5% of net sales, respectively. No other customers accounted for more than 10% of sales.

Marketable securities

SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, requires securities to be classified as held to maturity, available for sale or trading. Only those securities classified as held to maturity, which the Company intends and has the ability to hold until maturity, are reported at amortized cost. All other securities held as of September 30, 2006 have been classified as available for sale and are reported at fair value with unrealized gains and losses included in shareholders’ equity.

The following table shows the unrealized gains (losses) and fair value of the Company’s investments aggregated by investment category as of September 30, 2006:


   
(in thousands)
 
 
Description of Securities
 
Cost
Basis
 
Unrealized
Gains
 
Unrealized
Losses*
 
Fair
Value
 
Money market funds
 
$
613
 
$
 
$
 
$
613
 
Marketable equity securities
   
5,869
   
421
   
(17
)
 
6,273
 
Municipal bonds and notes
   
26,178
   
49
   
   
26,227
 
Mutual funds
   
10,335
   
1,021
   
   
11,356
 
Preferred securities
   
250
   
   
   
250
 
Government securities
   
999
   
   
(1
)
 
998
 
Subtotal
   
44,244
   
1,491
   
(18
)
 
45,717
 
Less: Restricted (See Note 1 below)
   
(2,810
)
 
   
   
(2,810
)
Total
 
$
41,434
 
$
1,491
 
$
(18
)
$
42,907
 

* None of the gross unrealized losses have exceeded 12 months.

8

 
    The gross unrealized gains (losses) related to short-term investments are primarily due to a change in the fair market value of the various equity securities. Alpine has reviewed its securities in a loss position and believes that the gross unrealized losses on its short-term investments at September 30, 2006 are temporary in nature. Alpine reviews its investment portfolio quarterly, to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been less than cost basis, the financial condition, credit quality and near-term prospects of the investee and Alpine’s ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

Notes receivable from affiliate

Alpine has made loans to the United States subsidiary of SCL collateralized by United States-based inventory and accounts receivable. The loans are due on demand and earn interest at the rate of LIBOR plus 1.4% per annum. As of September 30, 2006 and December 31, 2005, $4.1 and $1.4 million, respectively, was outstanding. The current outstanding balance and interest accrued thereon is due on demand.

Through October 23, 2006 Alpine loaned $2.0 million to SCL for working capital, of which $1.0 million was outstanding as of September 30, 2006. This loan is subordinate to SCL’s bank debt, accrues interest at LIBOR plus 1.4% per annum and matures on January 31, 2007.
 
Restricted cash and marketable securities
 
Pursuant to the Essex Electric Sale (see Note 4), Essex Electric agreed to maintain encumbrance free through July 31, 2007 an amount equal to $2.8 million in (a) cash, (b) cash equivalents or (c) marketable securities. This amount is classified as restricted cash and marketable securities at September 30, 2006 and since the restriction period is less than one year from the balance sheet date herein, it is classified as a current asset.

Subsidiary stock transactions

The Company's ownership percentage in subsidiary stock is impacted by the Company's purchase of additional subsidiary stock, as well as subsidiary stock transactions, including the subsidiary's purchase of its own stock and the subsidiary's issuance of its own stock. The Company accounts for subsidiary stock transactions in accordance with Staff Accounting Bulletin No. 51, "Accounting for sales of stock by a subsidiary" and records all gains and losses related to subsidiary stock transactions through other income and expense.
 
In January 2005, Alpine Holdco purchased 1,792 shares of Essex Electric common stock for a cash purchase price of $5.0 million and the other shareholder of Essex Electric purchased 445 shares of Essex Electric common stock for a cash purchase price of $1.2 million, resulting in Holdco and the other shareholder owning 84.2% and 15.8% of Essex Electric, respectively. In accordance with accounting principles generally accepted in the United States of America, the Company accounted for the sale of stock of Essex Electric as a loss on sale of subsidiary stock of approximately $0.9 million and decreased the value of a warrant held by such other shareholder to purchase 199 shares of Essex Electric common stock (the “Warrant”) by $0.4 million due to the dilutive impact of the additional 2,237 shares issued. On January 25, 2006 Alpine purchased from such other shareholder 614 shares of Essex Electric and the Warrant for a purchase price of $8.5 million. As a result, Alpine owned 100% of the total outstanding capital stock of Essex Electric.

Related party transactions

On August 8, 2006, the Company agreed to reschedule payment of three installments due an executive on account of a non-competition agreement with the Company. The three installments were originally payable in the amount of $50,000 on December 31, 2006, September 30, 2007 and December 31, 2007. The installments were discounted at the prime rate and $48,460 was paid on August 10, 2006 and $94,513 will be paid on January 10, 2007. The liability for these payments is included in accrued liabilities as of September 30, 2006 in the financial statements herein.

Recent accounting standards
 
In July 2006, the Financial Accounting Standards Board (“FASB”) released Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (“FIN 48”). This interpretation revises the recognition tests for tax positions taken in tax returns such that a tax benefit is recorded only when it is more likely than not that the tax position will be allowed upon examination by taxing authorities. The amount of such a tax benefit to record is the largest amount that is more likely than not to be allowed. Any change in deferred tax assets or tax liabilities upon adoption will correspondingly impact retained earnings. The Company has not yet determined the effect of adopting this interpretation, which is effective for it on January 1, 2007.
 
9

 
2. Inventories

At September 30, 2006 and December 31, 2005, the components of inventories were as follows:

   
September 30,
2006
 
December 31,
2005
 
   
(in thousands) 
 
Raw materials
 
$
286
 
$
651
 
Work in process
   
598
   
393
 
     
884
   
1,044
 
LIFO reserve
   
(585
)
 
(378
)
   
$
299
 
$
666
 

The inventories shown above are all valued using the LIFO method. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at the same time. Accordingly, interim LIFO calculations must be based on management's estimates of expected year-end inventory levels and costs. Because these are subject to many factors beyond management's control, interim results are subject to adjustment in future periods due to the final year-end LIFO inventory valuation.

3. Comprehensive income (loss)

The components of comprehensive income (loss) for the three and nine month periods ended September 30, 2006 and 2005 were as follows:

   
Three Months Ended September 30,
 
   
2006
 
2005
 
   
(in thousands) 
 
Net income
 
$
704
 
$
786
 
Change in unrealized gains (losses) on securities, net of tax
   
534
   
(46
)
               
Comprehensive income
 
$
1,238
 
$
740
 
 
   
Nine Months Ended September 30,
 
   
2006
 
2005
 
   
(in thousands)
 
Net income (loss)
 
$
21,060
 
$
(3,838
)
Change in unrealized gains on securities, net of tax
   
639
   
137
 
Comprehensive income (loss)
 
$
21,699
 
$
(3,701
)

4. Discontinued operations - Essex Electric

     On January 31, 2006, Essex Electric completed the sale of certain of its assets comprising its building wire business to Southwire, which we refer to at times as the “Essex Electric Sale”. The transaction was provided for and consummated pursuant to an asset purchase agreement between Essex Electric, as seller and Southwire, as buyer, dated September 30, 2005. The agreement provided for the sale by Essex Electric of all of its closing date building wire related inventory and prepaid assets, its Florence, Alabama manufacturing plant and equipment, and the assumption by Southwire of certain contracts and selected current liabilities related to the business. Essex Electric retained substantially all of its other liabilities including the indebtedness under its revolving credit facility. Excluded from the sale were cash and cash equivalents and accounts receivable of Essex Electric, a copper scrap reclamation plant and operation based in Jonesboro, Indiana, a plastic resin compounding plant and operation based in Marion, Indiana, and three leased warehouse distribution centers. The scrap reclamation operation serviced both Essex Electric’s internal requirements for scrap processing, as well as external customers. The purchase price was the sum of (i) $27 million plus (ii) the closing date value of Essex Electric’s inventory and certain prepaid assets.

10

 

     The purchase price of $55.6 million was paid in cash by Southwire at closing and was subject to customary post-closing review and adjustment by the parties in accordance with certain agreed upon procedures provided for under the asset purchase agreement, which adjustment amount was not significant. In connection with the consummation of the sale, Essex Electric repaid in full and terminated its revolving credit facility.

     As of December 31, 2005, the net assets to be disposed of pursuant to the Essex Electric Sale did not meet all of the requirements of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, in order to be classified as assets held for sale or discontinued operations as of December 31, 2005 since completion of the sale required Alpine stockholder approval. However, such approval occurred at a special meeting of stockholders of Alpine on January 26, 2006 and the Essex Electric Sale closed on January 31, 2006. Therefore, the assets and liabilities and results of operation related to the discontinued operations have been classified as discontinued operations for all periods presented herein.

     The assets and liabilities included in the condensed consolidated financial statements relating to the operations of Essex Electric sold in the Essex Electric Sale are as follows:
 
   
September 30,
2006 
 
December 31,
2005
 
 
 
 (in thousands)
 
ASSETS
             
Current assets:              
Accounts receivable
 
$
5
 
$
67,398
 
Inventories, net of LIFO reserve of $29,740 at December 31, 2005
   
   
20,758
 
Other current assets
   
1,604
   
1,527
 
               
Total current assets
 
$
1,609
 
$
89,683
 
Property, plant and equipment, net
   
   
16,546
 
Other assets
   
   
791
 
               
Total assets
 
$
1,609
 
$
107,020
 
               
LIABILITIES
             
Current liabilities:
             
Revolving credit facility
 
$
 
$
26,725
 
Accounts payable
   
373
   
24,380
 
Accrued expenses
   
1,631
   
11,355
 
Deferred income taxes and income taxes payable
   
14,399
   
8,658
 
               
Total current liabilities
   
16,403
   
71,118
 
               
Deferred income taxes
   
   
2,322
 
               
Total liabilities
   
16,403
   
73,440
 
Net assets (liabilities)
 
$
(14,794
)
$
33,580
 
 
     The revenues and pretax income included in the accompanying statement of operations which is included in the condensed consolidated financial statements contained herein related to the operations sold in the Essex Electric Sale are as follows:

   
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
   
2006
 
2005
 
2006
 
2005
 
   
(in thousands)
 
Net Sales
 
$
 
$
109,665
 
$
60,066
 
$
290,559
 
Pretax income (loss)
   
   
3,234
   
17,304
   
(2,494
)

     The net sales and pretax income for the nine month period ended September 30, 2006 represents the results of operations for January 2006 while the discontinued operations were still owned by Essex Electric. Included in the pretax income for the nine month period ended September 30, 2006 is approximately $12.4 million of income resulting from a LIFO decrement due to a significant decrease in inventories in January 2006.

11

 
 
Below is a table with the costs associated with the activities related to the Essex Electric Sale: 

   
Total expected to be incurred
 
Incurred in three months ended September 30, 2006
 
Total costs incurred through September 30, 2006
 
Liability as of September 30, 2006
 
   
(in thousands) 
 
One time termination benefits (a)
 
$
2,926
 
$
146
 
$
2,376
 
$
387
 
Contract termination costs (b)
   
2,555
   
46
   
2,555
   
391
 
Write-down of assets (c)
   
255
   
   
255
   
 
Transition and other costs (d)
   
2,258
   
(92
)
 
1,287
   
50
 
                           
Totals
 
$
7,994
 
$
100
 
$
6,473
 
$
828
 

(a)  
Certain severance payments and transactional bonuses were accrued as of the January 31, 2006 closing date of the Essex Electric Sale. The remaining liability represents primarily unpaid severance for employees remaining with the Company through a transitional phase which will be completed in 2006.

(b)  
Includes a prepayment penalty and other loan fees related to the revolving credit facility that was terminated concurrently with the sale, as well as an accrual for the present value of future lease obligations for discontinued facilities, net of estimated income from sub-lease arrangements. The remaining liability represents the unamortized portion of the future lease obligations.

(c)  
Represents the write-down of certain assets that became surplus or obsolete with the sale.

(d)  
Includes personnel and other costs associated with the post - Essex Electric Sale transition period.

        The costs incurred above are included in income from discontinued operations in the statement of operations. Approximately $0.8 million of transaction bonus payments made to certain executives are being deferred and amortized over the period in which earned, since such amounts must be repaid should the executives voluntarily terminate employment prior to December 31, 2007.

5. Long-term debt

At September 30, 2006 and December 31, 2005, long-term debt consists of the following: 

   
September 30,
2006
 
December 31,
2005
 
   
(in thousands) 
 
6% Junior Subordinated Notes, net of $0.1 and $0.6 million discount, at September 30, 2006 and December 31, 2005, respectively
 
$
465
 
$
2,456
 
6% Less current portion of long-term debt 
   
(65
)
 
 
   
$
400
 
$
2,456
 

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 through December 31, 2010. During the three month period ended September 30, 2006 the Company did not redeem any of the Subordinated Notes. During the nine month period ended, September 30, 2006, the Company retired $2.6 million of the Subordinated Notes and recorded $0.5 million of additional interest expense related to the acceleration of the related unamortized discount.

12

 

6. Other long-term liabilities

At September 30, 2006 and December 31, 2005, other long-term liabilities consist of the following:

   
September 30,
2006
 
December 31,
2005
 
   
(in thousands)
 
Tax contingency reserve  
 
$
17,616
 
$
17,106
 
Other long-term liabilities 
   
1,393
   
1,424
 
   
$
19,009
 
$
18,530
 

During 2001, the Company entered into commercial transactions intended to offset the potential impact of interest rate changes on the Company’s investments, including the investment of the net cash proceeds from the sale of an equity investment. The Company claimed tax benefits from these transactions of $11.2 million and $3.2 million in 2001 and 2002, respectively. At December 31, 2001, the Company established a tax contingency reserve on its balance sheet corresponding to realized tax benefits. The balances in the reserve at September 30, 2006 and December 31, 2005 (including interest) were $17.6 and $17.1 million, respectively.

7. Series A Cumulative Convertible Preferred Stock

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. The Series A Preferred Stock originally was convertible into shares of Alpine common stock (par value $0.10 per share (the “Common Stock”)), at the option of the holder, at the rate of 691 shares of Common Stock per share of Series A Preferred. As a result of a special dividend declared by the Company on August 24, 2004, the conversion rate increased to 743.01. Since the market price of the Common Stock on the subscription date (June 23, 2003) was $0.76 per share and the original conversion price was $0.55 per share, a beneficial conversion feature of $1.2 million was recorded as a reduction to the mandatorily redeemable series A cumulative preferred stock line of the balance sheet with the offset to capital in excess of par. The beneficial conversion feature was recorded as a dividend as of December 29, 2004 when the privately placed Series A Preferred Stock became convertible following the increase in authorized but unissued shares of Common Stock from 25 million to 50 million shares.

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 Common Stock. Common stockholders 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. 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 original conversion price was $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. The Company may cause conversion of the Series A Preferred Stock into Common Stock if the 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 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.

During the three and nine month periods ended September 30, 2006, respectively, 15 and 1,598 shares of the Series A Preferred Stock were converted into 11,145 and 1,187,326 shares of Common Stock, respectively.

13

 

8. Earnings Per Share

The computation of basic and diluted income (loss) per share for the three and nine month periods ended September 30, 2006 and 2005 is as follows:

   
 Three Months Ended September 30,
 
   
 2006
 
2005
 
   
Net Income (loss)
 
Weighted  Average
Shares
 
Per Share
Amount
 
Net Income
(loss)
 
Weighted Average
Shares
 
Per Share
Amount
 
Basic earnings (loss) per share
                                     
Net income (loss) from continuing operations
 
$
778
   
11,116
 
$
0.07
 
$
(727
)
 
15,961
 
$
(0.04
)
Adjustments:
                                     
Preferred stock dividends
   
(98
)
 
11,116
   
(0.01
)
 
(111
)
 
15,961
   
(0.01
)
Income (loss) attributable to common stock from continuing operations
 
$
680
   
11,116
 
$
0.06
 
$
(838
)
 
15,961
   
(0.05
)
Loss from discontinued operations, net of tax
   
(74
)
 
11,116
   
(0.01
)
 
1,513
   
15,961
   
0.09
 
Net income (loss) applicable to common stock per basic common share
 
$
606
   
11,116
 
$
0.05
 
$
675
   
15,961
 
$
0.04
 
Diluted earnings (loss) per share
                                     
Net income (loss) from continuing operations applicable to common stock
 
$
680
       
$
0.06
 
$
(838
)
 
15,961
 
$
(0.05
)
Effect of dilutive securities:
         
 
                         
Restricted stock plans
         
318
                         
Stock option plans
         
450
                         
Convertible preferred stock
   
98
   
9,203
                             
Income (loss) attributable to common stock from continuing operations and assumed conversions
   
778
   
21,087
 
$
0.04
   
(838
)
 
15,961
   
(0.05
)
Loss from discontinued operations
   
(74
)
 
21,087
   
(0.01
)
 
1,513
   
15,961
   
0.09
 
Income (loss) attributable to common stock per diluted common share
 
$
704
   
21,087
 
$
0.03
 
$
675
   
15,961
 
$
0.04
 
 
14

 
 
   
 Nine Months Ended September 30,
 
   
 2006
 
2005
 
   
Net Income (loss)
 
Weighted  Average
Shares
 
Per Share Amount
 
Net Income (loss)
 
Weighted Average Shares
 
Per Share
Amount
 
Basic earnings (loss) per share
                                     
Net income (loss) from continuing operations
 
$
819
   
13,272
 
$
0.06
 
$
(2,283
)
 
15,790
 
$
(0.14
)
Adjustments:
                                     
Preferred stock dividends
   
(303
)
 
13,272
   
(0.02
)
 
(335
)
 
15,790
   
0.02
 
Net income (loss) applicable to common stock from continuing operations
   
516
   
13,272
   
0.04
   
(2,618
)
 
15,790
   
(0.16
)
Net income from sale of Essex Electric, net of tax
   
15,383
   
13,272
   
1.16
                   
Income (loss) from discontinued operations, net of tax
   
4,858
   
13,272
   
0.36
   
(1,555
)
 
15,790
   
(0.10
)
Net income (loss) applicable to common stock per basic and diluted common share
 
$
20,757
   
13,272
 
$
1.56
 
$
(4,173
)
 
15,790
 
$
(0.26
)
Diluted earnings (loss) per share
                                     
Net income (loss) from continuing operations applicable to common stock
 
$
516
   
13,272
 
$
0.04
 
$
(2,618
)
 
15,790
 
$
(0.16
)
Effect of dilutive securities:
                                     
Restricted stock plans
         
370
                         
Stock option plans
         
501
                         
Convertible preferred stock
   
303
   
9,589
                             
Net income (loss) applicable to common stock from continuing operations and assumed conversions
   
819
   
23,732
 
$
0.04
   
(2,618
)
 
15,790
   
(0.16
)
Income from sale of Essex Electric
   
15,383
   
23,732
 
$
0.65
                   
Income (loss) from discontinued operations
   
4,858
   
23,732
   
0.20
   
(1,555
)
 
15,790
   
(0.10
)
Income (loss) applicable to common stock per diluted common share
 
$
21,060
   
23,732
 
$
0.89
 
$
(4,173
)
 
15,790
 
$
(0.26
)
 
The Company has excluded the assumed exercise of certain stock options (less than 0.1 million), and vesting of certain restricted stock grants (0.2 million) from the Company’s earnings per share calculation for the three and nine month periods ended September 30, 2006. The Company has also excluded the assumed exercise of all stock options (1.5 million), vesting of restricted stock grants (0.8 million) and conversion of all convertible preferred stock (14,277 preferred shares convertible into 10.5 million common shares) from the Company’s earnings per share calculation for the three and nine month periods ended September 30, 2005, as the impact would be anti-dilutive due to the loss from continuing operations for those periods.

9. Stock based compensation plans

Alpine currently has one employee stock option incentive plan: the 1997 Stock Option Plan (the "1997 Plan"). The 1997 Plan has 1,500,000 shares of common stock reserved for issuance. There were 107,109 and 19,436 shares of common stock available under the 1997 Plan as of September 30, 2006 and December 31, 2005, respectively. Participation in the 1997 Plan is generally limited to key employees and consultants of Alpine and its subsidiaries. The 1997 Plan provides for the granting of incentive and non-qualified stock options and stock appreciation rights. The options granted under the 1997 Plan vest in equal annual installments over the three year period commencing on the first anniversary date of the grant or, if earlier, upon the occurrence of a change in control of the Company and options cannot be exercised after ten years from the date of grant. During the quarter ended September 30, 2006 no options were granted under the 1997 Plan.

The Company adopted the Stock Compensation Plan for Non-Employee Directors (the "Director Plan") in January 1999. Under the Director Plan, each non-employee director of the Company automatically receives 50% of the annual retainer in either restricted common stock or non-qualified stock options, as elected by the director. In addition, each non-employee director may also elect to receive all or a portion of the remaining amount of the annual retainer and any meeting fees in the form of restricted stock or stock options in lieu of cash payment. During the first quarter of 2006, 13,206 non-qualified stock options and 5,031 shares of restricted stock were granted to non-employee directors. During the second quarter of 2006, 9,603 non-qualified stock options and 4,340 shares of restricted stock were granted to non-employee directors. During the third quarter of 2006, 9,028 non-qualified stock options and 3,610 shares of restricted stock were granted to non-employee directors. All options and restricted stock granted during 2006 were issued at the fair market value of the Common Stock at the date of the grant. Each stock option granted under the Director Plan expires on the tenth anniversary of the date of the grant. Awards of restricted stock and stock options under the Director Plan vest upon the earliest of the following to occur: (i) the third anniversary of the date of the grant; (ii) a non-employee director’s death; and (iii) a change of control of the Company. Any shares issued pursuant to the Director Plan will be issued from the Company's treasury stock.
 
15

 
Alpine sponsors a 1984 Restricted Stock Plan under which a maximum of 600,000 shares of Common Stock have been reserved for issuance. At September 30, 2006, there are 45,064 shares available for issuance. During the quarter ended September 30, 2006, the Executive Compensation and Organization Committee of the Board of Directors (“the Compensation Committee”) granted no new shares under this plan. Shares of restricted Common Stock granted under this Plan vest in equal installments over a three year period commencing with the first anniversary of grant.

Alpine sponsors The Alpine Group, Inc. Deferred Stock Account Plan, an unfunded deferred stock compensation plan whereby certain key management employee participants are permitted to (i) defer the receipt of all, or a portion, of their non-cash salary or bonus and shares of Common Stock issued upon stock option exercises, as defined by the plan and (ii) reinvest deemed cash dividends allocable to Common Stock credited to a participant’s account under the plan into additional deferred Common Stock. The plan also provides for, Company matching contributions of Common Stock of either 25% or 50%, depending upon period of deferral, applied to shares of Common Stock deferred therein. The compensation cost associated with the Company matching contributions is amortized over the period of the deferral in respect of which it is earned. Shares deferred into the Deferred Stock Account Plan are held in irrevocable grantor trusts. On April 19, 2006, the Compensation Committee approved voluntary reductions in executive base compensation levels for calendar 2006 and awarded grants of 155,359 shares of restricted common stock to participating executives. All executives elected to defer the receipt of the shares under this Plan. At September 30, 2006, 1,947,521 shares of Common Stock have been deferred and are included in the grantor trusts. These shares and the corresponding liability are classified as components of treasury stock and additional paid-in capital, respectively, in the consolidated balance sheets. The total unamortized deferred compensation was $1.1 million and $0.5 million as of September 30, 2006 and December 31, 2005, respectively.

The following table summarizes restricted stock activity for the nine month period ended September 30, 2006: 

   
Deferred Stock Account Plan 
 
Non-Employee Directors Plan 
 
1984 Restricted Stock Plan 
 
   
Shares
 
Weighted Average Grant Date Fair Value
 
Shares
 
Weighted Average Grant Date
Fair Value
 
Shares
 
Weighted Average Grant Date Fair Value
 
Nonvested balance at December 31, 2005
   
137,763
 
$
0.86
   
139,345
 
$
1.08
   
29,670
 
$
1.65
 
Granted
   
   
   
5,031
   
2.76
   
   
 
Vested
   
(20,000
)
 
0.86
   
(19,569
)
 
0.63
   
(5,833
)
 
2.01
 
Forfeited
   
   
   
   
   
(14,169
)
 
1.67
 
Nonvested balance at March 31, 2006
   
117,763
   
0.86
   
124,807
   
1.21
   
9,668
   
1,41
 
                                       
Granted
   
155,359
   
3.40
   
4,340
   
3.20
   
   
 
Vested
   
(94,429
)
 
0.85
   
(20,763
)
 
0.60
   
(4,168
)
 
0.76
 
Forfeited
   
   
   
   
   
(5,000
)
 
2.01
 
Nonvested balance at June 30, 2006
   
178,693
   
3.07
   
108,384
   
1.41
   
500
   
0.91
 
                                       
Granted
   
         
3,610
   
3.01
   
       
Vested
   
         
(21,347
)
 
0.65
   
       
Forfeited
   
         
         
       
Nonvested balance at September 30, 2006
   
178,693
 
$
3.07
   
90,647
 
$
1.65
   
500
 
$
0.91
 
                                       
Unrecognized Compensation Costs
 
$
422,221
       
$
71,635
       
$
12
       
Weighted Average Period Remaining
   
2.7
   
Years
   
2.0
   
Years
   
0.1
   
Years
 

Excluded from the table above are 490,909, 563,590 and 490,909 shares as of September 30, June 30 and March 31, 2006, respectively, that represent future Company matching contributions being earned on account of shares deferred by participants in the Deferred Stock Account Plan. Under the plan, the number of matching shares contributed by the Company varies based upon the length of the deferral period(s) selected by plan participants and the contribution is earned upon expiration of the related deferral period(s). The amortization of the cost associated with matching contribution shares is, and has been, included in the compensation expense of the Company, all of which is included in selling, general and administrative expenses in the statement of operations. There is approximately $0.6 million of unamortized compensation expense related to such matching contribution shares as of September 30, 2006 that is expected to be recognized over a weighted average period of 3.7 years.
 
16

 
The following table summarizes stock option activity for the nine months ended September 30, 2006. 

   
Shares
Outstanding
 
Weighted-
Average Exercise
Price
 
Weighted
Average
Remaining
Contractual
Terms (in years)
 
Aggregate
Intrinsic Value
 
Outstanding at December 31, 2005
   
1,295,793
 
$
1.17
   
7.32
       
Exercised
   
(240,368
)
 
0.81
             
Canceled
   
(69,334
)
 
1.37
             
Granted
   
13,206
   
2.71
             
Outstanding at March 31, 2006
   
999,297
 
$
1.26
   
7.06
 
$
2,088,983
 
Exercised
   
(1,667
)
 
0.76
             
Canceled
   
(33,171
)
 
2.81
             
Granted
   
9,603
   
3.26
             
Outstanding at June 30, 2006
   
974,062
 
$
1.23
   
6.93
 
$
1,902,068
 
Exercised
   
   
             
Canceled
   
(1,668
)
 
0.76
             
Granted
   
9,028
   
3.10
             
Outstanding at September 30, 2006
   
981,422
 
$
1.25
   
6.71
 
$
1,280,458
 
Options exercisable at September 30, 2006
   
758,372
 
$
1.17
   
6.37
 
$
1,048,095
 
 
The weighted average grant-date fair value of options granted for the nine month periods ended September 30, 2006 and 2005 was $2.71 and $1.80, respectively. The aggregate intrinsic value of options exercised for the nine month period ended September 30, 2006 was $2.40.

Information with respect to stock-based compensation plan stock options outstanding and exercisable at September 30, 2006 is as follows:
 

   
Options Outstanding
 
Options Exercisable
 
Range Of Exercise Prices
 
Number
Of Options
Outstanding
 
Weighted
Average
Remaining
Contractual
Life (Years)
 
Weighted
Average
Exercise
Price
 
Number
Of Options
Exercisable
 
Weighted
Average
Exercise
Price
 
$0.450-$0.650
   
180,040
   
6.45
 
$
0.600
   
147,745
 
$
0.589
 
$0.76 
   
360,853
   
6.73
   
0.760
   
360,853
   
0.760
 
$0.875$2.700 
   
383,939
   
6.89
   
1.289
   
219,985
   
1.201
 
$3.100$9.813 
   
45,384
   
6.98
   
4.311
   
18,583
   
5.965
 
$10.438$17.938 
   
11,206
   
2.81
   
13.329
   
11,206
   
13.329
 
     
981,422
   
6.71
   
1.245
   
758,372
   
1.168
 
 
On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) for periods beginning in fiscal 2006.

The Company adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006, the first day of the Company’s fiscal year 2006. The Company’s financial statements as of and for the three and nine months ended September 30, 2006 reflect the impact of SFAS 123(R). In accordance with the modified prospective transition method, the Company’s financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). Total compensation expense related to all stock based compensation plans (including restricted stock) for the three months ended September 30, 2006 and 2005, was $0.1 million and $0.4 million, respectively. The incremental impact of adopting SFAS 123(R) included in the three and nine month periods ended September 30, 2006 was $24,000 and $97,000, respectively.
 
17

 
SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s Statement of Operations. Prior to the adoption of SFAS 123(R), the Company accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”).

There were no options exercised during the three month period ended September 30, 2006. Cash received from option exercises under all share-based payment arrangements for the nine month period ended September 30, 2006 was $0.2 million. Cash received from option exercises for both the three and nine month periods ended September 30, 2005 was approximately $12,000.

The fair value of each option award was calculated on the date of grant using the Black-Scholes option pricing model. This model requires the input of subjective assumptions that may have a significant impact on the fair value estimate. Expected volatility was based on historical volatility of the Company’s stock, and other factors. Expected dividends were based on historical dividend practices and no immediate plans to pay a dividend in respect of the Common Stock. The Company uses historical data to estimate option exercises and employee terminations within the valuation model. The risk-free rate for periods within the contractual life of the option were based on average U.S. Treasury rates in effect at the end of each quarter. The following assumptions were used for each respective period:
   
Three and nine months ended September 30, 
 
   
2006
 
2005
 
Risk free interest rate
   
4.6
%
 
4.2
%
Expected life
   
2.0
   
2.0
 
Expected volatility
   
145
%
 
166
%
Expected dividend yield
   
0
%
 
0
%

Pro forma Information for Periods Prior to the Adoption of FAS 123R

  Prior to the adoption of FAS No. 123(R), disclosures with respect to stock-based compensation awards were provided in accordance with FAS No. 123, as amended by FAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosures.” Under these guidelines, compensation expense was recognized only in respect of stock options granted at exercise prices set below market value. Since all options granted by the Company have been set at exercise prices equal to the market value of the underlying common stock on the date of grant, no employee stock-based compensation expense with regards to employee stock options grants was recognizable under FAS 123(R) and, accordingly, none was reflected in the Company’s results of operations for the three and nine month periods ended September 30, 2005. Previously reported amounts have not been restated.
 
18

 

The pro forma information for the three and nine month periods ended September 30, 2005 was as follows (in thousands, except per share amounts):

   
Three Months Ended
September 30, 2005
 
Nine Months Ended
September 30, 2005
 
Net income (loss), as reported
 
$
786
 
$
(3,838
)
Add stock-based employee compensation expense included in reported net income (loss), net of tax
   
259
   
351
 
Deduct total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects
   
(293
)
 
(485
)
               
Pro forma net income (loss)
   
752
   
(3,972
)
               
               
Preferred stock dividends
   
(111
)
 
(335
)
Proforma net income (loss) - applicable to common stock 
 
$
641
 
$
(4,307
)
Net income (loss) per share:
             
Basic - as reported
 
$
0.04
 
$
(0.26
)
Basic - pro forma
 
$
0.04
 
$
(0.27
)
Diluted - as reported
 
$
0.03
 
$
(0.26
)
Diluted - pro forma
 
$
0.03
 
$
(0.27
)

10. Superior Cables Ltd.

On February 22, 2006, Alpine and Shrem Fudim Kelner Technologies Ltd., (“SFKT”), an unrelated Israeli company, entered into an agreement (the “Agreement”), whereby Alpine and SFKT agreed to invest $10 million and $5 million, respectively, in newly issued shares of SCL. Concurrently, Alpine and SFKT entered into an agreement which provides for (i) certain restrictions upon sale and disposition of SCL ordinary shares, (ii) rights of first offer and "tag along" rights in regard to certain proposed sales of SCL shares, (iii) mutual support and voting for candidates for election to the SCL board of directors, and (iv) sharing of certain management fees payable by SCL.   On February 23, 2006, SCL’s principal lender agreed to extend approximately $11 million in long term indebtedness of SCL and convert $15 million in SCL indebtedness into a non-interest bearing subordinated loan repayable only upon liquidation of SCL and exchangeable into 15% of SCL share capital. The foregoing agreements were closed on June 26, 2006 and as a result the Company owned approximately 52% of SCL.

11. Modified “Dutch Auction” Tender Offer

On March 1, 2006, Alpine commenced a modified “Dutch Auction” tender offer (the “Tender Offer”) to purchase up to a maximum of 6 million shares plus, at its discretion, an additional number (the “overallotment”) not to exceed 2% of its outstanding Common Stock at a price per share of not less than $3.00 and not greater than $3.50. On April 4, 2006, Alpine modified its offer to increase the maximum number of shares to be purchased to 6.5 million plus the overallotment and to extend to April 18, 2006 the Tender Offer expiration date. Following the expiration date, and pursuant to the terms and conditions of the Tender Offer, out of the 7,698,805 validly tendered shares of Common Stock, Alpine accepted and purchased a total of 6,684,670 shares at a purchase price of $3.375 per share or approximately $22.6 million. The shares purchased represented 37.3% of Alpine’s outstanding Common Stock and 24.7% of such outstanding Common Stock assuming conversion of all of Alpine’s outstanding Series A Preferred Stock.
 
19

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The Alpine Group, Inc. (together with its subsidiaries, “Alpine” or the “Company”, unless the context otherwise requires), is a holding company which over the past several years has owned controlling equity interests in industrial businesses that have been operated as subsidiaries. At September 30, 2006, Alpine owned 100% of Essex Electric Inc. (“Essex Electric”), which currently is engaged in the business of copper scrap reclamation and the manufacture and sale of plastic resin compounds, and 52.1% of Superior Cables Ltd. (“SCL”), the largest Israeli based producer of wire and cable products.

On January 31, 2006 Essex Electric sold certain of its assets comprising its building wire business (the “Essex Electric Sale”) to the Southwire Company (“Southwire”). The agreement provided for the sale by Essex Electric of all of its closing date building wire related inventory and prepaid assets, its Florence, Alabama manufacturing plant and equipment, and the assumption by Southwire of certain contracts and selected liabilities related to the business. Essex Electric retained substantially all of its other liabilities, including the indebtedness under its revolving credit facility. The revolving credit facility was repaid in its entirety and terminated in connection with the Essex Electric Sale. Excluded from the sale were cash, cash equivalents and accounts receivable of Essex Electric, a copper scrap reclamation plant and operation based in Jonesboro, Indiana, a plastic resin compounding plant and operation based in Marion, Indiana and three leased warehouse distribution centers. The purchase price was the sum of (i) $27 million plus (ii) the closing date value of Essex Electric’s inventory and certain prepaid assets less certain liabilities. The purchase price of $55.6 million was paid in cash by Southwire at closing and was subject to customary post-closing review and adjustment by the parties in accordance with certain agreed upon procedures provided for under the asset purchase agreement. Such review and adjustment occurred subsequent to closing, was finalized on May 3, 2006 and resulted in an immaterial post-closing adjustment. The estimated total net cash proceeds from the Essex Electric Sale were approximately $83 million, including the receipt of the net purchase price from Southwire Company, the collection of retained accounts receivable less the payment of retained liabilities (including repayment of the revolving credit facility) of the business and expenses related to the Essex Electric Sale.

On June  26, 2006, Alpine and other investors recapitalized SCL and in connection therewith, Alpine purchased newly issued shares of SCL. As part of the recapitalization transaction, Alpine sold 5.6% of SCL shares (resulting in its current 52% ownership) to unrelated third parties and intends to sell an additional 3-4% to unrelated third party(ies) (reducing its ownership to 48 - 49%).

Results of OperationsQuarter Ended September 30, 2006 as Compared to the Quarter Ended September 30, 2005

Continuing Operations

Consolidated sales for the quarter ended September 30, 2006 were $8.8 million compared to sales of $3.4 million for the quarter ended September 30, 2005. The increase was due almost entirely to higher copper prices which increased from a COMEX average of $1.70 during the third quarter of 2005 to an average of $3.54 during the third quarter of 2006

Gross profit for the quarter ended September 30, 2006 was approximately break even as compared to a gross profit of $0.1 million for the quarter ended September 30, 2005. The Company's operating loss for the quarter ended September 30, 2006 decreased to $1.0 million from a $1.2 million operating loss for the comparable 2005 period, due primarily to reduced selling, general and administrative expenses.

Dividend and interest income increased $0.2 million for the quarter ended September 30, 2006 compared with the same period in 2005 due primarily to an increase in investable marketable securities in 2006. Realized gains on the sale of securities decreased $0.4 million in the quarter ended September 30, 2006 compared to the same period in 2005.

For the quarter ended September 30, 2006, Alpine recorded $1.3 million in income as its share of the net earnings of its affiliate, SCL.

Results of Operations—Nine Month Period Ended September 30, 2006 as Compared to the Nine Month period Ended September 30, 2005

Continuing Operations

Consolidated sales for the nine month period ended September 30, 2006 were $22.9 million compared to sales of $10.1 million for the nine month period ended September 30, 2005. The increase was due almost entirely to the external sale of resin compounds and the impact of increased copper prices. Prior to the sale of Essex Electric’s electrical building wire business, production of resin compounds were solely for internal use. COMEX copper prices increased from an average of $1.57 for the first three quarters of 2005 to an average of $3.06 for the first three quarters of 2006 resulting in increased sales value of the copper recovered in the scrap reclamation process.

20

 
Gross profit for the nine month period ended September 30, 2006 was approximately breakeven compared to a gross profit of $0.3 million for the nine month period ended September 30, 2005, due primarily to lower scrap reclamation production volumes. The Company's operating loss for the nine month period ended September 30, 2006 was $3.3 million as compared to a $3.2 million operating loss for the nine month period ended September 30, 2005.

Interest expense was $0.7 million for the nine month period ended September 30, 2006 compared to the $0.6 million in interest expense for the nine months ended September 30, 2005. This increase was due primarily to the acceleration of $0.5 million of unamortized discounts related to the redemption of approximately $2.6 million of 6% senior subordinated notes of the Company during the second quarter of 2006.

As part of the June 2006 recapitalization of SCL, Alpine sold approximately 9.3 million ordinary shares of SCL to unrelated third parties at a gain of $1.2 million which was recorded during the second quarter of 2006.

Dividend and interest income increased $0.9 million for the nine month period ended September 30, 2006 compared with the same period in 2005 due primarily to an increase in the Company’s investable marketable securities.

For the nine month period ended September 30, 2006 Alpine recorded $1.3 million in income as its share of the net earnings of its affiliate, SCL.

Discontinued Operations

As previously discussed, on January 31, 2006, Essex Electric completed the sale of substantially all of the assets comprising its building wire business. The results of operations related to the business and assets associated with this transaction have been classified as discontinued operations in the financial statements contained herein. Net income from discontinued operations for the nine-month period ended September 30, 2006 was $20.2 million, compared with a net loss of $1.6 million for the nine-month period ended September 30, 2005. The 2006 income includes the gain on the Essex Electric Sale of $15.4 million, net of taxes. The increase was also due to a $16.7 million improvement in operating income in 2006 compared to the first nine months of 2005. This improvement was due primarily to strong sales and improved margins for the month of January 2006. Sales margins in the building wire markets in January 2006 were significantly higher than in the first nine months of 2005. Also, January 2006 included a $12.4 million pre-tax benefit from a LIFO decrement as a result of the reduction of inventories in January. The first nine months of 2006 include approximately $6.5 million of pre-tax operating expenses related to the discontinued operations, including $2.3 million of one-time employee termination benefits, $1.7 million of contract termination costs, $0.9 million of contractual lease obligations and $1.6 million of transitional and other costs. Net income from discontinued operations includes $14.6 million of tax provision for the nine month period ended September 30, 2006, compared with a tax benefit of $0.6 million for the nine month period ended September 30, 2005. This increase was due to a $10.3 million tax provision related to the gain on the Essex Electric Sale and the increased operating earnings, net of expenses, related to the discontinued operations.

Liquidity and Capital Resources

In December 2002, Alpine Holdco acquired (1) substantially all of the assets, subject to related accounts payable and accrued liabilities of the electrical wire business, which was thereafter owned and operated by Essex Electric, a wholly-owned subsidiary of Alpine Holdco; (2) all of the outstanding shares of capital stock of DNE Systems Inc., and (3) approximately 47% of Superior Cables Ltd. The acquisition was financed by approximately $10 million of Alpine's cash and cash equivalents and borrowings by Alpine Holdco under a revolving credit facility.

DNE Systems Inc. was sold on July 29, 2004 and the Essex Electric building wire assets were sold on January 31, 2006 (the “Essex Electric Sale”) (see Note 4 to the condensed consolidated financial statements). The revolving credit facility was repaid in full and terminated on January 31, 2006.

      On August 4, 2003, the Company issued $4.3 million principal amount of 6% Junior Subordinated Notes (the "Subordinated Notes") in exchange for 3,479,656 shares of its Common Stock. 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 has redeemed $3.8 million of the Subordinated Notes since inception resulting in a balance of $0.5 million outstanding as of September 30, 2006. 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 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.

21

 
During 2003, Alpine completed the sale of 18,264 shares of a new issue of Series A Cumulative Convertible Preferred Stock (the "Series A Preferred Stock") for a purchase price of $380 per share, or an aggregate of approximately $6.9 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. The Series A Preferred Stock, originally was convertible into Common Stock, at the option of the holder, at the rate of 691 shares of Common Stock per share of Series A Preferred. As a result of a special dividend declared by the Company discussed below, the conversion rate increased to 743.01 shares of Common Stock per share of Series A Preferred Stock.

  The Company may cause conversion of the Series A Preferred Stock into Common Stock if the Common Stock is then listed on the New York Stock Exchange (NYSE) or the American Stock Exchange or is traded on the Nasdaq National Market System and the average closing price per share of the 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, liqui