10-Q 1 v049574_10q.htm
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 June 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
 
22-1620387
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer 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

___________

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 August 1, 2006
     
Common Stock, $.10 Par Value
 
11,134,648





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.
 
2


THE ALPINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 
(unaudited)
       
   
June 30,
 
December 31,
 
 
 
2006
 
2005
 
ASSETS
         
           
Current assets:
         
Cash and cash equivalents
 
$
851
 
$
642
 
Marketable securities, at fair value (Note 1)
   
45,430
   
22,976
 
Accounts receivable
   
2,690
   
1,802
 
Inventories, net (Note 2)
   
1,357
   
666
 
Note receivable from affiliate (Note 1)
   
4,000
   
1,399
 
Current assets of discontinued operations (Note 4) 
   
2,196
   
89,683
 
Other current assets
   
2,119
   
2,317
 
Total current assets
   
58,643
   
119,485
 
Restricted cash and marketable securities (Note 1) 
   
2,963
   
150
 
Property, plant and equipment, net
   
834
   
1,181
 
Investment in affiliate (Note 1)
   
10,000
   
 
Deferred income taxes
   
2,635
   
2,635
 
Assets of discontinued operations (Note 4)
   
   
17,337
 
Other long-term assets
   
2,244
   
2,062
 
Total assets
 
$
77,319
 
$
142,850
 
               
LIABILITIES AND STOCKHOLDERS' EQUITY
             
               
Current liabilities:
             
Accounts payable
 
$
993
 
$
1,022
 
Accrued expenses
   
2,792
   
4,021
 
Deferred income taxes and income taxes payable
   
1,571
   
2,024
 
Current liabilities of discontinued operations (Note 4)
   
19,891
   
71,118
 
Total current liabilities
   
25,247
   
78,185
 
               
Long-term debt (Note 5)
   
461
   
2,456
 
Other long-term liabilities (Note 6)
   
18,852
   
18,530
 
Warrant
   
   
1,311
 
Minority interest in subsidiary
   
   
5,528
 
Liabilities of discontinued operations
   
   
2,322
 
Mandatorily redeemable series A cumulative preferred stock (12,372 and 13,955 shares outstanding at June 30, 2006 and December 31, 2005, respectively (Note 7)
   
4,662
   
5,263
 
               
Stockholders' equity:
             
9% cumulative convertible preferred stock at liquidation value
   
177
   
177
 
Common stock, $.10 par value; (50,000,000 authorized; 26,612,550 and 25,239,696 shares issued at June 30, 2006 and December 31, 2005, respectively)
   
2,661
   
2,524
 
Capital in excess of par value
   
170,075
   
169,156
 
Accumulated other comprehensive income (Note 3)
   
324
   
219
 
Accumulated deficit
   
(28,676
)
 
(48,827
)
Treasury stock, at cost (17,453,299 and 10,873,427 shares at June 30, 2006 and December 31, 2005, respectively)
   
(116,153
)
 
(93,648
)
Receivable from stockholders
   
(311
)
 
(346
)
Total stockholders' equity
   
28,097
   
29,255
 
Total liabilities and stockholders' equity
 
$
77,319
 
$
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
June 30,
 
     
2006
   
2005
 
               
Net sales
 
$
6,093
 
$
3,032
 
Cost of goods sold
   
6,337
   
2,864
 
Gross profit (loss)
   
(244
)
 
168
 
Selling, general and administrative expenses
   
1,166
   
1,044
 
Operating loss
   
(1,410
)
 
(876
)
Interest expense
   
(552
)
 
(206
)
Gain on sale of stock of affiliate
   
1,237
   
 
Dividend and interest income
   
630
   
176
 
Realized gains on sales of securities
   
558
   
24
 
Other expense, net
   
(6
)
 
(9
)
Income (loss) before income taxes and discontinued operations 
   
457
   
(891
)
Income tax (provision) benefit
   
143
   
(48
)
Income (loss) from continuing operations 
   
600
   
(939
)
               
Discontinued operations (Note 4):
             
Loss from operations of discontinued Essex Electric
   
(784
)
 
(802
)
Income tax benefit
   
313
   
377
 
Net loss on discontinued operations
   
(471
)
 
(425
)
Net income (loss)
   
129
   
(1,364
)
Preferred stock dividends
   
(98
)
 
(111
)
Net income (loss) applicable to common stock 
 
$
31
 
$
(1,475
)
               
Net income (loss) per share of common stock:
             
   Basic
             
Income (loss) from continuing operations applicable to common stock 
 
$
0.04
 
$
(0.07
)
Loss from discontinued operations, net of tax 
   
(0.04
)
 
(0.02
)
Net income (loss) 
 
$
 
$
(0.09
)
Diluted
             
Income (loss) from continuing operations applicable to common stock
 
$
0.03
 
$
(0.07
)
Loss from discontinued operations, net of tax
   
(0.02
)
 
(0.02
)
Net income (loss) 
 
$
0.01
 
$
(0.09
)
               
Weighted average shares outstanding: 
             
Basic
   
12,379
   
15,821
 
Diluted
   
22,499
   
15,821
 

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)
     
Six Months Ended
June 30,
 
     
2006
   
2005
 
               
Net sales
 
$
14,068
 
$
6,750
 
Cost of goods sold
   
14,091
   
6,490
 
Gross profit (loss)
   
(23
)
 
260
 
Selling, general and administrative expenses
   
2,247
   
2,290
 
Operating loss
   
(2,270
)
 
(2,030
)
Interest expense
   
(671
)
 
(404
)
Gain on sale of stock of affiliate
   
1,237
   
 
Dividend and interest income
   
988
   
337
 
Realized gains on sales of securities
   
572
   
27
 
Other income (expense), net
   
(47
)
 
117
 
Loss before income taxes and discontinued operations 
   
(191
)
 
(1,953
)
Income tax benefit
   
232
   
397
 
Income (loss) from continuing operations 
   
41
   
(1,556
)
               
Discontinued operations (Note 4):
             
Gain (loss) from operations of discontinued Essex Electric (including gain on sale of $25,638)
   
34,937
   
(5,127
)
Income tax (provision) benefit
   
(14,622
)
 
2,059
 
Net gain (loss) on discontinued operations
   
20,315
   
(3,068
)
Net income (loss)
   
20,356
   
(4,624
)
Preferred stock dividends
   
(205
)
 
(223
)
Net income (loss) applicable to common stock 
 
$
20,151
 
$
(4,847
)
               
Net income (loss) per share of common stock:
             
   Basic and diluted:
             
Loss from continuing operations applicable to common stock 
 
$
(0.01
)
$
(0.11
)
Income (loss) from discontinued operations, net of tax 
   
1.41
   
(0.20
)
Net income (loss) 
 
$
1.40
 
$
(0.31
)
               
Weighted average shares outstanding: 
             
Basic and diluted 
   
14,350
   
15,705
 

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)
   
Six Months Ended
June 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
   
1,176,181
   
117
 
Exercise of stock options
   
196,673
   
20
 
Balance at end of period
   
26,612,550
   
2,661
 
               
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
         
277
 
Shares issued pursuant to Series A Preferred Stock conversion
         
484
 
Exercise of stock options
         
158
 
Balance at end of period
         
170,075
 
               
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 $70)
         
105
 
Balance at end of period
         
324
 
Accumulated deficit:
             
Balance at beginning of period
         
(48,827
)
Net income
         
20,356
 
Dividends on preferred stock
         
(205
)
Balance at end of period
         
(28,676
)
               
Treasury stock:
             
Balance at beginning of period
   
(10,873,427
)
 
(93,648
)
Stock options and grants 
   
104,798
   
56
 
Modified Dutch Auction redemptions 
   
(6,684,670
)
 
(22,561
)
Balance at end of period
   
(17,453,299
)
 
(116,153
)
               
Receivable from stockholders:
             
Balance at beginning of period
         
(346
)
Forgiveness of officer loans
         
35
 
Balance at end of period
         
(311
)
Total stockholders' equity
       
$
28,097
 
               
Comprehensive income 
       
$
20,461
 

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)

   
Six Months Ended
June 30,
 
   
2006
 
2005
 
Cash flows from operating activities:
         
Net income (loss)
 
$
20,356
 
$
(4,624
)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
             
Gain on sale of Essex Electric assets
   
(25,638
)
 
 
Depreciation
   
207
   
662
 
Amortization of deferred debt issuance costs and accretion of debt discount
   
111
   
291
 
Compensation expense related to stock options and grants
   
360
   
178
 
Loss on sale of capital assets and subsidiary stock
   
160
   
680
 
Gain on sale of stock of affiliate
   
(1,237
)
 
 
Realized gains on investments in marketable securities
   
(572
)
 
 
Minority interest in income (loss) of subsidiary
   
1,617
   
(601
)
Loss on purchase of minority interest in subsidiary
   
43
   
 
Decrease in fair value of warrant
   
   
(375
)
Change in assets and liabilities:
             
Accounts receivable, net
   
66,340
   
(9,888
)
Inventories, net
   
7,794
   
8,360
 
Other current and non-current assets
   
(11
)
 
497
 
Accounts payable and accrued expenses
   
4,943
   
4,101
 
Income taxes 
   
(32,870
)
 
(7,834
)
Other, net
   
327
   
544
 
Cash flows provided by (used for) operating activities
   
41,930
   
(8,009
)
Cash flows from investing activities:
             
Capital expenditures
   
(161
)
 
(1,975
)
Proceeds from sale of assets
   
228
   
1,028
 
Proceeds from sale of investments
   
54,121
   
14,102
 
Advances under loans to affiliate
   
(2,601
)
 
(753
)
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
   
(78,646
)
 
(2,362
)
Purchase of minority interest and warrant
   
(8,500
)
 
 
Investment in affiliate
   
(10,000
)
 
 
Cash flows provided by investing activities
   
9,659
   
10,040
 
Cash flows from financing activities:
             
Borrowings (repayments) under revolving credit facilities, net
   
(26,725
)
 
(1,501
)
Repayments of long-term borrowings
   
(2,075
)
 
(386
)
Other, net
   
   
(17
)
Dividends on preferred stock
   
(205
)
 
(223
)
Proceeds from exercise of stock options
   
186
   
 
Proceeds from minority interest investment in subsidiary
   
   
1,241
 
Common stock redemptions from Modified Dutch Auction
   
(22,561
)
 
 
Cash flows provided by financing activities
   
(51,380
)
 
(886
)
Net increase in cash and cash equivalents
   
209
   
1,145
 
Cash and cash equivalents at beginning of period
   
642
   
611
 
Cash and cash equivalents at end of period
 
$
851
 
$
1,756
 
               
Supplemental disclosures:
             
Cash paid for interest
 
$
441
 
$
1,523
 
               
Cash paid for income taxes, net
 
$
9,071
 
$
5,008
 
 
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
JUNE 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). 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 principal operations currently consist of Essex Electric Inc. (“Essex Electric”), a wholly owned subsidiary, engaged in the business of copper scrap reclamation and the manufacture and sale of plastic resin compounds and an equity investment in Superior Cables Ltd. (“SCL”), the largest 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 wire and cable. On January 31, 2006 the assets comprising that business were sold to the Southwire Company (“Southwire”) (see Note 4). During June 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 5.9% of SCL shares (resulting in the current 52% ownership) to unrelated third parties and intends to sell an additional 3-4% to an unrelated third party (reducing its ownership to 48 - 49%). Consequently, Alpine’s majority ownership of SCL is temporary and therefore the 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. All consolidated net sales and long-lived assets for all periods presented herein were based in the United States. During the quarter ended June 30, 2006, two customers accounted for 62% and 25% of the total net sales of the Company, respectively. During the quarter ended June 30, 2005 two customers accounted for 66% and 11% 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 June 30, 2006 have been classified as available for sale and are reported at fair value with unrealized gains and losses included in shareholders’ equity.
 
8

 
The following table shows the unrealized gains (losses) and fair value of the Company’s investments aggregated by investment category as of June 30, 2006:
 
   
(in thousands)
 
Description of Securities
 
Cost
Basis
 
Unrealized
Gains
 
Unrealized
Losses*
 
Fair
Value
 
Money market funds
 
$
3,826
 
$
 
$
 
$
3,826
 
Marketable equity securities
   
2,327
   
33
   
(105
)
 
2,255
 
Municipal bonds and notes
   
29,922
   
   
(57
)
 
29,865
 
Mutual funds
   
10,328
   
729
   
   
11,057
 
Preferred securities
   
250
   
   
   
250
 
Government securities
   
999
   
   
(12
)
 
987
 
Subtotal
   
47,652
   
762
   
(174
)
 
48,240
 
Less: Restricted (See Note 1 below)    
(2,810
)
 
         
(2,810
)
Total
 
$
44,842
 
$
762
 
$
(174
)
$
45,430
 
 
* None of the gross unrealized losses have exceeded 12 months.

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 June 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.

Note receivable from affiliate

Alpine has made short-term secured advances to the United States distribution subsidiary of SCL. The advances are collateralized by United States-based inventory and accounts receivable, at an interest rate of LIBOR plus 1.4% per annum. As of June 30, 2006 and December 31, 2005, $4.0 and $1.4 million were outstanding and due on demand. On August 1, 2006, Alpine advanced $1.0 million to SCL concurrently with the additional advance to SCL of $1.0 million by Bank Hapoalim, Ltd., SCL’s primary lender. These advances were used by SCL to fund its working capital requirements. Alpine’s 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 June 30, 2006. At June 30, 2006 and December 31, 2005 $0.2 in lease security is included as restricted cash. Since the restriction periods for these items exceed one year from the balance sheet date herein, they are classified as non-current assets.

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, Holdco purchased 1,792 shares of Essex Electric common stock for a cash purchase price of $5.0 million and Superior purchased 445 shares of Essex Electric common stock for a cash purchase price of $1.2 million, resulting in Holdco and Superior 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 the warrant held by Superior to purchase 199 shares of Essex Electric common stock by $0.4 million due to the dilutive impact of the additional 2,237 shares issued. On January 25, 2006 Alpine purchased from Superior for a purchase price of $8.5 million Superior’s 614 shares of Essex Electric and its warrant for 199 additional shares, resulting in Alpine owning 100% of the total outstanding capital stock of Essex Electric.

9

Related party transactions

On August 8, 2006, the Company agreed to reschedule payment of three installments due an executive on account of his non-competition agreement included in his employment arrangement with the Company. The installments, previously payable each in the amount of $50,000 on December 31, 2006, June 30, 2007 and December 31, 2007, will be discounted at the prime rate and paid, $48,460 on August 10, 2006 and $94,513 on January 10, 2007. The liability for these payments is included in accrued liabilities as of June 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 reduction in deferred tax assets or increase in tax liabilities upon adoption will correspondingly reduce retained earnings. The Company has not yet determined the effect of adopting this Interpretation, which is effective for it on January 1, 2007.

2. Inventories

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

   
June 30,
2006
 
December 31,
2005
 
   
(in thousands)
 
Raw materials
 
$
224
 
$
651
 
Work in process
   
1,718
   
393
 
     
1,942
   
1,044
 
LIFO reserve
   
(585
)
 
(378
)
   
$
1,357
 
$
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 six month periods ended June 30, 2006 and 2005 were as follows:
 
   
Three Months Ended
June 30,
 
   
2006
 
2005
 
   
(in thousands)
 
Net income (loss)
 
$
129
 
$
(1,364
)
Change in unrealized gains (losses) on securities, net of tax
   
(316
)
 
188
 
Comprehensive loss
 
$
(187
)
$
(1,176
)
 
 
   
Six Months Ended
June 30,
 
   
2006
 
2005
 
   
(in thousands)
 
Net income (loss)
 
$
20,356
 
$
(4,624
)
Change in unrealized gains on securities, net of tax
   
105
   
184
 
Comprehensive income (loss)
 
$
20,461
 
$
(4,440
)
 
10

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.

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:
 
   
June 30,
 
December 31,
 
ASSETS
 
2006
 
2005
 
 
 
(in thousands)
 
Current assets:
     
 
 
Accounts receivable
 
$
169
 
$
67,398
 
Inventories, net of LIFO reserve of $29,740 at December 31, 2005
   
   
20,758
 
Other current assets
   
2,027
   
1,527
 
Total current assets
 
$
2,196
 
$
89,683
 
Property, plant and equipment, net
   
   
16,546
 
Other assets
   
   
791
 
Total assets
 
$
2,196
 
$
107,020
 
               
LIABILITIES
             
Current liabilities:
             
Revolving credit facility
 
$
 
$
26,725
 
Accounts payable
   
694
   
24,380
 
Accrued expenses
   
2,751
   
11,355
 
Deferred income taxes and income taxes payable
   
16,446
   
8,658
 
Total current liabilities
   
19,891
   
71,118
 
               
Deferred income taxes
   
   
2,322
 
Total liabilities
   
19,891
   
73,440
 
Net assets (liabilities)
 
$
(17,695
)
$
33,580
 
 
11

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
   
Six Months Ended
 
     
June 30,
   
June 30,
 
     
2006
   
2005
   
2006
   
2005
 
     
(in thousands) 
 
Net Sales
 
$
 
$
94,779
 
$
60,066
 
$
180,894
 
Pretax income (loss)
   
   
(943
)
 
17,304
   
(5,728
)

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

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 June 30, 2006
 
Total costs incurred through June 30, 2006
 
Liability as of June 30, 2006
 
   
(in thousands)
 
One time termination benefits (a)
 
$
2,926
 
$
648
 
$
2,588
 
$
338
 
Contract termination costs (b)
   
2,509
   
175
   
2,509
   
 
Write-down of assets (c)
   
255
   
   
255
   
 
Transition and other costs (d)
   
2,008
   
246
   
1,410
   
 
Totals
 
$
7,698
 
$
1,069
 
$
6,762
 
$
338
 
 
 
(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.

(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. There is no accrued liability as of June 30, 2006 because costs are being expensed as incurred.

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 June 30, 2006 and December 31, 2005, long-term debt consists of the following:
 
   
June 30,
 
December 31,
 
   
2006
 
2005
 
   
(in thousands)
 
Junior Subordinated Notes, net of $0.1 and $0.6 million discount, at June 30, 2006 and December 31, 2005, respectively
 
$
461
 
$
2,456
 
 
12

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. During the three and six month periods ended June 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.

6. Other long-term liabilities

At June 30, 2006 and December 31, 2005, other long-term liabilities consist of the following:
 
   
June 30,
2006
 
December 31,
2005
 
   
(in thousands)
 
Tax contingency reserve  
 
$
17,446
 
$
17,106
 
Other long-term liabilities 
   
1,406
   
1,424
 
   
$
18,852
 
$
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 June 30, 2006 and December 31, 2005 (including interest) were $17.4 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.

13

There were 278 and 1,583 shares of the Series A Preferred Stock converted into 0.2 and 1.2 million shares of Common Stock for the three and six month periods ended June 30, 2006, respectively.

8. Earnings Per Share

The computation of basic and diluted income (loss) per share for the three and six month periods ended June 30, 2006 and 2005 is as follows:
 
   
Three Months Ended June 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
 
$
600
   
12,379
 
$
0.05
 
$
(939
)
 
15,821
 
$
(0.06
)
Adjustments:
                                     
Preferred stock dividends
   
(98
)
 
12,379
   
(0.01
)
 
(111
)
 
15,821
   
(0.01
)
Income (loss) attributable to common stock from continuing operations
 
$
502
   
12,379
 
$
0.04
 
$
(1,050
)
 
15,821
 
$
(0.07
 
Loss from discontinued operations, net of tax
   
(471
)
 
12,379
   
(0.04
)
 
(425
)
 
15,821
   
(0.02
)
Net income (loss) applicable to common stock per basic common share
 
$
31
   
12,379
 
$
 
$
(1,475
)
 
15,821
 
$
(0.09
)
 
Diluted earnings (loss) per share
                         
Net income (loss) from continuing operations applicable to common stock
 
$
502
   
12,379
 
$
0.04
 
$
(1,050
)
 
15,821
 
$
(0.07
)
Effect of dilutive securities:
                                     
Restricted stock plans
         
412
                         
Stock option plans
         
485
                         
Convertible preferred stock
   
98
   
9,223
                         

Income (loss) attributable to common stock from continuing operations and assumed conversions
   
600
   
22,499
 
$
0.03
   
(1,050
)
 
15,821
   
(0.07
)
Loss from discontinued operations
   
(471
)
 
22,499
   
(0.02
)
 
(425
)
 
15,821
   
(0.02
)
Net income (loss) attributable to common stock per diluted common share
 
$
129
   
22,499
 
$
0.01
 
$
(1,475
)
 
15,821
 
$
(0.09
)
 
 
14

 
   
Six Months Ended June 30,
 
   
2006
 
2005
 
   
Net Income
(loss)
 
Weighted  
Average
Shares
 
Per Share
Amount
 
Net Income
(loss)
 
Weighted
Average
Shares
 
Per Share
Amount
 
Basic and diluted earnings (loss) per share
                         
Income (loss) from continuing operations
 
$
41
   
14,350
 
$
 
$
(1,556
)
 
15,705
 
$
(0.10
)
Adjustments:
                                     
Preferred stock dividends
   
(205
)
 
14,350
   
(0.01
)
 
(223
)
 
15,705
   
(0.01
)
Loss attributable to common stock from continuing operations
 
$
(164
)
 
14,350
 
$
(0.01
)
$
(1,779
)
 
15,705
 
$
(0.11
)
Net income from sale of Essex Electric, net of tax
   
15,383
   
14,350
   
1.07
   
         
 
Income (loss) from discontinued operations, net of tax
   
4,932
   
14,350
   
0.34
   
(3,068
)
 
15,705
   
(0.20
)
Net income (loss) applicable to common stock per basic and diluted common share
 
$
20,151
   
14,350
 
$
1.40
 
$
(4,847
)
 
15,705
 
$
(0.31
)

The Company has excluded the assumed conversion of all stock options (1.0 million), restricted stock grants (0.9 million) and convertible preferred stock (12,550 preferred shares convertible into 9.2 million common shares) from the Company’s earnings per share calculation for the six month period ended June 30, 2006 and the assumed conversion of all stock options (1.5 million), restricted stock grants (0.8 million) and convertible preferred stock (14,285 preferred shares convertible into 10.5 million common shares) from the Company’s earnings per share calculation for the three and six month periods ended June 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 long-term 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 105,441 and 19,436 shares of common stock available under the 1997 Plan as of June 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 June 30, 2006 no options were granted under the 1997 Plan.

The Company adopted the Stock Compensation Plan for Non-Employee Directors (the "Stock Plan") in January 1999. Under the Stock Plan, each non-employee director of the Company automatically receives 50% of the annual retainer in either restricted common stock or non-qualified stock options, as elected by the director. In addition, each non-employee director may also elect to receive all or a portion of the remaining amount of the annual retainer and any meeting fees in the form of restricted stock or stock options in lieu of cash payment. 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. 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 Stock Plan expires on the tenth anniversary of the date of the grant. Awards of restricted stock and stock options under the stock 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 Stock Plan will be issued from the Company's treasury stock.

Alpine sponsors a 1984 Restricted Stock Plan under which a maximum of 600,000 shares of Common Stock have been reserved for issuance. At June 30, 2006, there are 45,064 shares available for issuance. During the quarter ended June 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 under this grant vest in equal installments over a three year period commencing with the first anniversary of grant.

15

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 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 matching contributions by the Company in various percentages applied to shares of Common Stock deferred therein. The compensation cost associated with the matching contribution is amortized over the vesting period of the deferral. Shares deferred into the deferred stock 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 June 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 $1.2 million and $0.5 million as of June 30, 2006 and December 31, 2005, respectively.

The following table summarizes restricted stock activity for the three month periods ended March 31 and June 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
 
                                       
                                       
Unrecognized Compensation Costs
 
$
504,690
       
$
73,386
       
$
49
       
Weighted Average Period Remaining
   
3.0
   
Years
   
2.0
   
Years
   
0.3
   
Years
 

Excluded from the table above are 563,590 and 490,909 shares as of 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 June 30, 2006 that is expected to be recognized over a weighted average period of 3.9 years.
16

 
The following table summarizes stock option activity for the six months ended June 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
 
                           
Options exercisable at June 30, 2006
   
727,745
 
$
1.19
   
6.61
 
$
1,448,199
 
 
 
The weighted average grant-date fair value of options granted for the six month periods ended June 30, 2006 and 2005 was $2.68 and $1.86, respectively. The aggregate intrinsic value of options exercised for the six month period ended June 30, 2006 was $2.40.

Information with respect to stock-based compensation plan stock options outstanding and exercisable at June 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
   
6.70
 
$
0.600
   
115,450
 
$
0.572
 
$0.76
   
362,521
   
6.98
   
0.760
   
362,521
   
0.760
 
$0.875$2.700
   
383,939
   
7.15
   
1.289
   
219,985
   
1.201
 
$3.100$9.813
   
36,356
   
6.55
   
4.612
   
18,583
   
5.965
 
$10.438$17.938
   
11,206
   
3.06
   
13.329
   
11,206
   
13.329
 
     
974,062
   
6.93
   
1.227
   
727,745
   
1.190
 
 
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 including employee stock options 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 six months ended June 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 June 30, 2006 and 2005, was $0.1 million and less than $0.1 million, respectively. The incremental impact of adopting SFAS 123(R) included in the three and six month periods ended June 30, 2006 was $33,000 and $73,000, 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”).

Cash received from option exercises under all share-based payment arrangements for the six month period ended June 30, 2006 was $0.2 million. There were no options exercised during the three or six month periods ended June 30, 2005. As a result of the 1,667 options exercised during the three months ended June 30, 2006, 1,667 shares reserved under the 1997 Plan were issued by the Company.

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 six months ended June 30,
 
   
2006
 
2005
 
Risk free interest rate
   
5.13
%
 
4.30
%
Expected life
   
2.0
   
2.0
 
Expected volatility
   
150
%
 
174
%
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 option granted by the Company are 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 six month periods ended June 30, 2005. Previously reported amounts have not been restated.

The pro forma information for the three and six month periods ended June 30, 2005 was as follows (in thousands, except per share amounts):
 
   
Three Months Ended
June 30, 2005
 
Six Months Ended
June 30, 2005
 
Net income (loss), as reported
 
$
(1,364
)
$
(4,624
)
Add stock-based employee compensation expense included in reported net income (loss), net of tax
   
22
   
92
 
Deduct total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects
   
(70
)
 
(192
)
 
Pro forma net income (loss)
   
(1,412
)
 
(4,724
)
               
               
Preferred stock dividends
   
(111
)
 
(223
)
Proforma net income (loss) - applicable to common stock 
 
$
(1,523
)
$
(4,947
)
 
Net income (loss) per share:
         
Basic and diluted - as reported
 
$
(0.09
)
$
(0.31
)
Basic and diluted - pro forma
   
(0.10
)
$
(0.32
)

 
18

10. Superior Cables Ltd. Share Purchase Agreement

On February 22, 2006, Alpine Holdco Inc. (“Alpine Holdco”) and Superior Cables Holdings (1997) Ltd. (“SCH”), each wholly-owned subsidiaries of The Alpine Group, Inc. (the “Company”), Shrem Fudim Kelner Technologies Ltd., (“SFKT”), a company organized and registered under the laws of Israel, and Superior Cables Ltd., the Company’s then 46% indirectly owned affiliate (“SCL”), entered into a share purchase agreement (the “Agreement”). Subject and pursuant to the Agreement, Alpine Holdco agreed to invest $10 million in SCL in consideration for and purchase of 75 million newly issued SCL ordinary shares and SFKT agreed to invest $5 million in SCL in consideration for and purchase of 46,192,664 new issued SCL ordinary shares and an option (the “SKFT Option”) to purchase an additional 4,619,266 SCL ordinary shares (the “Investment”). Also, subject and pursuant to the Agreement, immediately prior to consummation of the Investment, SCH agreed to sell 8,400,000 SCL ordinary shares to unrelated third parties (the “SCH Sale”).

Also on February 22, 2006, Alpine Holdco, SCH and SFKT entered into a shareholders agreement (the “Shareholders Agreement”) which is effective upon consummation of the Investment. The Shareholders Agreement provides, among other matters, 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 ordinary 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 announced that SCL and Bank Hapoalim Ltd., (the “Bank”), SCL’s principal lender, entered into an agreement amending and restructuring SCL’s indebtedness with the Bank. Pursuant to that agreement, effective concurrently with and conditioned upon consummation of the Investment, the Bank agreed to refinance and extend approximately $11 million in long term indebtedness of SCL and convert $15 million in SCL indebtedness into a subordinate loan repayable only upon liquidation of SCL in consideration of an option to acquire 15% of SCL share capital at no further cost (the “Bank Restructure”).
 
During April, 2006, (i) SKFT assigned to Art P.E., a limited partnership investment fund organized under the laws of Israel and an affiliate of SKFT, and Art P.E. assumed all of the rights and obligations of SKFT under the Agreement and the Shareholders Agreement, and (ii) the number of ordinary SCL shares required to be sold by SCH pursuant to the SCH Sale was increased to 9,280,000.

On June 26, 2006, all of the transactions described above, including the Investment, the SCH Sale, the Bank Restructure and the effectiveness of the Shareholder Agreement, were consummated by the respective parties thereto. Following this recapitalization, the Company owned approximately 52% of SCL. The Company currently intends to sell an additional 3-4% of SCL shares to an unrelated third party (or parties) during the second half of 2006 reducing its ownership to 48 - 49%.

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 June 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 OperationsThree Month Period Ended June 30, 2006 as Compared to the Three Month period Ended June 30, 2005

Continuing Operations

Consolidated sales for the three month period ended June 30, 2006 were $6.1 million, an increase of 103.3% compared to sales of $3.0 million for the three month period ended June 30, 2005. The increase was due primarily to increased copper prices and the resultant impact on sales of copper scrap processed and sold from the Jonesboro, Indiana operation. COMEX copper prices increased from an average of $1.53 during the second quarter of 2005 to an average of $3.38 during the second quarter of 2006, resulting in increased cost to purchase copper wire scrap and increased sales value of the copper recovered in the scrap reclamation process. A portion of the increase in sales was also due to the sale of resin compounds. Prior to the Essex Electric Sale, production and usage of resin compounds were solely for internal use, however the compounding plant in Marion, Indiana was not included in the Essex Electric Sale and is now being utilized to produce compounds for sale to external customers.

Gross profit for the three month period ended June 30, 2006 was negative $0.2 million, a decrease of $0.4 million as compared to gross profit of $0.2 million for the three month period ended June 30, 2005 due primarily to lower production volumes at the Jonesboro, IN facility primarily because of reduced volume related to the building wire operation that was sold. In addition, the Marion, IN operation operated at about 50% of the volume level of the second quarter of 2005, when all of its production was used to support internal requirements of the now discontinued building wire business of Essex Electric.
 
The Company's operating loss for the three month period ended June 30, 2006 was $1.4 million compared to an operating loss of $0.9 million for the comparable 2005 period. The increase in operating loss was due primarily to the aforementioned reduced gross profit and slightly higher selling, general and administrative expenses.

Interest expense of $0.6 million for the three month period ended June 30, 2006 was an increase of approximately $0.4 million compared to the $0.2 million in interest expense for the three months ended June 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% subordinated notes during the second quarter of 2006.

20

As mentioned in the Liquidity and Capital Resources section below, on June 26, 2006 Alpine sold approximately 9.3 million ordinary shares of Superior Cables Ltd. (“SCL”), an unconsolidated affiliate, to unrelated third parties for $1.2 million. Since the Company had previously written down its investment to zero as a result of incurred losses, the Company recorded a gain on the sale of $1.2 million during the second quarter of 2006.

Dividend and interest income increased $0.4 million for the three month period ended June 30, 2006 compared with the same period in 2005 due primarily to an increase in marketable securities in 2006 as a result of the Essex Electric Sale in January 2006. Realized gains on the sale of securities increased $0.5 million in the three month period ended June 30, 2006 compared to the same period in 2005.

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

Continuing Operations

Consolidated sales for the six month period ended June 30, 2006 were $14.1 million, an increase of 107.4% compared to sales of $6.8 million for the six month period ended June 30, 2005. The increase was due primarily to the external sale of resin compounds and the impact of increased copper prices on the sale of copper scrap. Prior to the Essex Electric Sale, production and usage of resin compounds were solely for internal use, however the compounding plant in Marion, Indiana was not included in the Essex Electric Sale and is now being utilized to produce compounds for sale to external customers. COMEX copper prices increased from an average of $1.50 for the first half of 2005 to an average of $2.81 for the first half of 2006 resulting in increased cost to purchase copper wire scrap and increased sales value of the copper recovered in the scrap reclamation process.

Gross profit for the six month period ended June 30, 2006 was near breakeven, a decrease of $0.3 million as compared to gross profit of $0.3 million for the six month period ended June 30, 2005 due primarily to lower production volumes at the Jonesboro, IN facility primarily because of reduced volume related to the building wire operation that was sold. In addition, the Marion, IN operation operated at about 40% of the volume level of the first half of 2005, when all of its production was used to support internal requirements of the now discontinued building wire business of Essex Electric. Gross profit as a percentage of net sales was near zero for the first half of 2006 compared to a positive 3.8% for the first half of 2005, due primarily to the aforementioned reduced production levels at Jonesboro and Marion.

The Company's operating loss for the six month period ended June 30, 2006 was $2.3 million compared to an operating loss of $2.0 million for the comparable 2005 period. The increase in operating loss was due primarily to the aforementioned decreased gross profit.

Interest expense of $0.7 million for the six month period ended June 30, 2006 was an increase of approximately $0.3 million compared to the $0.4 million in interest expense for the six months ended June 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% subordinated notes during the second quarter of 2006.

As mentioned in the Liquidity and Capital Resources section below, on June 26, 2006 Alpine sold approximately 9.3 million existing ordinary shares of Superior Cables Ltd. (“SCL”), an unconsolidated affiliate, to unrelated third parties for $1.2 million. Since the Company had previously written down its investment to zero, the Company recorded a gain on the sale of $1.2 million during the second quarter of 2006.

Dividend and interest income increased $0.7 million for the six month period ended June 30, 2006 compared with the same period in 2005 due primarily to an increase in marketable securities in 2006 as a result of the Essex Electric Sale in January 2006. Realized gains on the sale of securities increased $0.5 million in the six month period ended June 30, 2006 compared to the same period in 2005.
 
21


Discontinued Operations

As previously discussed, on January 31, 2006, Essex Electric completed the sale of certain of its assets comprising its building wire business to Southwire Company. 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 six-month period ended June 30, 2006 was $20.3 million, compared with a net loss of $3.1 million for the six-month period ended June 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 $21.1 million improvement in operating income in 2006 compared to the first half 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 half 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 half of 2006 included approximately $6.4 million of pre-tax operating expenses related to the discontinued operations, including $1.7 million of one-time employee termination benefits, $1.7 million of contract termination costs, $1.5 million of transitional costs and $0.8 million of contractual lease obligations. Net income from discontinued operations includes $14.6 million of tax provision for the first half of 2006, compared with a tax benefit of $2.1 million for the first half of 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, through its newly formed, wholly-owned subsidiary, Alpine Holdco, acquired the following assets and securities: (1) substantially all of the assets, subject to related accounts payable and accrued liabilities, of the electrical wire business of Superior TeleCom Inc. (“Superior”), which was thereafter owned and operated by Essex Electric, a newly formed, then wholly-owned subsidiary of Alpine Holdco; (2) all of the outstanding shares of capital stock of DNE Systems, 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 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 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. At June 30, 2006, $0.5 million of the Subordinated Notes were outstanding. During the three month period ended June 30, 2006,$2.6 million of the Subordinated Notes were redeemed and the Company recorded $0.5 million of additional interest expense related to the acceleration of the related unamortized discount.

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.

22

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.

During the three and six month periods ended June 30, 2006, 278 and 1,583 shares, respectively, of Series A Preferred Stock were converted into approximately 0.2 and 1.2 million shares of Common Stock.

On March 1, 2006, the Company 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, the Company 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, the Company 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 the outstanding Common Stock of the Company and 24.7% of such outstanding Common Stock assuming conversion of all of the Company’s outstanding Series A Preferred Stock.

During 2001 and 2002, 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 and established a tax contingency reserve on its balance sheet corresponding to the realized tax benefits. At June 30, 2006, the Company has reserved $17.4 million of the related benefit and interest and the amount has been recorded under other long-term liabilities. The Company does not anticipate that any portion of the tax contingency reserve will become payable in the next twelve months.
 
Since 1993, Alpine has been a party to a guaranty of obligations of a former affiliate, Superior, under a lease by Superior of a 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 $8.4 million. Any further extensions would amount to a guarantee of approximately $0.7 million per year. Since the guarantee was 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 condensed 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.

Alpine has made short-term advances to the United States subsidiary of SCL, secured by United States-based inventory and accounts receivable, at an interest rate of LIBOR plus 1.4% per annum, to augment funding of that affiliate’s growth and working capital, particularly in the United States. There was $4.0 and $1.4 million of advances included as note receivable from affiliate as of June 30, 2006 and December 31, 2005, respectively. Total advances are not to exceed a maximum of $4.0 million and all advances must be repaid on demand. On August 1, 2006, Alpine made a separate short-term loan of $1.0 million to SCL concurrently with the additional advance to SCL of $1.0 million by Bank Hapoalim, Ltd., SCL’s primary lender. These funds are being utilized by SCL for additional working capital purposes. Alpine’s loan is subordinate to SCL’s bank debt, accrues interest at LIBOR plus 1.4% per annum and matures on January 31, 2007. Otherwise, the operations of Superior Cables Ltd. are funded and financed separately, with recourse to Superior Cables Ltd. but otherwise on a non-recourse basis to Alpine.
23

 
On June 26, 2006, Alpine Holdco invested $10.0 million in SCL in consideration for and purchase of 75 million newly issued SCL ordinary shares. Concurrently with this transaction, a wholly owned subsidiary of Alpine Holdco sold approximately 9.3 million of existing ordinary shares of SCL to unrelated third parties for $1.2 million. This transaction was funded with existing cash and cash equivalents. Alpine Holdco, through this wholly owned subsidiary, currently intends to sell all or a portion of their remaining existing ordinary shares (7.1 million shares) to unrelated parties during 2006.

As of June 30, 2006, Alpine had cash, cash equivalents and marketable securities of approximately $49.2 million including $3.0 million of restricted cash. Management believes these funds are sufficient to meet the Company’s liquidity needs during the next twelve months, including payment of income taxes which may be payable as a result of the Essex Electric Sale. It is anticipated that earnings from cash, cash equivalents and investments will be sufficient to fund continuing operating expenses. A deficit, if any, would be funded by available cash resources.

Additionally, the Company continues to explore and consider utilizing its available liquid assets for a range of investment and business acquisitions.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Currently, the Company’s exposure to market risk primarily relates to the Company’s investments in marketable securities. A hypothetical one percent change in the value of marketable securities would have an impact on the asset values of approximately $0.5 million.

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 were effective at a reasonable assurance level as of the end of the period covered by this Quarterly Report on form 10-Q. 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 quarterly report on 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 related to 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.
 
24



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.
   
 
___________

*
Filed herewith
 
 
25


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
     
 
THE ALPINE GROUP, INC.
 
 
 
 
 
 
Date: August 14, 2006 By:   /s/ David A. Owen
 
David A. Owen
  Chief Financial Officer
 
(duly authorized officer and principal financial and accounting officer)

26