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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| (Mark One) | ||
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2008
OR
| 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: 1-12983
GENERAL CABLE CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 06-1398235 | |
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
| incorporation or organization) | ||
| 4 Tesseneer Drive Highland Heights, KY |
41076-9753 (Zip Code) |
|
| (Address of principal executive offices) |
Registrant’s telephone number, including area code: (859) 572-8000
Securities Registered Pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered | |
| Common Stock, $.01 Par Value | New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation of S-K
(§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in
Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The aggregate market value of the registrant’s Common Stock held by non-affiliates of the
registrant was $3,089.7 million at June 30, 2008 (based upon non-affiliate holdings of 51,892,443
shares and a market price of $59.54 per share).
As of
February 20, 2009, there were 51,942,438 shares of the registrant’s Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive Proxy Statement for the registrant’s Annual Meeting of Shareholders to
be filed with the Securities and Exchange Commission within 120 days after December 31, 2008 have
been incorporated by reference into Part III of this Annual Report on Form 10-K.
GENERAL CABLE CORPORATION AND SUBSIDIARIES
INDEX TO ANNUAL REPORT
ON FORM 10-K
INDEX TO ANNUAL REPORT
ON FORM 10-K
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| Exhibit 12.1 | ||||||||
| Exhibit 21.1 | ||||||||
| Exhibit 23.1 | ||||||||
| Exhibit 31.1 | ||||||||
| Exhibit 31.2 | ||||||||
| Exhibit 32.1 | ||||||||
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PART I.
ITEM 1. BUSINESS
General Cable Corporation (the Company) is a global leader in developing, designing,
manufacturing, marketing, distributing and installing copper, aluminum and fiber optic wire and
cable products. The Company is a Delaware corporation and was incorporated in April 1994. The
Company and its predecessors have served various wire and cable markets for over 150 years. The
Company’s immediate predecessor was a unit of American Premier Underwriters, Inc. (American
Premier), previously known as The Penn Central Corporation. American Premier acquired the
Company’s existing wire and cable business in 1981 and significantly expanded the business between
1988 and 1991 by acquiring Carol Cable Company, Inc. and other wire and cable businesses and
facilities. In June 1994, a subsidiary of Wassall PLC acquired the predecessor by purchase of
General Cable’s outstanding subordinated promissory note, the General Cable common stock held by
American Premier and a tender offer for the publicly-held General Cable common stock. Between May
and August 1997, Wassall consummated public offerings for the sale of all of its interest in
General Cable’s common stock. The Company has operated as an independent public company since
completion of the offerings.
On October 31, 2007, the Company purchased the worldwide wire and cable business of
Freeport-McMoRan Copper and Gold, Inc., which operated as Phelps Dodge International Corporation
(PDIC). The acquisition was completed as part of the Company’s strategy to expand globally into
energy and electrical infrastructure markets. With more than 50 years of experience in the wire
and cable industry, PDIC manufactures a full range of electric utility, electrical infrastructure,
construction and communication products. PDIC serves developing countries and customers in
sectors that offer better growth opportunity over time than the developed world. In addition to
its manufacturing capabilities, PDIC provides a global network of management, development, design,
distribution, marketing assistance, technical support and engineering and purchasing services to
contractors, distributors, and public and private utilities. The transaction created the need to
manage operations on a geographic basis and therefore, effective November 1, 2007 the Company
realigned its management structure along geographic lines.
Consistent with the management structure of the Company, external reportable segments are aligned
into three segments: (1) North America, (2) Europe and North Africa, and (3) Rest of World
(“ROW”), which consists of operations in Latin America, Sub-Saharan Africa, Middle East and Asia
Pacific. These segments are discussed below and additional financial information regarding the
segments appears in Note 16 to the Consolidated Financial Statements. Items 1, 1A, 2, 7, and 8 of
this Annual Report on Form 10-K give effect to the change in reportable segments and impact on
historically reported results.
The Company has a strong market position in each of the segments in which it competes due to
product, geographic, and customer diversity and the Company’s ability to operate as a low cost
provider. The Company sells a wide variety of copper, aluminum and fiber optic wire and cable
products, which it believes represents one of the most diversified product lines in the industry.
As a result, the Company is able to offer its customers a single source for most of their wire and
cable requirements. As of December 31, 2008, the Company manufactures its product lines in 46
facilities including 2 facilities owned by companies in which the Company has an equity investment
and sells its products worldwide through its global operations. Technical expertise and
implementation of Lean Six Sigma (“Lean”) strategies have contributed to the Company’s ability to
maintain its position as a low cost provider.
Business Segments
Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise
and Related Information (SFAS 131), establishes standards for reporting information regarding
operating segments in annual financial statements and requires selected information of those
segments to be presented in interim financial statements. Operating segments are identified as
components of an enterprise for which separate discrete financial information is available for
evaluation by the chief operating decision-maker in making decisions on how to allocate resources
and assess performance and should be consistent with the management structure. Under the criteria
of SFAS 131, the Company has three operating and reportable segments based on geographic regions:
(1) North America, which primarily consists of operations in the United States and Canada, (2)
Europe and North Africa, and (3) Rest of World (ROW), which consists of operations in Latin
America, Sub-Saharan Africa, Middle East and Asia Pacific. Additionally, see Note 16 to the
Consolidated Financial Statements for revenue by country, long-lived assets by country and other
required disclosures.
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North America
The North America segment engages in the development, design, manufacturing, marketing and
distribution of copper, aluminum, and fiber optic wires and cables principally in the United States
and Canada primarily to domestic customers for use in the electric utility, electrical
infrastructure and communications industries. The North America segment contributed approximately
35%, 49%, and 56% of the Company’s consolidated revenues for 2008, 2007 and 2006, respectively
Growth in the electric utility market served by the Company will be largely dependent on the
investment policies of electric utilities and infrastructure improvement. The Company believes
that the increase in electricity consumption in North America has outpaced the rate of utility
investment in North America’s energy grid. As a result, the Company believes the average age of
power transmission cables has increased, the current electric transmission infrastructure needs to
be upgraded and the transmission grid is near capacity. Investment in the energy grid stemming
from historical power outages in the U.S. and Canada and published studies by the North American
Electric Reliability Council emphasizing the need to upgrade the power transmission infrastructure
used by electric utilities should over time result in an increase in demand for the Company’s
electric utility products. Further, the passage of energy legislation in the United States in 2005
that was aimed at improving the transmission grid infrastructure and the reliability of power
availability is expected to contribute to an increase in demand for the Company’s transmission and
distribution cables with some variability over time. Tax legislation was passed in the United
States in 2004, which included the renewal of tax credits for producing power from wind. This has
caused an increase in demand for the Company’s products, as the Company is a significant
manufacturer of wire and cable used in wind farms. Additionally, in 2009, the Company believes the
economic stimulus package recently passed by Congress contains legislation that should enhance
investments in the electric transmission infrastructure, high-speed broadband infrastructure and
alternative energy sources which over time may lead to an increase in demand for the Company’s
products. While the overall long-term trend in demand for electric utility products remains
positive, the Company has experienced demand volatility due to the economic slowdown experienced in
the United States beginning in 2007 and continuing through 2008, especially related to low-voltage
and small gauge medium voltage cable demand within the United States. Demand for these low-voltage
utility products is more closely related to new home construction, a depressed market for part of
2007 and all of 2008. The Company expects that over time growth rates for electric utility
products in North America will be highly variable depending on related product business cycles and
the approval and funding cycle times for large utility projects.
The Company has strategic alliances in the United States and Canada with a number of major utility
customers and is strengthening its market position through these agreements. The Company utilizes
a network of direct sales and authorized distributors to supply low- and medium-voltage and
high-voltage bare overhead cable products. Approximately, 3,500 utility companies represent this
market. A majority of the Company’s electric utility customers have entered into written
agreements with the Company for the purchase of wire and cable products. These agreements
typically have one to four year terms and provide adjustments to selling prices to reflect
fluctuations in the cost of raw materials. These agreements do not guarantee a minimum level of
sales. Historically, approximately 70% of the Company’s electric utility business revenues in
North America are under contract prior to the start of each year.
The market for electrical infrastructure cable products in North America has many niches. Sales in
North America are heavily influenced by the level of industrial construction spending as well as
the level of capital equipment investment and maintenance, factory automation and mining activity.
The Company experienced strong demand throughout 2006 and 2007 as a direct result of a positive
turnaround in industrial construction spending in North America and recent demand, in 2008, has
been influenced by industrial sector maintenance spending and high demand for products used in the
mining, oil, gas, and petrochemical markets. The Company expects demand to soften for these
products in 2009 partly as a result of the significant decline in oil prices, which influence
drilling, coal mining activity and investment in alternatives energy sources. The pricing
environment may also become more difficult due to excess capacity in the industry combined with
weaker demand.
Sales of aftermarket automotive products are heavily influenced by the general overall health of
the economy, ignition set complexity and ignition set design trends. Sales are often stronger
during slower economic times since aftermarket ignition wire sets are used to maintain and lengthen
the life of automobiles.
Over the last several years, demand for outside plant telecommunications cables has experienced a
significant decline from historical levels. Overall demand for telecommunications products from
the Company’s traditional Regional Bell Operating Company (RBOC) customers in North America has
declined over the last several years. Recent RBOC merger activity, allocation of capital to
fiber-to-the-home initiatives, and budgetary constraints caused partially by higher copper costs
has reduced both RBOC and distributor purchasing volume in this segment. During the fourth quarter
2007, the Company rationalized outside plant telecommunication products manufacturing capacity due
to continued declines in telecommunications cable demand. The Company closed a portion of its
telecommunications capacity and recorded a pre-tax charge to write-off certain production equipment
of $6.6 million.
The Company anticipates, based on recent public announcements, further deployment of fiber optic
products into the telephone network. Increased spending by the telephone companies on fiber optic
deployment negatively impacts their purchases of the Company’s copper based telecommunications
cable products. The Company believes the negative impact on the purchase of copper based products
has been somewhat mitigated in that some of its customers have upgraded a portion of their copper
network to support further investment in fiber broadband networks. Growth in the overall
communications market will be largely dependent upon housing starts and the level of information
technology spending on network infrastructure.
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Europe and North Africa
The Europe and North Africa segment designs, manufactures, markets and distributes copper, aluminum
and fiber optic cables originating in Spain, Portugal, France, Germany and Algeria and services
markets throughout Europe and North Africa. This segment produces electric utility, electrical
infrastructure, construction, and communications products. Additionally, the Europe and North
Africa segment provides installation services for high-voltage and extra high-voltage electric
utility projects around the world. The Europe and North Africa segment contributed approximately
35%, 42% and 40% of the Company’s consolidated revenues for 2008, 2007 and 2006, respectively.
This segment has expanded in recent years due to several key acquisitions. These acquisitions have
broadened the Company’s customer base and the product offering to increase its presence in the
European and North African markets. These acquisitions include the purchase of a majority
ownership of Enica Biskra in May 2008, Norddeutsche Seekabelwerke GmBH& Co. (NSW) in April 2007,
E.C.N. Cable Group S.L. (ECN) in August 2006 and Silec Cables, S.A.S. (Silec) in December 2005.
Enica Biskra is a joint venture formed with an Algerian state-owned manufacturer of low and medium
voltage power and construction cables. NSW is a global supplier of offshore communications, power
and control cables as well as aerial cables for power utility communication and control networks.
ECN global sales consist mostly of sales of aluminum aerial high-voltage cables, low- and
medium-voltage insulated power cables and bi-metallic products used in electric transmission and
communications. The Silec acquisition has helped to position the Company as a global leader in
cabling systems for the energy transmission and distribution markets. These acquisitions
demonstrate the Company’s strategic initiative to expand its global geographic and product
diversity.
Growth in the Europe and North Africa segment will be largely dependent on the investment policies
of electric utilities, infrastructure improvement and the growing needs of emerging economies. The
Company believes that the increase in electricity consumption in Europe has outpaced the rate of
utility investment in Europe’s energy grid. As a result, the Company believes the average age of
power transmission cables has increased, the current electric transmission infrastructure needs to
be upgraded and the transmission grid is near capacity. Capacity issues combined with periodic
power outages in Europe emphasized the need to upgrade the power transmission infrastructure used
by electric utilities, which has caused an increase in demand for the Company’s products. Demand
for medium- and high-voltage cable has increased due to the continuing rebuild of the electric
utility distribution infrastructure and increasing investments throughout Europe in wind farm
electricity generation, including offshore wind farms. In addition, extra-high-voltage underground
cable systems continue to experience high demand with lead times often extending beyond one year.
The market for electrical infrastructure cable products has many niches. The level of residential,
non-residential and industrial construction spending heavily influences sales in Europe and North
Africa. The Company experienced high demand throughout 2005 and 2006 as a result of continuing
strength in residential and non-residential construction spending in the region, particularly in
Spain. However, demand for residential low-voltage cables and building wire has decreased during
2007 into and throughout 2008 in the Spanish domestic market and may decrease further into the
foreseeable future. The slowdown in construction spending in Spain was being partially offset by a
strong construction market in the broader European Union. However, in general, all European
markets softened near the end of 2008 and are expected to remain weak in 2009.
Rest of World (ROW)
The ROW segment consists of sales and manufacturing facilities in Latin America, Sub-Saharan
Africa, Middle East and Asia Pacific that resulted from the PDIC acquisition and is managed in
conjunction with the Company’s historical operations in the Pacific Islands, New Zealand,
Australia, India and China. The principal ROW segment develops, designs, manufactures, markets,
and distributes wire and cable products for use in the electric utility, electrical infrastructure,
construction and communications markets as well as rod mill products, specifically copper and
aluminum rod. This segment contributed approximately 30%, 9% and 4% of the Company’s consolidated
net sales in 2008, 2007 and 2006, respectively. It should be noted historical results only include
PDIC results since the acquisition date of October 31, 2007. The ROW segment operations are
located in Australia, Brazil, Chile, China, Costa Rica, Ecuador, El Salvador, Fiji, Honduras,
India, Mexico, New Zealand, Panama, Philippines, South Africa, Thailand, Venezuela and Zambia.
Additionally, as part of the rationalization of outside plant telecommunication products
manufacturing capacity as discussed above in the North America segment, the Company has realigned
assets at its Tetla, Mexico facility in order for approximately 100,000 square feet of
manufacturing space to manufacture energy, industrial and construction cable products for the
Central and South American markets as well as the local Mexican market.
This segment is expected to grow prospectively as a result of the leading market positions in Latin
America, Sub-Saharan Africa and Asia Pacific. This expectation is based on the fact that markets
in these countries generally offer better growth opportunities over time than the developed markets
of North America and Western Europe due to growing population and wealth driving demand for
consumer goods, housing and electricity. Additionally, throughout the region, the Company
anticipates an expanded product offering will provide greater accessibility to customers as it
relates to recent announcements of planned investment in electrical infrastructure, construction
and electric utility throughout Central and South America although investment is expected to be
volatile as a result of the global economic slowdown.
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In Brazil, political stability has contributed to several key initiatives as it relates to
investment in electric utility, construction and electrical infrastructure products such as the
“Lights for All” project, which is a program intended to expand the availability of electricity to
consumers throughout the country. Political stability has also contributed to the substantial
growth in the housing and various other industrial segments. In Venezuela, the centralized
political structure has lead to several positive implications as it relates to the Company’s
business such as fewer competitors, a growing construction segment and a higher level of government
investment. In sub-Saharan Africa, countries such as South Africa and Zambia are expected to
experience investment in construction and housing markets in preparation for the 2010 World Cup to
be held in South Africa and in Zambia where the National Housing Authority has authorized a
significant housing appropriations agreement. The region has also experienced electricity
shortages over the past few years in times of peak demand as a result of historical under
investment in the regional energy infrastructure. This may cause an increase in future demand for
the Company’s products over time.
In Asia Pacific, specifically in Thailand there continues to be instability and uncertainty in the
political environment which may delay government spending on infrastructure projects into the
foreseeable future. In 2008, the Company acquired and consolidated
Phelps Dodge Philippines (PDP) through an increase in its equity
investment from 40% to 60%. PDP operates one of the largest wire and cable
manufacturing facilities in the Philippines. This investment complements the Company’s strategy in
the region by providing a platform for further penetration into Southeast Asia markets as well as
supporting ongoing operations in Australia, the Middle East and South Africa.
Products
The various wire and cable product lines are sold and manufactured by all geographic segments
except for rod mill products which are only manufactured and sold by the ROW segment and
construction products which are only sold in the Europe and North Africa and ROW segments.
Additionally, revenue by product line is included in Note 16 to the Consolidated Financial
Statements. Products sold by the Company’s three segments include the following:
| • | Electric Utility products — The primary products in this grouping include low- and
medium-voltage distribution cable; high- and extra-high voltage power transmission cable
products and installation; and bare overhead conductor. These products are sold to
electric utility and power companies and contractors. The Company is a leader in the
supply of electric utility cables in North America, Latin America, Western Europe, Oceania
and Southeast Asia. |
||
The Company manufactures low- and medium-voltage aluminum and copper distribution cable,
bare overhead aluminum conductor and high-voltage transmission cable. Bare transmission
cables are utilized by utilities in the transmission grid to provide electric power from the
power generating stations to the distribution sub-stations. Medium-voltage cables are
utilized in the primary distribution infrastructure to bring power from the distribution
sub-stations to the transformers. Low-voltage cables are utilized in the secondary
distribution infrastructure to take the power from the transformers to the end-user. |
|||
The Company provides installation services for high-voltage and extra-high-voltage
transmission cables used in certain overhead and underground applications. The underground
power cables are highly engineered cables and the installation of such requires specific
expertise. Through these services, the Company has strengthened its materials science,
power connectivity and systems integration expertise. |
| • | Electrical Infrastructure products — This product group includes electrical
infrastructure, portable cord products and transportation products and industrial
harnesses. These products consist of wire and cable that are used for many applications:
maintenance and repair; temporary power on construction sites; conduction of electrical
current and signals for industrial original equipment manufacturers and commercial power,
residential power, and control applications; and jacketed wire and cable products and
harnesses for automotive and industrial applications. |
||
These products include low- and medium-voltage industrial cables, rail and mass transit
cables, shipboard cables, oil and gas cables and other industrial cables. Applications for
these products include power generating stations, marine, mining, oil and gas,
transit/locomotive, original equipment manufacturers, machine builders and shipboard
markets. The Company’s Polyrad® XT marine wire and cable products also provide
superior properties and performance levels that are necessary for heavy-duty industrial
applications to both onshore and offshore platforms, ships and oil rigs. Many wire and
cable applications require cables with exterior armor and/or jacketing materials that can
endure exposure to chemicals, extreme temperatures and outside elements. The Company offers
products that are specifically designed for these applications. |
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The portable cord products in this product group consist of a wide variety of rubber and
plastic insulated cord products for power and control applications serving industrial,
mining, entertainment, original equipment manufacturers, and other markets. These products
are used for the distribution of electrical power but are designed and constructed to be
used in dynamic and severe environmental conditions where a flexible but durable power
supply is required including both standard commercial cord and cord products designed to
meet customer specifications. Portable rubber-jacketed power cord, the Company’s highest
volume selling cord product line, is typically manufactured without a connection device at
either end and is sold in standard and customer-specified lengths. The cords are also sold
to original equipment manufacturers for use as power cords on their products and in other
applications, in which case the cord is made to the original equipment manufacturers
specifications. The Company also manufactures portable cord for use with moveable heavy
equipment and machinery. The Company’s portable cord products are sold primarily through
electrical distributors and electrical retailers to industrial customers, original equipment
manufacturers, contractors and consumers. |
|||
The transportation products consist primarily of ignition wire sets for sale to the
automotive aftermarket. These products are sold primarily to automotive parts retailers and
distributors. The Company’s automotive products are also sold on a private label basis to
retailers and other automotive parts manufacturers. Other products include cable harnesses
(assemblies) for use in industrial control applications as well as medical applications.
These assemblies are used in such products as industrial machinery, diagnostic imaging and
transportation equipment. These products are sold primarily to original equipment
manufacturers and industrial equipment manufacturers. |
|||
| • | Construction products — This product group includes wire and cable products for
construction markets. These products consist of construction cables, building wire and
flexible cords. This grouping includes construction cables that meet low-smoke,
zero-halogen requirements and flame retardant cables. The cables are used in the
construction markets served by electrical distributors, contractors and retail home
centers. The principal end users are electricians, distributors, installation and
engineering contractors and do-it-yourself consumers. |
||
| • | Communication products — The communication products include wire and cable products that
transmit low-voltage signals for voice and data applications and electronic wire and
cables. |
||
One principal product category is data communication products that include high-bandwidth
twisted copper and fiber optic cables and multi-conductor cables for customer premises,
local area networks and telephone company central offices. Customer premise communication
products are used for wiring at subscriber premises, and include computer, riser rated and
plenum rated wire and cable. Riser cable runs between floors and plenum cable runs in air
spaces, primarily above ceilings in non-residential structures. Local area network cables
run between computers along horizontal raceways and in backbones between servers. Central
office products interconnect components within central office switching systems and public
branch exchanges. The Company sells data communications products primarily through a direct
sales force. |
|||
Another principal product category includes outside plant telecommunications exchange cable,
which is short haul trunk, feeder or distribution cable from a telephone company’s central
office to the subscriber premises. The product consists of multiple paired conductors
(ranging from two to 4,200 pairs) and various types of sheathing, water-proofing, foil wraps
and metal jacketing. Service wire is used to connect telephone subscriber premises to
curbside distribution cable. The Company sells telecommunications products primarily to
telecommunications system operators through its direct sales force under supply contracts of
varying lengths and to telecommunications distributors. The contracts do not guarantee a
minimum level of sales. |
|||
The Company’s electronics products include multi-conductor, multi-pair, coaxial, hook-up,
audio and microphone cables, speaker and television lead wire and high temperature and
shielded electronic wire. Primary uses for these products are various applications within
commercial, industrial instrumentation and control and residential markets. These markets
require a broad range of multi-conductor products for applications involving programmable
controllers, robotics, process control and computer integrated manufacturing, sensors and
test equipment, as well as cable for fire alarm, smoke detection, sprinkler control,
entertainment and security systems. |
|||
The Company produces and sells fiber-optic submarine communication cable systems and special
cables for the offshore industry and other underwater and terrestrial applications.
Products include fiber-optic submarine cables and hardware, low detection profile cables,
turnkey submarine networks, and offshore systems integration. |
|||
| • | Rod Mill products– Rod Mill products include continuous cast copper and aluminum rod,
which is sold to other wire and cable manufacturers. These products are only produced and
sold by PDIC operations in our ROW segment. Copper and aluminum rod are the key material
used in the manufacturing of wire and cable products. Customers in this segment rely on
the Company to provide just-in-time delivery of this important component. |
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Industry and Market Overview
The wire and cable industry is competitive, mature and cost driven. For many product offerings,
there is little differentiation among industry participants from a manufacturing or technology
standpoint. During recent years and continuing through 2007, the Company’s end markets have
continued to demonstrate recovery from the low points of demand experienced in 2003. However,
beginning in the fourth quarter of 2007 and continuing throughout 2008, an economic slowdown in the
United States and slowing growth in certain European markets resulted in lower demand as compared
to 2007. In the past several years, there has been significant merger and acquisition activity
which, the Company believes, has led to a reduction in inefficient, high cost capacity in the
industry. Wire and cable products are relatively low value added, higher weight (and therefore
relatively expensive to transport) and often subject to regional or country specifications. The
wire and cable industry is raw materials intensive with copper and aluminum comprising the major
cost components for cable products. Changes in the cost of copper and aluminum are generally passed
through to the customer, although there can be timing delays of varying lengths depending on the
volatility in metal prices, the type of product, competitive conditions and particular customer
arrangements.
Raw Materials Sources and Availability
The principal raw materials used by General Cable in the manufacture of its wire and cable products
are copper and aluminum. The price of copper and aluminum as traded on the London Metal Exchange
(“LME”) and COMEX has historically been subject to considerable volatility and, during the past few
years, global copper prices have established new average record highs.
| Average daily selling price: | ||||||||||||||||||||
| ($ per pound) | Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Year to Date | |||||||||||||||
Copper Cathode |
||||||||||||||||||||
2008 |
3.53 | 3.80 | 3.45 | 1.75 | 3.13 | |||||||||||||||
2007 |
2.70 | 3.46 | 3.48 | 3.25 | 3.22 | |||||||||||||||
2006 |
2.25 | 3.37 | 3.54 | 3.19 | 3.09 | |||||||||||||||
Aluminum |
||||||||||||||||||||
2008 |
1.28 | 1.38 | 1.31 | 0.87 | 1.21 | |||||||||||||||
2007 |
1.30 | 1.28 | 1.19 | 1.14 | 1.23 | |||||||||||||||
2006 |
1.15 | 1.26 | 1.18 | 1.28 | 1.22 | |||||||||||||||
The Company purchases copper and aluminum from various global sources, generally through annual
supply and derivative contracts. Copper and aluminum are available from many sources, however,
unanticipated problems with the Company’s copper or aluminum rod suppliers could negatively affect
the Company’s business. In North America, the Company has centralized the purchasing of its
copper, aluminum and other significant raw materials to capitalize on economies of scale and to
facilitate the negotiation of favorable purchase terms from suppliers. In 2008, the Company’s
largest supplier of copper rod accounted for approximately 91% of its North American copper
purchases while the largest supplier of aluminum rod accounted for approximately 84% of its North
American aluminum purchases. The Company’s European operations purchases copper and aluminum rod
from many suppliers or brokers with each generally providing a small percentage of the total copper
and aluminum rod purchased. The Company’s ROW segment internally produces the majority of its
copper and aluminum rod production needs and obtains cathode and ingots from various suppliers with
each supplier generally providing a small percentage.
Other raw materials utilized by the Company include nylon, polyethylene resin and compounds and
plasticizers, fluoropolymer compounds, optical fiber and a variety of filling, binding and
sheathing materials. The Company believes that all of these materials are available in sufficient
quantities through purchases in the open market.
Patents and Trademarks
The Company believes that the success of its business depends more on the technical competence,
creativity and marketing abilities of its employees than on any individual patent, trademark or
copyright. Nevertheless, the Company has a policy of seeking patents when appropriate on inventions
concerning new products and product improvements as part of its ongoing research, development and
manufacturing activities.
The Company owns a number of U.S. and foreign patents and has patent applications pending in the
U.S. and abroad. Through the recent acquisition of PDIC, the Company acquired patents in Brazil,
Canada, China, India, Mexico, Taiwan, Thailand and in the United States. Although in the aggregate
these patents are of considerable importance to the manufacturing and marketing of many of the
Company’s products, the Company does not consider any single patent or group
of patents to be material to its business as a whole. While the Company occasionally obtains patent
licenses from third parties, none are deemed to be material.
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The Company also owns a number of U.S. and foreign registered trademarks and has many applications
for new registrations pending. The Company acquired registered trademarks and trade names related
to “Phelps Dodge International Corporation” and PDIC global marks and symbols. Although in the
aggregate these trademarks are of considerable importance to the manufacturing and marketing of
many of the Company’s products, the Company does not consider any single trademark or group of
trademarks to be material to its business as a whole with the exception of the recently acquired
PDIC related trademarks and trade names. Trademarks which are considered to be generally important
are General Cable®, Anaconda®, BICC®,
Carol®, GenSpeed®, Helix/HiTemp®,
NextGen®, and Silec®, Polyrad® Phelps Dodge International
Corporation® and Phelps Dodge International Corporation global symbol and the Company’s
triad symbol. The Company believes that its products bearing these trademarks have achieved
significant brand recognition within the industry.
The Company also relies on trade secret protection for its confidential and proprietary
information. The Company routinely enters into confidentiality agreements with its employees. There
can be no assurance, however, that others will not independently obtain similar information and
techniques or otherwise gain access to the Company’s trade secrets or that the Company will be able
to effectively protect its trade secrets.
Seasonality
General Cable generally has experienced and expects to continue to experience certain seasonal
trends in construction related product sales and customer demand. Demand for construction related
products during winter months in certain geographies is usually lower than demand during spring and
summer months. Therefore, generally, larger amounts of cash are required during winter months in
order to build inventories in anticipation of higher demand during the spring and summer months,
when construction activity increases. In turn, receivables related to higher sales activity during
the spring and summer months are generally collected during the fourth quarter of the year.
Additionally, the Company has historically experienced changes in demand resulting from poor or
unusual weather.
Competition
The markets for all of the Company’s products are highly competitive and most markets include
several competitors. The Company believes that it has developed strong customer relations as a
result of its ability to supply customer needs across a broad range of products, its commitment to
quality control and continuous improvement, its continuing investment in information technology,
its emphasis on customer service and its substantial product and distribution resources.
Although the primary competitive factors for the Company’s products vary somewhat across the
different product categories, the principal factors influencing competition are generally price,
quality, breadth of product line, inventory, delivery and customer service. Many of the Company’s
products are made to industry specifications, and are therefore functionally interchangeable with
those of competitors. However, the Company believes that significant opportunities exist to
differentiate all of its products on the basis of quality, consistent availability, conformance to
manufacturer’s specifications and customer service. Within some markets such as local area
networking cables, conformance to manufacturer’s specifications and technological superiority are
also important competitive factors.
Advertising Expense
Advertising expense consists of expenses relating to promoting the Company’s products, including
trade shows, catalogs, and e-commerce promotions, and is charged to expense when incurred.
Advertising expense was $11.1 million, $9.5 million and $8.2 million in 2008, 2007 and 2006,
respectively.
Environmental Matters
The Company is subject to a variety of federal, state, local and foreign laws and regulations
covering the storage, handling, emission and discharge of materials into the environment, including
CERCLA, the Clean Water Act, the Clean Air Act (including the 1990 amendments) and the Resource
Conservation and Recovery Act. While it is difficult to estimate future environmental liabilities
accurately, the Company does not currently anticipate any material adverse effect on its
consolidated results of operations, financial position or cash flows as a result of compliance with
federal, state, local or foreign environmental laws or regulations or remediation costs of the
sites as fully discussed below in Item 3 Legal Proceeding and Note 17 Commitments and Contingencies
to the Consolidated Financial Statements.
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Employees
At December 31, 2008, General Cable employed approximately 13,000 persons, and collective
bargaining agreements covered approximately 7,000 employees, or 54% of total employees, at various
locations around the world. During the five calendar years ended December 31, 2008, the Company
experienced two strikes in North America both of which were settled on satisfactory terms. There
were no other major strikes at any of the Company’s facilities during the five years ended December
31, 2008. In the United States, Canada, Chile, Thailand, Venezuela and Zambia union contracts will
expire at seven facilities in 2009 and seven facilities in 2010 representing approximately 9.6% and
14.6%, respectively, of total employees as of December 31, 2008. The Company believes it will
successfully renegotiate these contracts as they come due. For countries not specifically
discussed above, labor agreements, if applicable, are generally negotiated on an annual or
bi-annual basis.
Disclosure Regarding Forward-Looking Statements
Certain statements in the 2008 Annual Report on Form 10-K including, without limitation,
statements regarding future financial results and performance, plans and objectives, capital
expenditures and our or management’s beliefs, expectations or opinions, are forward-looking
statements, and as such, we desire to take advantage of the “safe harbor” which is afforded such
statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements
are those that predict or describe future events or trends and that do not relate solely to
historical matters. You can generally identify forward-looking statements as statements
containing the words “believe,” “expect,” “may,” “anticipate,” “intend,” “estimate,” “project,”
“plan,” “assume,” “seek to” or other similar expressions, although not all forward-looking
statements contain these identifying words.
Actual results may differ materially from those discussed in forward-looking statements as a
result of factors, risks and uncertainties over many of which we have no control. These factors
include, without limitation, the following: economic and political consequences resulting from
terrorist attacks, war and political and social unrest; economic consequences arising from natural
disasters and other similar catastrophes, such as floods, earthquakes, hurricanes and tsunamis;
domestic and local country price competition, particularly in certain segments of the power cable
market and other competitive pressures; general economic conditions, particularly those in the
construction, energy and information technology sectors; changes in customer or distributor
purchasing patterns in our business segments; our ability to increase manufacturing capacity and
productivity; the financial impact of any future plant closures; our ability to successfully
complete and integrate acquisitions and divestitures; our ability to negotiate extensions of labor
agreements on acceptable terms and to successfully deal with any labor disputes; our ability to
service, and meet all requirements under, our debt, and to maintain adequate domestic and
international credit facilities and credit lines; our ability to pay dividends on our preferred
stock; our ability to make payments of interest and principal under our existing and future
indebtedness and to have sufficient available funds to effect conversions and repurchases from
time to time; lowering of one or more debt ratings issued by nationally recognized statistical
rating organizations, and the adverse impact such action may have on our ability to raise capital
and on our liquidity and financial conditions; the impact of unexpected future judgments or
settlements of claims and litigation; our ability to achieve target returns on investments in our
defined benefit plans; our ability to avoid limitations on utilization of net losses for income
tax purposes; the cost and availability of raw materials, including copper, aluminum and
petrochemicals; our ability to increase our selling prices during periods of increasing raw
material costs; the impact of foreign currency fluctuations, devaluations and changes in interest
rates; the impact of technological changes; and other material factors. See Item 1A, “Risk
Factors,” for a more detailed discussion on some of these risks. We do not undertake and
specifically decline any obligation to update or correct any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
Available Information
The Company’s principal executive offices are located at 4 Tesseneer Drive, Highland Heights,
Kentucky 41076-9753 and its telephone number is (859) 572-8000. The Company’s internet address is
www.generalcable.com. General Cable’s annual report on Form 10-K, quarterly reports on Form 10-Q
and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, are made available free of charge at
www.generalcable.com as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the Securities and Exchange Commission (SEC). In addition, the Company
will provide, at no cost, paper or electronic copies of our reports and other filings made with
the SEC. Requests should be directed to: Investor Relations, General Cable Corporation, 4
Tesseneer Drive, Highland Heights, KY 41076-9753.
The information on the website listed above is not and should not be considered part of this
annual report on Form 10-K and is not incorporated by reference in this document. This website
address is and is only intended to be an inactive textual reference.
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Executive Officers of the Registrant
The following table sets forth certain information concerning the executive officers of General
Cable on December 31, 2008.
| Name | Age | Position | ||||
Gregory B. Kenny
|
56 | President, Chief Executive Officer and Class II Director | ||||
Brian J. Robinson
|
40 | Executive Vice President, Chief Financial Officer and Treasurer | ||||
Robert J. Siverd
|
60 | Executive Vice President, General Counsel and Secretary | ||||
J. Michael Andrews
|
44 | Executive Vice President | ||||
Domingo Goenaga
|
67 | Executive Vice President, President and Chief Executive Officer, General Cable Europe and North Africa | ||||
Gregory J. Lampert
|
41 | Executive Vice President, President and Chief Executive Officer, General Cable North America | ||||
Roddy Macdonald
|
60 | Executive Vice President, Global Sales and Business Development | ||||
Mathias Sandoval
|
48 | Executive Vice President, General Cable Rest of World, President and Chief Executive Officer, Phelps Dodge International Corporation | ||||
Mr. Kenny has been one of General Cable’s directors since 1997 and has been President and Chief
Executive Officer since August 2001. He served as President and Chief Operating Officer from May
1999 to August 2001. He served as Executive Vice President and Chief Operating Officer of General
Cable from March 1997 to May 1999. From June 1994 to March 1997, he was Executive Vice President of
General Cable’s immediate predecessor. He is also a director of Corn Products International, Inc.
(NYSE: CPO) and Cardinal Health, Inc (NYSE: CAH). He is member of the Board of Directors of the
Federal Reserve Bank of Cleveland (Cincinnati Branch).
Mr. Robinson has served as Executive Vice President, Chief Financial Officer and Treasurer since
January 1, 2008. He served as Senior Vice President, Chief Financial Officer and Treasurer from
January 2007 to December 2007. He served as Senior Vice President, Controller and Treasurer from
March 2006 to December 2006. He served as General Cable Controller from 2000 to February 2006 and
Assistant Controller from 1999 to 2000. From 1997 until 1999, he served as an Audit Manager
focused on accounting services for global companies for Deloitte & Touche LLP, and from 1991 to
1997, he served in roles of increasing responsibility with the Deloitte & Touche LLP office in
Cincinnati, Ohio.
Mr. Siverd has served as Executive Vice President, General Counsel and Secretary of General Cable
since March 1997. From July 1994 until March 1997, he was Executive Vice President, General Counsel
and Secretary of the predecessor company.
Mr. Andrews last day of employment was December 31, 2008 under a Separation Agreement and Addendum,
Departure of Principal Officer incorporated by reference (exhibit 10.50).
Mr. Goenaga has served as Executive Vice President, President and Chief Executive Officer, Europe
and North Africa since October 2007. He was President and Chief Executive Officer of General Cable
Europe since 2001. Mr. Goenaga joined General Cable in 1963. Throughout his service with General
Cable, Mr. Goenaga has held numerous leadership roles in both finance and general management,
including Managing Director of General Cable Iberia.
Mr. Lampert has served as Executive Vice President, President and Chief Executive Officer for
General Cable North America since August 1, 2008. Prior to that, Mr. Lampert was Executive Vice
President and Group President, North America Electrical and Communications Infrastructure since
October 2007. He served as Senior Vice President and General Manager — Data Communications and
Carol Brand Products from August 2005 until September 2007. He served as Vice President and General
Manager — Carol Brand Products from January 2004 until July 2005. He served as Vice President of
Sales — Electrical and Industrial Distribution from July 2000 until December 2003. He served as
Product Manager — Building Wire from April 1998 until June 2000. Prior to joining General Cable,
Mr. Lampert spent eight years with The Dow Chemical Company in sales and marketing roles of
increasing responsibility.
Mr. Macdonald has served as Executive Vice President of Global Sales and Business Development since
October 2007. He was Senior Vice President, Sales and Business Development for General Cable since
September 2001. He joined the Company as Senior Vice President and General Manager, Electrical
Cables in December 1999. From the period 1994 – 1999, Mr. Macdonald served as Vice President,
Human Resources, Information Technology and Corporate Secretary for Commonwealth Aluminum
Corporation. In 1995, Mr. Macdonald was appointed to the position of Executive Vice President,
Corporate Systems for Commonwealth, and in 1997, he assumed the role of President of Alflex
Corporation, a subsidiary of Commonwealth that manufactures armored cable products. He served for
25 years as an officer in the British Armed Services. In 1983 he was made a Member of the Order of
the British Empire for services leading commando forces in combat in the Falkland Islands and ended
his distinguished military career in 1993 as a Brigadier General.
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Mr. Sandoval has served as Executive Vice President of General Cable Rest of World and President
and Chief Executive Officer of Phelps Dodge International Corporation (“PDIC”) since October 2007.
He began his 24-year career with PDIC as a process engineer in Costa Rica and has held positions in
engineering, operations and management, including General Manager of PDIC’s Honduras-based
business, President of their Venezuelan operations, Vice President of their Global Aluminum
Business Segment and Vice President of PDIC’s Global Energy Segment. He became President of PDIC
in 2001. He has served on Boards of Directors for joint ventures between United States companies
and private- and government-owned enterprises in China, Thailand, the Philippines, Zambia, South
Africa, Mexico, Honduras, Costa Rica, Panama, Venezuela, Ecuador, Brazil and Chile.
ITEM 1A. RISK FACTORS
Unless the context indicates otherwise, all references to “we”, “us”, “our” in this Item 1A, “Risk
Factors,” refer to the Company. We are subject to a number of risks listed below, which could have
a material adverse effect on our financial condition, results of operations and value of our
securities.
Certain statements in the 2008 Annual Report on Form 10-K including, without limitation, statements
regarding future financial results and performance, plans and objectives, capital expenditures and
our or management’s beliefs, expectations or opinions, are forward-looking statements, and as such,
we desire to take advantage of the “safe harbor” which is afforded such statements under the
Private Securities Litigation Reform Act of 1995. Our forward-looking statements should be read in
conjunction with our comments in this report under the heading, “Disclosure Regarding
Forward-Looking Statements.” Actual results may differ materially from those statements as a result
of factors, risks and uncertainties over which we have no control. Such factors include, but are
not limited to, the risks and uncertainties discussed below.
Risks Related to Our Business
| • | Our net sales, net income and growth depend largely on the economic strength of the
geographic markets that we serve, and if these markets become weaker, we would suffer
decreased sales and net income. |
Many of our customers use our products as components in their own products or in projects
undertaken for their customers. Our ability to sell our products is largely dependent on general
economic conditions, including how much our customers and end-users spend on power transmission and
distribution infrastructures, industrial manufacturing assets, new construction and building,
information technology and maintaining or reconfiguring their communications networks. Should the
economic slowdown in the United States and European markets worsen or expand more fully to other
parts of the world, the Company would suffer a decrease in sales and net income.
| • | The markets for our products are highly competitive, and if we fail to invest in product
development, productivity improvements and customer service and support, sales of our products
could be adversely affected. |
The markets for copper, aluminum and fiber optic wire and cable products are highly competitive,
and some of our competitors may have greater financial resources than ours. We compete with at
least one major competitor with respect to each of our business segments. Many of our products are
made to common specifications and therefore may be fungible with competitors’ products.
Accordingly, we are subject to competition in many markets on the basis of price, delivery time,
customer service and our ability to meet specific customer needs.
We believe that competitors will continue to improve the design and performance of their products
and to introduce new products with competitive price and performance characteristics. We expect
that we will be required to continue to invest in product development, productivity improvements
and customer service and support in order to compete in our markets. Furthermore, an increase in
imports of competing products could adversely affect our sales on a region by region basis.
| • | Our business is subject to the economic, political and other risks of maintaining
facilities and selling products in foreign countries. |
During
the year ended December 31, 2008, approximately 65% of our sales and approximately 76% of
our assets were in markets outside North America. Our operations outside North America generated
approximately 39% of our cash flows from operations during this period. Our financial results may
be adversely affected by significant fluctuations or devaluations in the value of the U.S. dollar
against foreign currencies or by the enactment of exchange controls or foreign governmental or
regulatory restrictions on the transfer of funds. In addition, negative tax consequences relating
to repatriating certain foreign currencies may adversely affect our cash flows.
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Furthermore, our foreign operations are subject to risks inherent in maintaining operations abroad,
such as economic and political destabilization, international conflicts, restrictive actions by
foreign governments, nationalizations, changes in regulatory requirements, the difficulty of
effectively managing diverse global operations, adverse foreign tax laws and the
threat posed by potential international disease pandemics in countries that do not have the
resources necessary to deal with such outbreaks. Over time, we intend to continue to expand our
foreign operations, which would serve to exacerbate these risks and their potential effect on our
business, financial position and results of operations. In particular, with the acquisition of
PDIC, we have significant operations in countries in Central and South America, Africa and Asia.
Economic and political developments in these countries, including future economic changes or crises
(such as inflation, currency devaluation or recession), government deadlock, political instability,
civil strife, international conflicts, changes in laws and regulations and expropriation or
nationalization of property or other resources, could impact our operations or the market value of
our common stock and have an adverse effect on our business, financial condition and results of
operations. Although PDIC and its subsidiaries maintain political risk insurance related to its
operations in a number of countries, any losses we may incur may not be covered by this insurance
and, even if covered, such insurance may not fully cover such losses. In addition to these general
risks, there are significant country specific risks including:
| • | Brazil and other Latin American countries have historically experienced uneven periods
of economic growth as well as recession, high inflation, currency devaluation and
economic instability. The countries’ governments have been known to intervene in their
respective economies, which have involved price controls, currency devaluations, capital
controls and limits on imports. |
||
| • | Thailand recently experienced significant political and militant unrest in certain
provinces. The country’s elected government was overthrown in September 2006, with an
elected government only recently restored. |
||
| • | Venezuela has experienced difficult economic conditions, relatively high levels of
inflation, and foreign exchange and price controls. The President of Venezuela has the
authority to legislate certain areas by decree, and the Venezuelan government has
nationalized or announced plans to nationalize certain industries and has sought to
expropriate certain companies and property. |
||
| • | Algeria has a tumultuous past, characterized by violence and terrorism. The country’s
government has been moderately successful in neutralizing these threats creating a more
receptive political and social atmosphere. |
| • | Compliance with foreign and U.S. laws and regulations applicable to our international
operations, including the Foreign Corruption Practices Act (FCPA), is difficult and may
increase the cost of doing business in international jurisdictions. |
Various laws and regulations associated with our current international operations are complex and
increase our cost of doing business. Furthermore, these laws and regulations expose us to fines and
penalties if we fail to comply with them. These laws and regulations include import and export
requirements, U.S. laws such as the FCPA, and local laws prohibiting corrupt payments to
governmental officials. Although we have implemented policies and procedures designed to ensure
compliance with these laws, there can be no assurance that our employees, contractors and agents
will not take actions in violation of our policies, particularly as we expand our operations
through organic growth and acquisitions. Any such violations could subject us to civil or criminal
penalties, including substantial fines or prohibitions on our ability to offer our wire and cable
products in one or more countries, and could also materially damage our reputation, our brand, our
international expansion efforts, our business and our operating results. In addition, if we fail to
address the challenges and risks associated with our international expansion and acquisition
strategy, we may encounter difficulties implementing our strategy, which could impede our growth or
harm our operating results.
| • | Volatility in the price of copper and other raw materials, as well as fuel and energy,
could adversely affect our businesses. |
The costs of copper and aluminum, the most significant raw materials we use, have been subject to
considerable volatility over the past few years. Volatility in the price of copper, aluminum,
polyethylene, petrochemicals, and other raw materials, as well as fuel, natural gas and energy, may
in turn lead to significant fluctuations in our cost of sales. Additionally, sharp increases in
the price of copper can also reduce demand if customers decide to defer their purchases of copper
wire and cable products or seek to purchase substitute products. Although we attempt to recover
copper and other raw material price changes either in the selling price of our products or through
our commodity hedging programs, there is no assurance that we can do so successfully or at all in
the future.
| • | Interruptions of supplies from our key suppliers may affect our results of operations and
financial performance. |
Interruptions of supplies from our key suppliers, including as a result of catastrophes such as
hurricanes, earthquakes, floods or terrorist activities, could disrupt production or impact our
ability to increase production and sales. All copper and aluminum rod used in our North American
operations is externally sourced, and our largest supplier of copper rod accounted for
approximately 91% of our North American purchases in 2008 while our largest supplier of aluminum
rod accounted for approximately 84% of our North American purchases in 2008. The Company’s
European operations purchase copper and aluminum rod from many suppliers with each supplier
generally providing a small percentage of the total copper and aluminum rod purchased while
operations in ROW internally produce the majority of their copper and aluminum rod production needs
and obtain cathode and ingots from various sources with each supplier generally providing a small
percentage of the total amount of raw materials purchased. Any unanticipated problems with our
copper or aluminum rod suppliers could have a material adverse effect on our business.
Additionally, we use a limited number of sources for most of the other raw materials that we do not
produce. We do not have long-term or volume purchase agreements with most of our suppliers, and
may have limited options in the short-term for alternative supply if these suppliers fail to
continue the supply of material or components for any reason, including their business failure,
inability to obtain raw materials or financial difficulties. Moreover, identifying and accessing
alternative sources may increase our costs.
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| • | Failure to negotiate extensions of our labor agreements as they expire may result in a
disruption of our operations. |
As of December 31, 2008, approximately 54% of our employees were represented by various labor
unions. During the five calendar years ended December 31, 2008, we have experienced only two
strikes, which were settled on satisfactory terms.
We are party to labor agreements with unions that represent employees at many of our manufacturing
facilities. In the United States, Canada, Chile, Thailand, Venezuela and Zambia, union contracts
will expire at seven facilities in 2009 and seven facilities in 2010 representing approximately
9.6% and 14.6%, respectively, of total employees as of December 31, 2008. Labor agreements are
generally negotiated on an annual or bi-annual basis unless otherwise noted above and the risk
exists that labor agreement may not be renewed on reasonably satisfactory terms to the Company or
at all. We cannot predict what issues may be raised by the collective bargaining units
representing our employees and, if raised, whether negotiations concerning such issues will be
successfully concluded. A protracted work stoppage could result in a disruption of our operations
which could, in turn, adversely affect our ability to deliver certain products and our financial
results.
| • | Our inability to continue to achieve productivity improvements may result in increased
costs. |
Part of our business strategy is to increase our profitability by lowering costs through improving
our processes and productivity. In the event we are unable to continue to implement measures
improving our manufacturing techniques and processes, we may not achieve desired efficiency or
productivity levels and our manufacturing costs may increase. In addition, productivity increases
are related in part to factory utilization rates. Unanticipated decreases in utilization rates may
adversely impact productivity.
| • | Changes in industry standards and regulatory requirements may adversely affect our
business. |
As a manufacturer and distributor of wire and cable products for customers that operate in various
industries, we are subject to a number of industry standard-setting authorities, such as
Underwriters Laboratories, the Telecommunications Industry Association, the Electronics Industries
Association, the International Electrotechnical Commission and the Canadian Standards Association.
In addition, many of our products are subject to the requirements of federal, state and local or
foreign regulatory authorities. Changes in the standards and requirements imposed by such
authorities could have an adverse effect on us. In the event that we are unable to meet any such
new or modified standards when adopted, our business could be adversely affected.
In addition, changes in the legislative environment could affect the growth and other aspects of
important markets served by us. The Energy Policy Act of 2005 was enacted to establish a
comprehensive, long-range national energy policy. Among other things, it provides tax credits and
other incentives for the production of traditional sources of energy, as well as alternative energy
sources, such as wind, wave, tidal and geothermal power generation systems. Although we believe
this legislation has had a positive impact on us and our financial results, we cannot be certain
that this impact will continue. Further, we cannot predict the impact, either positive or
negative, that changes in laws or industry standards may have on our future financial results, cash
flows or financial position.
| • | Advancing technologies, such as fiber optic and wireless technologies, may continue to make
some of our products less competitive. |
Technological developments continue to have an adverse effect on elements of our business. For
example, a continued increase in the rate of installations using fiber optic systems or an increase
in the cost of copper-based systems may have an adverse effect on our business. While we do
manufacture and sell fiber optic cables, any further acceleration in the erosion of our sales of
copper cables due to increased market demand for fiber optic cables would most likely not be offset
by an increase in sales of our fiber optic cables.
Also, advancing wireless technologies, as they relate to network and communications systems
represent an alternative to certain copper cables we manufacture and may reduce customer demand for
premise wiring. Traditional telephone companies are facing increasing competition within their
respective territories from, among others, providers of voice over Internet protocol (“VoIP”) and
wireless carriers. Wireless communications depend heavily on a fiber optic backbone and do not
depend as much on copper-based systems. The increased acceptance and use of VoIP and wireless
technology, or introduction
of new wireless or fiber-optic based technologies, continues to have an adverse effect on the
marketability of our products and our profitability. Our sales of copper premise cables currently
face downward pressure from wireless and VoIP technology, and the increased acceptance and use of
these technologies has heighten this pressure and the potential negative impact on our results of
operations.
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| • | We are substantially dependent upon distributors and retailers for non-exclusive sales of
our products and they could cease purchasing our products at any time. |
During 2007 and 2008, approximately 36% and 38%, respectively, of our domestic net sales were made
to independent distributors and four of our ten largest customers were distributors. Distributors
accounted for a substantial portion of sales of our communications- and industrial-related
products. During 2007 and 2008, approximately 10%, respectively, of our domestic net sales were to
retailers. The two largest retailers combine to account for approximately 2%, respectively, of our
worldwide net sales in 2007 and 2008.
These distributors and retailers are not contractually obligated to carry our product lines
exclusively or for any period of time. Therefore, these distributors and retailers may purchase
products that compete with our products or cease purchasing our products at any time. The loss of
one or more large distributors or retailers could have a material adverse effect on our ability to
bring our products to end users and on our results of operations. Moreover, a downturn in the
business of one or more large distributors or retailers could adversely affect our sales and could
create significant credit exposure.
| • | In each of our markets, we face pricing pressures that could adversely affect our results
of operations and financial performance. |
We face pricing pressures in each of our markets as a result of significant competition or
over-capacity. While we continually work toward reducing our costs to respond to the pricing
pressures that may continue, we may not be able to achieve proportionate reductions in costs. As a
result of over-capacity and economic and industry downturn in the communications and industrial
markets in particular, pricing pressures increased in 2002 and 2003, and continued into 2004.
While we generally have been successful in raising prices to recover increased raw material costs
since the second quarter of 2004, pricing pressures continued from 2005 through 2008, and price
volatility is expected for the foreseeable future. Further pricing pressures, without offsetting
cost reductions, could adversely affect our financial results.
| • | If either our uncommitted accounts payable confirming arrangement or our accounts
receivable financing arrangement for our European operations is cancelled, our liquidity may
be negatively impacted. |
Our Spanish operations participate in accounts payable confirming arrangements with several
European financial institutions. We negotiate payment terms with suppliers of generally 180 days
and submit invoices to the financial institutions with instructions for the financial institutions
to transfer funds from our Spanish operations’ accounts on the due date (on day 180) to the
receiving parties to pay the invoices in full. At December 31, 2008, the arrangements had a
maximum availability limit of the equivalent of approximately $408.6 million, of which
approximately $238.5 million was drawn. We also have approximately $145.3 million available under
uncommitted, Euro-denominated facilities in Europe, which allow us to sell at a discount, with no
or limited recourse, a portion of our accounts receivable to financial institutions. As of
December 31, 2008, we have drawn approximately $43.3 million from these accounts receivable
facilities. We do not have firm commitments from these institutions to purchase our accounts
receivable. Should the availability under these arrangements be reduced or terminated, we may be
required to repay the outstanding obligations over 180 days and may have to seek alternative
arrangements. We cannot assure you that alternate arrangements will be available on favorable
terms or at all. Failure to obtain alternative arrangements in such case would negatively impact
our liquidity.
| • | We are exposed to counterparty risk in our hedging arrangements. |
From time to time we enter into arrangements with financial institutions to hedge our exposure to
fluctuations in commodity prices, currency and interest rates, including forward contracts and swap
agreements. Recently, a number of financial institutions similar to those that serve as
counterparties to our hedging arrangements have been adversely affected by the global credit
crisis. The failure of one or more counterparties to our hedging arrangements to fulfill their
obligations to us could adversely affect our results of operations.
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| • | As a result of market and industry conditions, we may be required to recognize impairment
charges for our long-lived assets including goodwill or in the event we close additional
plants. |
In accordance with generally accepted accounting principles, we periodically assess our assets to
determine if they are impaired. Significant negative industry or economic trends, disruptions to
our business, unexpected significant changes or
planned changes in use of the assets, divestitures and market capitalization declines may result in
impairments to goodwill and other long-lived assets. Future impairment charges could significantly
affect our results of operations in the period recognized.
During the fourth quarter of 2007, the Company rationalized outside plant telecommunication
products manufacturing capacity due to continued declines in telecommunications cable demand. The
Company closed a portion of its telecommunications capacity located primarily at its Tetla, Mexico
facility and has taken a pre-tax charge to write-off certain production equipment of $6.6 million.
This action will free approximately 100,000 square feet of manufacturing space, which the Company
plans to utilize for other products for the Central and South American markets. Future
rationalization of plant manufacturing capacity could result in charges that affect our results of
operations in the period recognized.
| • | As a result of market and industry conditions, we may be required to reduce our recorded
inventory values, which would result in charges against income |
If, as a result of volatile copper prices, we are not able to recover the LIFO value of our
inventory in a period when replacement costs are lower than the LIFO value of the inventory, we
would be required to take a charge to recognize an adjustment of LIFO inventory to market value.
If LIFO inventory quantities are reduced in a future period when replacement costs exceed the LIFO
value of the inventory, we would experience an increase in reported earnings. Conversely, if LIFO
inventory quantities are reduced in a future period when replacement costs are lower than the LIFO
value of the inventory, we would experience a decline in reported earnings.
| • | We are subject to certain asbestos litigation and unexpected judgments or settlements that
could have a material adverse effect on our financial results. |
There are 1,241 pending non-maritime asbestos cases involving our subsidiaries. The majority of
these cases involve plaintiffs alleging exposure to asbestos-containing cable manufactured by our
predecessors. In addition to our subsidiaries, numerous other wire and cable manufacturers have
been named as defendants in these cases. Our subsidiaries have also been named, along with
numerous other product manufacturers, as defendants in 33,489 suits in which plaintiffs alleged
that they suffered an asbestos-related injury while working in the maritime industry. These cases
are referred to as MARDOC cases and are currently managed under the supervision of the U.S.
District Court for the Eastern District of Pennsylvania. On May 1, 1996, the District Court
ordered that all pending MARDOC cases be administratively dismissed without prejudice and the cases
cannot be reinstated, except in certain circumstances involving specific proof of injury. We
cannot assure you that any judgments or settlements of the pending non-maritime and/or MARDOC
asbestos cases or any cases which may be filed in the future will not have a material adverse
effect on our financial results, cash flows or financial position. Moreover, certain of our
insurers may become financially unstable and in the event one or more of these insurers enter into
insurance liquidation proceedings, we will be required to pay a larger portion of the costs
incurred in connection with these cases.
| • | Environmental liabilities could potentially adversely impact us and our affiliates. |
We are subject to federal, state, local and foreign environmental protection laws and regulations
governing our operations and the use, handling, disposal and remediation of hazardous substances
currently or formerly used by us and our affiliates. A risk of environmental liability is inherent
in our and our affiliates’ current and former manufacturing activities in the event of a release or
discharge of a hazardous substance generated by us or our affiliates. Under certain environmental
laws, we could be held jointly and severally responsible for the remediation of any hazardous
substance contamination at our facilities and at third party waste disposal sites and could also be
held liable for any consequences arising out of human exposure to such substances or other
environmental damage. We and our affiliates have been named as potentially responsible parties in
proceedings that involve environmental remediation. There can be no assurance that the costs of
complying with environmental, health and safety laws and requirements in our current operations or
the liabilities arising from past releases of, or exposure to, hazardous substances, will not
result in future expenditures by us that could materially and adversely affect our financial
results, cash flows or financial condition.
| • | Growth through acquisition has been a significant part of our strategy and we may not be
able to successfully identify or integrate acquisitions. |
Growth through acquisition has been, and is expected to continue to be, a significant part of our
strategy. We regularly evaluate possible acquisition candidates. We cannot assure you that we will
be successful in identifying, financing and closing acquisitions at favorable prices and terms.
Potential acquisitions may require us to issue additional shares of stock or obtain additional or
new financing. The issuance of shares of our common or preferred stock in connection with potential
acquisitions may dilute the value of shares held by our then existing equity holders. Further, we
cannot assure you that we will be successful in integrating any such acquisitions that are
completed. Integration of any such acquisitions may require substantial management, financial and
other resources and may pose risks with respect to production, customer service and market share
of existing operations. In addition, we may acquire businesses that are subject to technological or
competitive risks, and we may not be able to realize the benefits originally expected from such
acquisitions.
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| • | We have assumed substantially all of the liabilities of the PDIC operations, which may
expose us to additional risks and uncertainties that we would not face if the acquisition had
not occurred. |
As a result of the PDIC acquisition, we succeeded to substantially all of the liabilities
associated with the wire and cable business we acquired, which may include, without limitation:
| • | environmental risks and liabilities related to the operation of the acquired assets; |
||
| • | risks associated with these operations in various foreign countries, including in Brazil,
China, Colombia, India, Thailand, Venezuela and Zambia; |
| • | existing product liability claims with respect to the acquired wire and cable products; |
| • | other existing litigation and tax liabilities involving the acquired wire and cable business; |
||
| • | issues relating to compliance with the Sarbanes-Oxley Act of 2002, including issues relating
to internal control over financial reporting, or other applicable laws; |
| • | issues related to debt assumed in connection with the acquisition; and |
| • | employee and employee benefit liabilities. |
In addition to the risks set forth above, we may discover additional information, risks or
uncertainties about this business that may adversely affect us. An acquisition of operations in
many foreign countries, such as this acquisition, makes it extremely difficult for the acquirer to
discover and adequately protect itself against all potentially adverse liabilities, risks or
uncertainties that exist or may arise. Based on all of the foregoing liabilities, risks and
uncertainties, there can be no assurance that the acquisition will not, in fact, have a negative
impact on our financial results.
Subject to certain limitations and exceptions, the stock purchase agreement we entered into in
connection with the acquisition provides us with indemnification rights for losses we incur in
connection with:
| • | a breach by the sellers of specified representations and warranties; |
| • | a breach by the sellers of a covenant in the stock purchase agreement; or |
| • | specified environmental and tax liabilities. |
Our right to seek indemnification for such losses is limited by the terms of the stock purchase
agreement, which requires us to absorb specified amounts of losses before we may seek
indemnification. Moreover, the maximum amount of indemnity we may seek under the stock purchase
agreement is limited. Furthermore, it may be extremely difficult for us to prove that a loss we
incur was caused by a specified breach of a covered representation or warranty or covenant. Except
in the case of fraud and as to available equitable remedies, our right to seek indemnification will
be the exclusive remedy we may pursue under the stock purchase agreement for any losses we incur in
connection with the acquisition.
If we are unable to prove a breach of a representation, warranty or covenant necessary to support
an indemnification claim, if a claim or loss we incur is not covered by these indemnification
provisions, or if the total amount of liabilities and obligations we incur in the acquisition
exceeds the amount of indemnification provided, we may be responsible to pay unforeseen additional
expenses and costs. Furthermore, any claim by us for indemnification under the stock purchase
agreement may be contested, which could have the effect of delaying or ultimately preventing our
receipt of remuneration for such a claim. As a result, our business may be materially adversely
affected and our stock price could decline.
| • | Terrorist attacks and other attacks or acts of war may adversely affect the markets in
which we operate and our profitability. |
The attacks of September 11, 2001 and subsequent events, including the military actions in
Afghanistan, Iraq and elsewhere in the Middle East, have caused and may continue to cause
instability in our markets and have led and may continue to lead to, further armed hostilities or
further acts of terrorism worldwide, which could cause further disruption in our markets. Acts of
terrorism and those of guerilla groups or drug cartels may impact any or all of our facilities and
operations, or those of our customers or suppliers and may further limit or delay purchasing
decisions of our customers. Depending on their magnitude, these or similar acts could have a
material adverse effect on our business, financial results, cash flows and financial position.
We carry insurance coverage on our facilities of types and in amounts that we believe are in line
with coverage customarily obtained by owners of similar properties. We continue to monitor the
state of the insurance market in general and the scope and cost of coverage for acts of terrorism
and similar acts in particular, but we cannot anticipate what coverage will be available on
commercially reasonable terms in future policy years. Currently, we do not carry terrorism
insurance coverage. If we experience a loss that is uninsured or that exceeds policy limits, we
could lose the capital invested in the damaged
facilities, as well as the anticipated future net sales from those facilities. Depending on the
specific circumstances of each affected facility, it is possible that we could be liable for
indebtedness or other obligations related to the facility. Any such loss could materially and
adversely affect our business, financial results, cash flows and financial position.
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| • | If we fail to retain our key employees, our business may be harmed. |
Our success has been largely dependent on the skills, experience and efforts of our key employees
and the loss of the services of any of our executive officers or other key employees, without a
properly executed transition plan, could have an adverse effect on us. The loss of our key
employees who have intimate knowledge of our manufacturing process could lead to increased
competition to the extent that those employees are hired by a competitor and are able to recreate
our manufacturing process. Our future success will also depend in part upon our continuing ability
to attract and retain highly qualified personnel, who are in great demand.
| • | Declining returns in the investment portfolio of our defined benefit pension plans and
changes in actuarial assumptions could increase the volatility in our pension expense and
require us to increase cash contributions to the plans. |
We sponsor defined pension plans around the world. Pension expense for the defined benefit pension
plans sponsored by us is determined based upon a number of actuarial assumptions, including an
expected long-term rate of return on assets and discount rate. The use of these assumptions makes
our pension expense and our cash contributions subject to year-to-year volatility. As of December
31, 2008, 2007 and 2006, the defined benefit pension plans were underfunded by approximately $122.2
million, $72.5 million and $35.7 million respectively, based on the actuarial methods and
assumptions utilized for purposes of the applicable accounting rules and interpretations. We have
experienced volatility in our pension expense and in our cash contributions to our defined benefit
pension plans. In 2008, pension expense was $8.2 million an
increase of approximately $2.9 million
from 2007 and cash contributions were $9.3 million a decreased of approximately $7.1 million from
2007. The Company estimates its 2009 pension expense for its defined
benefit plans will increase approximately $8.5 million from 2008. In the event that actual results differ from the actuarial assumptions or actuarial
assumptions are changed, the funded status of our defined benefit pension plans may change and any
such deficiency could result in additional charges to equity and an increase in future pension
expense and cash contributions.
| • | An ownership change could result in a limitation of the use of our net operating losses. |
As of December 31, 2008, we had approximately $5.4 million of NOL carryforwards that are subject to
an annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended, or the
Code. This NOL carryforward is scheduled to expire at December 31, 2009. Our ability to utilize
this NOL carryforward, including any future NOL carryforwards that may arise, may be further
limited by Section 382 if we undergo an ownership change as a result of the sale of our stock by
holders of our equity securities or as a result of subsequent changes in the ownership of our
outstanding stock. We would undergo an ownership change if, among other things, the stockholders,
or group of stockholders, who own or have owned, directly or indirectly, 5% or more of the value of
our stock or are otherwise treated as 5% stockholders under Section 382 and the regulations
promulgated thereunder increase their aggregate percentage ownership of our stock by more than 50
percentage points over the lowest percentage of our stock owned by these stockholders at any time
during the testing period, which is generally the three-year period preceding the potential
ownership change. In the event of an ownership change, Section 382 imposes an annual limitation on
the amount of post-ownership change taxable income a corporation may offset with pre-ownership
change NOL carryforwards and certain recognized built-in losses. The limitation imposed by Section
382 for any post-change year would be determined by multiplying the value of our stock immediately
before the ownership change (subject to certain adjustments) by the applicable long-term tax-exempt
rate in effect at the time of the ownership change. Any unused annual limitation may be carried
over to later years, and the limitation may under certain circumstances be increased by built-in
gains which may be present in assets held by us at the time of the ownership change that are
recognized in the five-year period after the ownership change.
Risks Related to Our Debt
| • | Our substantial indebtedness could adversely affect our business and financial condition. |
We have a significant amount of debt. As of December 31, 2008, we had $1,446.6 million of debt
outstanding, $136.5 million of which was secured indebtedness, and $301.3 million of additional
borrowing capacity available under our amended senior secured credit facility (“Amended Credit
Facility”), $62.9 million of additional borrowing capacity under our Spanish subsidiary’s revolving
credit facility (“Spanish Credit Facility”) and approximately $60.6 million of additional borrowing
capacity under agreements related to ECN Cable and approximately $338.0 million of additional
borrowing capacity under our various credit agreements related to PDIC, subject to certain
conditions. As of December 31, 2008, we had $475.0 million 1.00% Senior Convertible Notes
outstanding and $355.0 million in 0.875% Convertible Notes and $200.0 million of fixed-rate 7.125%
Senior Notes and $125.0 million of Senior Floating Rate Notes outstanding. Subject to the terms of
the Amended
Credit Facility, our Spanish subsidiary’s term loan (“Spanish Term Loan”) and Spanish Credit
Facility and the indentures governing our 1.00% Senior Convertible Notes, 0.875% Senior Convertible
Notes, 7.125% Senior Notes and Senior Floating Rate Notes, we may also incur additional
indebtedness, including secured debt, in the future. See Item 7 of this document for details on
the various debt agreements.
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The degree to which we are leveraged could have important adverse consequences to us, limiting
management’s choices in responding to business, economic, regulatory and other competitive
conditions. In addition, our ability to generate cash flow from operations sufficient to make
scheduled payments on our debts as they become due will depend on our future performance, our
ability to successfully implement our business strategy and our ability to obtain other financing,
which may be influenced by economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control. Our indebtedness could also adversely affect our financial
position.
We may not have sufficient cash to pay, or may not be permitted to pay, the cash portion of the
required consideration that we may need to pay if the 1.00% Senior Convertible Notes or the 0.875%
Senior Convertible Notes are converted. We will be required to pay to the holder of a note a cash
payment equal to the lesser of the principal amount of the notes being converted or the conversion
value of those notes. This part of the payment must be made in cash, not in shares of our common
stock. As a result, we may be required to pay significant amounts in cash to holders of the notes
upon conversion. A failure to pay the required cash consideration would be an event of default
under the indenture governing the 1.00% Senior Convertible Notes and the 0.875% Senior Convertible
Notes, which could lead to cross-defaults under our other indebtedness.
In connection with the incurrence of indebtedness under our Amended Credit Facility, the lenders
under that facility have received a pledge of all of the capital stock of our existing domestic
subsidiaries and any future domestic subsidiaries. Additionally, these lenders have a lien on
substantially all of our domestic assets, including our existing and future accounts receivables,
cash, general intangibles, investment property and real property. As a result of these pledges and
liens, if we fail to meet our payment or other obligations under our Amended Credit Facility, the
lenders with respect to this facility would be entitled to foreclose on substantially all of our
domestic assets and to liquidate these assets.
| • | The agreements that govern our indebtedness contain various covenants that limit our
discretion in the operation of our business. |
The agreements and instruments that govern our indebtedness contain various restrictive covenants
that, among other things, require us to comply with or maintain certain financial tests and ratios
and restrict our ability to:
| • | incur more debt; |
| • | create liens; |
| • | make certain investments and payments; |
| • | pay dividends, purchase company stock or make other distributions; |
| • | enter into transactions with affiliates; |
| • | make acquisitions; |
| • | merge or consolidate; and |
| • | transfer or sell assets. |
Our ability to comply with these covenants is subject to various risks and uncertainties. In
addition, events beyond our control could affect our ability to comply with and maintain the
financial tests and ratios required by this indebtedness. Any failure by us to comply with and
maintain all applicable financial tests and ratios and to comply with all applicable covenants
could result in an event of default with respect to, the acceleration of the maturity of, and the
termination of the commitments to make further extension of credit under, a substantial portion of
our debt. Even if we are able to comply with all applicable covenants, the restrictions on our
ability to operate our business in our sole discretion could harm our business by, among other
things, limiting our ability to take advantage of financing, mergers, acquisitions and other
corporate opportunities.
| • | Failure to comply with covenants and other provisions in our existing or future financing
arrangements could result in cross-defaults under some of our financing arrangements, which
cross-defaults could jeopardize our ability to satisfy our obligations. |
Various risks, uncertainties and events beyond our control could affect our ability to comply with
the covenants, financial tests and ratios required by the instruments governing our financing
arrangements. Failure to comply with any of the covenants in our existing or future financing
agreements could result in a default under those agreements and under other agreements containing
cross-default provisions. A default would permit lenders to cease to make further extensions of
credit, accelerate the maturity of the debt under these agreements and foreclose upon any
collateral securing that debt. Under these circumstances, we might not have sufficient funds or
other resources to satisfy all of our obligations. In addition, the limitations imposed by
financing agreements on our ability to incur additional debt and to take other actions might
significantly impair our ability to obtain other financing. We may also amend the provisions and
limitations of our credit facilities from time to time.
Certain portions of our debt contain prepayment or acceleration rights at the election of the
holders upon a covenant default or change in control, which acceleration rights, if exercised,
could constitute an event of default under other portions of our debt. It is possible that we
would be unable to fulfill all of these obligations simultaneously.
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| • | Our ability to pay principal and interest on outstanding indebtedness depends upon our
receipt of dividends or other intercompany transfers from our subsidiaries, and claims of
creditors of our subsidiaries that do not guarantee our indebtedness will have priority over
claims you may have as for our guaranteed indebtedness with respect to the assets and earnings
of those subsidiaries. |
We are a holding company and substantially all of our properties and assets are owned by, and all
our operations are conducted through, our subsidiaries. As a result, we are dependent upon cash
dividends and distributions or other transfers from our subsidiaries to meet our debt service
obligations, including payment of the interest on and principal of our indebtedness when due, and
other obligations. The ability of our subsidiaries to pay dividends and make other payments to us
may be restricted by, among other things, applicable corporate, tax and other laws and regulations
in the United States and abroad and agreements made by us and our subsidiaries, including under the
terms of our existing and potentially future indebtedness.
In addition, claims of creditors, including trade creditors, of our subsidiaries will generally
have priority with respect to the assets and earnings of such subsidiaries over the claims of our
creditors, except to the extent the claims of our creditors are guaranteed by these subsidiaries.
Certain of our indebtedness may be guaranteed by only some of our subsidiaries. In the event of
our dissolution, bankruptcy, liquidation or reorganization, the holders of such indebtedness will
not receive any amounts from our non-guarantor subsidiaries with respect to such indebtedness until
after the payment in full of the claims of the creditors of those subsidiaries.
| • | A downgrade in our financial strength or credit ratings could limit our ability to conduct
our business or offer and sell additional debt securities, and could hurt our relationships
with creditors. |
Nationally recognized statistical rating organizations rate the credit risk associated with certain
of our debt. Ratings are not recommendations to buy or sell our securities. We may, in the
future, incur indebtedness with interest rates that may be affected by changes in or other actions
associated with our credit ratings. Each of the rating agencies reviews its ratings periodically,
and previous ratings for our debt may not be maintained in the future. Rating agencies may also
place us under review for potential downgrade in certain circumstances or if we seek to take
certain actions. A downgrade of our debt ratings could affect our ability to raise additional debt
with terms and conditions similar to our current debt, and accordingly, likely increase our cost of
capital. In addition, a downgrade of these ratings, or other negative action, could make it more
difficult for us to raise capital to refinance any maturing debt obligations, to support business
growth and to maintain or improve the current financial strength of our business and operations.
Risks Related to Our Securities
| • | Our stock has been and continues to be volatile, and our ability to pay dividends on our
common stock is limited. |
The value of our securities may fluctuate as a result of various factors, such as:
| • | Announcements relating to significant corporate transactions; |
| • | Operating and stock price performance of companies that investors deem comparable to
us; |
| • | Sales or the expectation of sales of a substantial number of shares of our common
stock in the public market; |
| • | Changes in government regulation or proposals relating thereto; and |
| • | General stock market fluctuations unrelated to our operating performance. |
In addition, we do not expect to pay cash dividends on our common stock in the foreseeable future.
Payment of dividends on our common stock will depend on the earnings and cash flows of our business
and that of our subsidiaries, and on our subsidiaries’ ability to pay dividends or to advance or
repay funds to us. Before declaring a dividend, our Board of Directors will consider factors that
ordinarily affect dividend policy, such as earnings, cash flow, estimates of future earnings and
cash flow, business conditions, regulatory factors, our financial condition and other matters
within its discretion, as well as contractual restrictions on our ability to pay dividends. We may
not be able to pay dividends in the future or, if paid, we cannot assure you that the dividends
will be in the same amount or with the same frequency as in the past.
Under the Delaware General Corporation Law, we may pay dividends, in cash or otherwise, only if we
have surplus in an amount at least equal to the amount of the relevant dividend payment. Any
payment of cash dividends will depend upon our
financial condition, capital requirements, earnings and other factors deemed relevant by our Board
of Directors. Further, our Amended Credit Facility and the indentures governing our 1.00% Senior
Convertible Notes, 0.875% Senior Convertible Notes and 7.125% Senior Notes and Senior Floating Rate
Notes limit our ability to pay cash dividends, including cash dividends on our common stock. In
addition, the certificate of designations for our Series A preferred stock prohibits us from the
payment of any cash dividends on our common stock if we are not current on dividend payments with
respect to our Series A preferred stock. Agreements governing future indebtedness will likely
contain restrictions on our ability to pay cash dividends.
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| • | Future issuances of shares of our common stock may depress its market price. |
Sales of substantial numbers of additional shares of common stock, including shares of common stock
underlying the 0.875% and 1.00% Convertible Notes and shares of our outstanding Series A preferred
stock, as well as sales of shares that may be issued in connection with future acquisitions, or the
perception that such sales could occur, may have a harmful effect on prevailing market prices for
our common stock and our ability to raise additional capital in the financial markets at a time and
price favorable to us. Our amended and restated certificate of incorporation provides that we have
authority to issue 200 million shares of common stock. As of December 31, 2008, there were
approximately 51.8 million shares of common stock outstanding (net of treasury shares),
approximately 0.4 million shares of common stock issuable upon the exercise of currently
outstanding stock options and approximately 0.4 million shares of common stock issuable upon
conversion of our outstanding Series A preferred stock. In addition, a maximum of approximately
7.2 million shares of our common stock could be issuable upon conversion of our 1.00% Senior
Convertible Notes. Similarly, a maximum of approximately 9.0 million shares of common stock could
be issuable upon conversion of our 0.875% Convertible Notes and approximately 7.0 million shares of
common stock could be issuable due to the issuance of warrants we issued in connection with the
offering of our 0.875% Convertible Notes. All of the shares of our common stock that could be
issued pursuant to the conversion of our 0.875% Convertible Notes by holders who are not our
affiliates would be freely tradable by such holders.
| • | Our convertible note hedge and warrant transactions may affect the trading price of our
common stock. |
In connection with the issuance of our 0.875% Convertible Notes, we entered into convertible note
hedge transactions with one or more of the participating underwriters or their affiliates, which we
refer to as the counterparties. The convertible note hedge transactions are comprised of purchased
call options and sold warrants. The purchased call options are expected to reduce our exposure to
potential dilution upon the conversion of the 0.875% Convertible Notes. We also entered into
warrant transactions with such counterparties. The sold warrants have an exercise price that is
approximately 92.4% higher than the closing price of our common stock on the date the 0.875%
Convertible Notes were priced. The warrants are expected to provide us with some protection against
increases in our stock price over the conversion price per share. In connection with these
transactions, the counterparties, or their affiliates:
| • | may enter into various over-the-counter derivative transactions or purchase or sell our
common stock in secondary market transactions; and |
| • | may enter into, or may unwind, various over-the-counter derivatives or purchase or sell
our common stock in secondary market transactions, including during any conversion
reference period with respect to a conversion of 0.875% Convertible Notes. |
These activities may have the effect of increasing, or preventing a decline in, the market price of
our common stock. In addition, any hedging transactions by the counterparties, or their affiliates,
including during any conversion reference period, may have an adverse impact on the trading price
of our common stock. The counterparties, or their affiliates, are likely to modify their hedge
positions from time to time prior to conversion or maturity of the 0.875% Convertible Notes by
purchasing and selling shares of our common stock, other of our securities, or other instruments,
including over-the-counter derivative instruments, that they may wish to use in connection with
such hedging. In addition, we intend to exercise our purchased call options whenever 0.875%
Convertible Notes are converted, although we are not required to do so. In order to unwind any
hedge positions with respect to our exercise of the purchased call options, the counterparties or
their affiliates would expect to sell shares of common stock in secondary market transactions or
unwind various over-the-counter derivative transactions with respect to our common stock during the
conversion reference period for any 0.875% Convertible Notes that may be converted.
The effect, if any, of these transactions and activities in connection with the 0.875% Convertible
Notes on the market price of our common stock will depend in part on market conditions and cannot
be ascertained at this time, but any of these activities could adversely affect the trading price
of our common stock and, as a result, the number of shares and value of the common stock received
upon conversion of our 0.875% Convertible Notes.
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| • | Issuances of additional series of preferred stock could adversely affect holders of our
common stock. |
Our Board of Directors is authorized to issue additional series of preferred stock without any
action on the part of our stockholders. Our Board of Directors also has the power, without
stockholder approval, to set the terms of any such series of
preferred stock that may be issued, including voting rights, conversion rights, dividend rights,
preferences over our common stock with respect to dividends or if we liquidate, dissolve or wind up
our business and other terms. If we issue preferred stock in the future that has preference over
our common stock with respect to the payment of dividends or upon our liquidation, dissolution or
winding-up, or if we issue preferred stock with voting rights that dilute the voting power of our
common stock, the rights of holders of our common stock or the market price of our common stock
could be adversely affected.
| • | Provisions in our constituent documents could make it more difficult to acquire our
company. |
Our amended and restated certificate of incorporation and amended and restated by-laws contain
provisions that may discourage, delay or prevent a third party from acquiring us, even if doing so
would be beneficial to our stockholders. Under our amended and restated certificate of
incorporation, only our Board of Directors may call special meetings of stockholders, and
stockholders must comply with advance notice requirements for nominating candidates for election to
our Board of Directors or for proposing matters that can be acted upon by stockholders at
stockholder meetings. Directors may be removed by stockholders only for cause and only by the
effective vote of at least 662/3% of the voting power of all shares of capital stock then entitled to
vote generally in the election of directors, voting together as a single class. Additionally, the
severance policy applicable to our executive officers may have the effect of making a change of
control more expensive and, therefore, less attractive.
Pursuant to our amended and restated certificate of incorporation, our Board of Directors may by
resolution establish one or more series of preferred stock, having such number of shares,
designation, relative voting rights, dividend rates, conversion rights, liquidation or other
rights, preferences and limitations as may be fixed by our Board of Directors without any further
stockholder approval. Such rights, preferences, privileges and limitations as may be established,
as well as provisions related to our convertible notes that may entitle holders of those notes to
receive make-whole or other payments upon the consummation of a change in control or other
fundamental transaction, could have the further effect of impeding or discouraging the acquisition
of control of our Company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Company’s principal manufacturing facilities are listed below. The Company owns the property
at its global headquarters located in Highland Heights, Kentucky and leases various distribution
centers and sales and administrative offices around the world. The Company believes that its
properties are generally well maintained and are adequate for the Company’s current level of
operations.
| Manufacturing properties by country | Square Feet | Owned or Leased | ||||||
North America |
||||||||
United States - 12 |
5,240,000 | 10 owned, 2 leased | ||||||
Canada - 3 |
285,000 | 3 owned | ||||||
Mexico (North) - 2 |
103,400 | 2 leased | ||||||
Europe and North Africa |
||||||||
Spain - 4 |
1,373,000 | 4 owned | ||||||
France - 1 |
1,000,000 | 1 owned | ||||||
Algeria - 1 |
807,300 | 1 owned | ||||||
Germany - 1 |
511,300 | 1 owned | ||||||
Portugal - 1 |
255,000 | 1 owned | ||||||
ROW |
||||||||
Venezuela - 3 |
1,058,400 | 3 owned | ||||||
Brazil - 3 |
951,800 | 3 owned | ||||||
Thailand - 2 |
640,000 | 2 owned | ||||||
Chile - 1 |
516,700 | 1 owned | ||||||
Philippines - 1 |
470,000 | 1 owned | ||||||
India - 2 |
389,900 | 2 owned | ||||||
New Zealand - 2 |
314,000 | 2 owned | ||||||
China - 1 |
279,800 | 1 owned | ||||||
Mexico (South) - 1 |
218,000 | 1 owned | ||||||
Costa Rica - 1 |
213,000 | 1 owned | ||||||
Zambia - 1 |
187,900 | 1 owned | ||||||
Honduras - 1 |
76,300 | 1 owned | ||||||
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ITEM 3. LEGAL PROCEEDINGS
General Cable is subject to numerous federal, state, local and foreign laws and regulations
relating to the storage, handling, emission and discharge of materials into the environment,
including CERCLA, the Clean Water Act, the Clean Air Act (including the 1990 amendments) and the
Resource Conservation and Recovery Act.
General Cable subsidiaries have been identified as potentially responsible parties with respect to
several sites designated for cleanup under CERCLA or similar state laws, which impose liability for
cleanup of certain waste sites and for related natural resource damages without regard to fault or
the legality of waste generation or disposal. General Cable does not own or operate any of the
waste sites with respect to which it has been named as a potentially responsible party by the
government. Based on its review and other factors, management believes that costs relating to
environmental clean-up at these sites will not have a material adverse effect on the Company’s
results of operations, cash flows or financial position.
American Premier Underwriters, Inc., in connection with the 1994 Wassall PLC transaction, agreed to
indemnify General Cable against liabilities (including all environmental liabilities) arising out
of General Cable or its predecessors’ ownership or operation of the Indiana Steel & Wire Company
and Marathon Manufacturing Holdings, Inc. businesses (which were divested by the predecessor prior
to the 1994 Wassall transaction), without limitation as to time or amount. American Premier also
agreed to indemnify General Cable against 662/3% of all other environmental liabilities arising out
of General Cable or its predecessors’ ownership or operation of other properties and assets in
excess of $10 million but not in excess of $33 million, which were identified during the seven-year
period ended June 2001. Indemnifiable environmental liabilities through June 2001 were
substantially below that threshold. In addition, General Cable also has claims against third
parties with respect to some of these liabilities. While it is difficult to estimate future
environmental liabilities accurately, the Company does not currently anticipate any material
adverse effect on results of operations, financial condition or cash flows as a result of
compliance with federal, state, local or foreign environmental laws or regulations or cleanup costs
of the sites discussed above.
As part of the BICC plc acquisition, BICC agreed to indemnify General Cable against environmental
liabilities existing at the date of the closing of the purchase of the business. The indemnity is
for an eight-year period ending in 2007 while the Company operates the businesses subject to
certain sharing of losses (with BICC plc covering 95% of losses in the first three years, 80% in
years four and five and 60% in the remaining three years). The indemnity is also subject to the
overall indemnity limit of $150 million, which applies to all warranty and indemnity claims in the
transaction. In addition, BICC plc assumed responsibility for cleanup of certain specific
conditions at several sites operated by General Cable and cleanup is mostly complete at those
sites. In the sale of the businesses to Pirelli in August 2000, General Cable generally indemnified
Pirelli against any environmental liabilities on the same basis as BICC plc indemnified the Company
in the earlier acquisition. However, the indemnity General Cable received from BICC plc related to
the European businesses sold to Pirelli terminated upon the sale of those businesses to Pirelli. At
this time, there are no claims outstanding under the general indemnity provided by BICC plc. In
addition, the Company generally indemnified Pirelli against other claims relating to the prior
operation of the business. Pirelli has asserted claims under this indemnification. The Company is
continuing to investigate and defend against these claims and believes that the reserves currently
included in the Company’s consolidated balance sheets are adequate to cover any obligations it may
have.
General Cable has also agreed to indemnify Southwire Company against certain environmental
liabilities arising out of the operation of the business it sold to Southwire prior to its sale.
The indemnity is for a ten year period from the closing of the sale, which ends in the fourth
quarter of 2011, and is subject to an overall limit of $20 million. At this time, there are no
claims outstanding under this indemnity.
As part of the acquisition of Silec, SAFRAN SA agreed to indemnify General Cable against
environmental losses arising from breach of representations and warranties on environmental law
compliance and against losses arising from costs General Cable could incur to remediate property
acquired based on a directive of the French authorities to rehabilitate property in regard to soil,
water and other underground contamination arising before the closing date of the purchase. These
indemnities are for a six-year period ending in 2011 while General Cable operates the businesses
subject to sharing of certain losses (with SAFRAN covering 100% of losses in year one, 75% in years
two and three, 50% in year four, and 25% in years five and six). The indemnities are subject to an
overall limit of 4.0 million euros. As of December 31, 2008, there were no claims outstanding
under this indemnity.
In 2007, the Company acquired the worldwide wire and cable business of Freeport-McMoRan Copper and
Gold Inc., which operates as PDIC. As part of this acquisition, the seller agreed to indemnify the
Company for certain environmental liabilities existing at the date of the closing of the
acquisition. The seller’s obligation to indemnify the Company for these particular liabilities
generally survives four years from the date the parties executed the definitive purchase agreement
unless the Company has properly notified the seller before the expiry of the four year period. The
seller also made certain representations and warranties related to environmental matters and the
acquired business and agreed to indemnify the Company for breaches of those representation and
warranties for a period of four years from the closing date. Indemnification
claims for breach of representations and warranties are subject to an overall indemnity limit of
approximately $105 million with a deductible of $5.0 million, which generally applies to all
warranty and indemnity claims for the transaction.
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General Cable has been a defendant in asbestos litigation for approximately 20 years. As of
December 31, 2008, General Cable was a defendant in 34,730 lawsuits. Also, 33,489 of these
lawsuits have been brought on behalf of plaintiffs by a single admiralty law firm (“MARDOC”) and
seek unspecified damages. Plaintiffs in the MARDOC cases generally allege that they formerly
worked in the maritime industry and sustained asbestos-related injuries from products that General
Cable ceased manufacturing in the mid-1970s. The MARDOC cases are managed and supervised by a
federal judge in the United States District Court for the Eastern District of Pennsylvania
(“District Court”) by reason of a transfer by the judicial panel on Multidistrict Litigation
(“MDL”).
In the MARDOC cases in the MDL, the District Court in May 1996 dismissed all pending cases filed
without prejudice and placed them on an inactive administrative docket. To reinstate a MARDOC case
from the inactive docket, plaintiffs’ counsel must show that the plaintiff not only suffered from a
recognized asbestos-related injury, but also must produce specific product identification evidence
to proceed against an individual defendant. During 2002, plaintiffs’ counsel requested that the
District Court allow discovery in approximately 15 cases. Prior to this discovery, plaintiffs’
counsel indicated that they believed that product identification could be established as to many of
the approximately 100 defendants named in these MARDOC cases. To date, in this discovery, General
Cable has not been identified as a manufacturer of asbestos-containing products to which any of
these plaintiffs were exposed.
As of December 31, 2008, General Cable was a defendant in 34,730 cases brought in various
jurisdictions throughout the United States. With regards to the 1,241 remaining non-maritime cases,
General Cable has aggressively defended these cases based upon either lack of product
identification as to General Cable manufactured asbestos-containing product and/or lack of exposure
to asbestos dust from the use of General Cable product. In the last 20 years, General Cable has had
no cases proceed to verdict. In many of the cases, General Cable was dismissed as a defendant
before trial for lack of product identification.
For cases outside the MDL as of December 31, 2008, Plaintiffs have asserted monetary damages in
approximately 300 cases. In 153 of these cases, plaintiffs allege only damages in excess of some
dollar amount (about $217 thousand per plaintiff); in these cases there are no claims for specific
dollar amounts requested as to any defendant. In 142 other cases pending in state and federal
district courts (outside the MDL), plaintiffs seek approximately $349.0 million in damages from as
many as 110 defendants. In five cases, plaintiffs have asserted damages related to General Cable
in the amount of $2.1 million. In addition, in relation to these 300 cases, there are claims of
$168.0 million in punitive damages from all of the defendants. However, many of the plaintiffs in
these cases allege non-malignant injuries.
Based on our experience in this litigation, the amounts pleaded in the complaints are not typically
meaningful as an indicator of the Company’s potential liability. This is because (1) the amounts
claimed usually bear no relation to the level of plaintiff’s injury, if any; (2) complaints nearly
always assert claims against multiple defendants (a typical complaint asserts claims against some
50 different defendants); (3) damages alleged are not attributed to individual defendants; (4) the
defendants’ share of liability may turn on the law of joint and several liability; (5) the amount
of fault to be allocated to each defendant is different depending on each case; (6) many cases are
filed against General Cable, even though the plaintiff did not use any of General Cable’s products,
and ultimately are withdrawn or dismissed without any payment; (7) many cases are brought on behalf
of plaintiffs who have not suffered any medical injuries, and ultimately are resolved without any
payment to that plaintiff; and (8) with regard to claims for punitive damages, potential liability
generally is related to the amount of potential exposure to asbestos from a defendant’s products.
General Cable’s asbestos-containing products contained only a minimal amount of fully encapsulated
asbestos.
Further, as indicated above, General Cable has approximately 20 years of experience in this
litigation, and has, to date, resolved the claims of approximately 11,307 plaintiffs. The
cumulative average settlement through December 31, 2008 has been approximately $475 per case.
However, the average settlements paid to resolve litigation in 2008 and 2007 have increased
significantly above that amount as the mix of cases currently being listed for trial in state
courts and those which may be listed in the future, which may need to be resolved, involve more
serious asbestos related injuries. As of December 31, 2008 and 2007, the Company had accrued on
its balance sheet, on a gross basis, a liability of $5.0 million and $5.2 million, respectively,
for asbestos-related claims and had recorded insurance recoveries of approximately $0.5 million,
respectively. The net amount of $4.5 million and $4.7 million, as of December 31, 2008 and 2007,
respectively, represents the Company’s best estimate in order to cover resolution of future
asbestos-related claims.
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In January 1994, General Cable entered into a settlement agreement with certain principal primary
insurers concerning liability for the costs of defense, judgments and settlements, if any, in all
of the asbestos litigation described above. Subject to the terms and conditions of the settlement
agreement, the insurers are responsible for a substantial portion of the costs and expenses
incurred in the defense or resolution of this litigation. In recent years one of the insurers
participating in the
settlement that was responsible for a significant portion of the contribution under the settlement
agreement entered into insurance liquidation proceedings. As a result, the contribution of the
insurers has been reduced and the Company has had to bear a larger portion of the costs relating to
these lawsuits. Moreover, certain of the other insurers may be financially unstable, and if one
or more of these insurers enter into insurance liquidation proceedings, General Cable will be
required to pay a larger portion of the costs incurred in connection with these cases. During
2006, the Company reached an approximately $3.0 million settlement in cash for the resolution of
one of these insurers’ obligations that effectively exhausted the limits of the insurance company’s
policies that were included in the 1994 settlement agreement.
Based on (1) the terms of the insurance settlement agreement; (2) the relative costs and expenses
incurred in the disposition of past asbestos cases; (3) reserves established on our books which are
believed to be reasonable; and (4) defenses available to us in the litigation, the Company believes
that the resolution of the present asbestos litigation will not have a material adverse effect on
the Company’s consolidated financial results, consolidated cash flows or consolidated financial
position. However, since the outcome of litigation is inherently uncertain, the Company cannot give
absolute assurance regarding the future resolution of the asbestos litigation. Liabilities
incurred in connection with asbestos litigation are not covered by the American Premier
indemnification.
General Cable is also involved in various routine legal proceedings and administrative actions. In
the opinion of the Company’s management, these proceedings and actions should not, individually or
in the aggregate, have a material adverse effect on its consolidated results of operations, cash
flows or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of 2008.
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market Information and Holders
General Cable’s common stock is listed on the New York Stock Exchange under the symbol “BGC”. As of
February 20, 2009, there were approximately 1,849 registered holders of the Company’s common stock.
The following table sets forth the high and low daily sales prices for the Company’s common stock
as reported on the New York Stock Exchange during the years ended December 31:
| 2008 | 2007 | |||||||||||||||
| High | Low | High | Low | |||||||||||||
First Quarter |
$ | 72.04 | $ | 51.29 | $ | 55.66 | $ | 42.25 | ||||||||
Second Quarter |
73.22 | 59.07 | 79.23 | 51.82 | ||||||||||||
Third Quarter |
62.45 | 34.25 | 84.95 | 48.16 | ||||||||||||
Fourth Quarter |
35.63 | 7.62 | 83.50 | 62.16 | ||||||||||||
Dividends
The Company currently does not pay dividends on its common stock. The future payment of dividends
on common stock is subject to the discretion of General Cable’s Board of Directors, restrictions
under the Series A preferred stock, restrictions under the Company’s current Amended Credit
Facility, the indentures governing the 1.00% Senior Convertible Notes, the 0.875% Convertible
Notes, the 7.125% Senior Notes and the Senior Floating Rate Notes and the requirements of Delaware
General Corporation Law, and will depend upon general business conditions, financial performance
and other factors the Company’s Board of Directors may consider relevant. General Cable does not
expect to pay cash dividends on common stock in the foreseeable future.
Securities Authorized for Issuance under Equity Compensation Plans
Information related to the Company’s securities authorized for issuance under equity compensation
plans, including the tabular disclosure, is presented in Item 12, “Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters.”
25
Table of Contents
Performance Graph
The graph below compares the annual percentage change in cumulative total shareholder return on
General Cable stock in relation to cumulative total return of the Standard & Poor’s 500 Stock
Index, and a peer group of companies (“2008 Peer Group”). The data shown are for the period
beginning May 16, 1997, the date that General Cable (“BGC”) common stock began trading on the NYSE,
through December 31, 2008.
| May | Dec. | Dec. | Dec. | Dec. | Dec. | Dec. | Dec. | Dec. | Dec. | Dec. | Dec. | Dec | ||||||||||||||||||||||||||||||||||||||||
| 1997 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||||||||||||||||||||||||||||
General Cable |
100 | 167 | 143 | 53 | 32 | 97 | 29 | 62 | 105 | 149 | 331 | 555 | 134 | |||||||||||||||||||||||||||||||||||||||
2008 Peer Group |
100 | 124 | 95 | 160 | 133 | 112 | 52 | 95 | 107 | 118 | 236 | 277 | 104 | |||||||||||||||||||||||||||||||||||||||
S&P 500 |
100 | 117 | 148 | 177 | 159 | 138 | 106 | 134 | 146 | 150 | 171 | 177 | 109 | |||||||||||||||||||||||||||||||||||||||
| (1) | Assumes the value of the investment in General Cable common stock and each index
was 100 on May 16, 1997. The 2008 Peer Group consists of Belden CDT Inc. (NYSE: BDC),
CommScope, Inc. (NYSE: CTV), Draka Holding, N.V. (Euronext Amsterdam Stock Exchange) and
Nexans (Paris Stock Exchange). The Peer Group has consisted of the same basic companies
since 2005. Returns in the 2008, 2007 and 2006 Peer Group are weighted by capitalization. |
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
During the fourth quarter of 2007, the Company issued $475.0 million 1.00% Senior Convertible Notes
Due 2012, dated October 2, 2007, by and among General Cable Corporation, the subsidiary guarantors
named therein, and U.S. Bank National Association, as Trustee. The Notes were sold to qualified
institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended and
related information has been previously provided on the Current Report on Form 8-K as filed on
October 2, 2007 (incorporated by reference herein to Exhibit 4.9). Subsequently, on April 16,
2008, the Company completed an automatic shelf registration statement (Registration) of securities
of well-known seasoned issuers on Form S-3ASR (incorporated by reference herein at Exhibit 4.13).
The Registration will be used by the selling security holders to resell their Notes and common
stock issuable upon conversion of their Notes. The Company will not receive any of the proceeds
from the sale of the Notes or the common stock issuable upon conversion of the Notes.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The Company was authorized by its Board of Directors on October 29, 2008 to institute a stock
repurchase program for up to $100 million of common stock (incorporated by reference herein to
Exhibit 10.55). The Company has purchased approximately $11.7 million or 1.0 million of common
shares at an average price of $11.65 per share under terms of this program during the fourth
quarter of 2008. In 2007, the Company did not have a stock repurchase program and as a result did
not repurchase any of its common stock. The employees of the Company do have the right to
surrender to the Company shares in payment of minimum tax obligations upon the vesting of grants of
common stock under the Company’s equity compensation plans. Minimal shares were surrendered during
the fourth quarter of 2008. For the year ended December 31, 2008, 30,509 total shares were
surrendered to the Company by employees in payment of minimum tax obligations upon the vesting of
nonvested stock under the Company’s equity compensation plans, and the average price paid per share
was $58.43.
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Table of Contents
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the last five years were derived from audited consolidated
financial statements. The following selected financial data should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the
consolidated financial statements and related notes thereto, especially as the information pertains
to 2006, 2007 and 2008 activity.
| Year Ended December 31, | ||||||||||||||||||||
| 2008 | 2007(1) | 2006(2) | 2005(3) | 2004 | ||||||||||||||||
| (in millions, except metal price and share data) | ||||||||||||||||||||
Net sales |
$ | 6,230.1 | $ | 4,614.8 | $ | 3,665.1 | $ | 2,380.8 | $ | 1,970.7 | ||||||||||
Gross profit |
802.4 | 662.7 | 471.0 | 270.7 | 214.7 | |||||||||||||||
Operating income |
421.4 | 366.1 | 235.9 | 98.5 | 56.5 | |||||||||||||||
Other expense |
(27.2 | ) | (3.4 | ) | (0.1 | ) | (0.5 | ) | (1.2 | ) | ||||||||||
Interest expense, net |
(55.8 | ) | (29.6 | ) | (35.6 | ) | (37.0 | ) | (35.9 | ) | ||||||||||
Loss on extinguishment of debt |
— | (25.3 | ) | — | — | — | ||||||||||||||
Income from continuing operations before income taxes |
338.4 | 307.8 | 200.2 | 61.0 | 19.4 | |||||||||||||||
Income tax benefit (provision) |
(112.7 | ) | (99.4 | ) | (64.9 | ) | (21.8 | ) | 18.1 | |||||||||||
Income from continuing operations |
225.7 | 208.4 | 135.3 | 39.2 | 37.5 | |||||||||||||||
Gain on disposal of discontinued operations |
— | — | — | — | 0.4 | |||||||||||||||
Minority interest in consolidated subsidiaries |
(13.1 | ) | (0.2 | ) | — | — | — | |||||||||||||
Equity in net earnings of affiliated companies |
4.6 | 0.4 | — | — | — | |||||||||||||||
Net income |
217.2 | 208.6 | 135.3 | 39.2 | 37.9 | |||||||||||||||
Less: preferred stock dividends |
(0.3 | ) | (0.3 | ) | (0.3 | ) | (22.0 | ) | (6.0 | ) | ||||||||||
Net income applicable to common shareholders |
$ | 216.9 | $ | 208.3 | $ | 135.0 | $ | 17.2 | $ | 31.9 | ||||||||||
Earnings of continuing
operations per common share-basic |
$ | 4.16 | $ | 4.07 | $ | 2.70 | $ | 0.42 | $ | 0.81 | ||||||||||
Earnings of continuing
operations per common share-assuming dilution |
$ | 4.07 | $ | 3.82 | $ | 2.60 | $ | 0.41 | $ | 0.75 | ||||||||||
Earnings of discontinued operations per
common share-basic |
$ | — | $ | — | $ | — | $ | — | $ | 0.01 | ||||||||||
Earnings of discontinued
operations per common share-assuming dilution |
$ | — | $ | — | $ | — | $ | — | $ | 0.01 | ||||||||||
Earnings per common share-basic |
$ | 4.16 | $ | 4.07 | $ | 2.70 | $ | 0.42 | $ | 0.82 | ||||||||||
Earnings per common share-assuming dilution |
$ | 4.07 | $ | 3.82 | $ | 2.60 | $ | 0.41 | $ | 0.76 | ||||||||||
Weighted average shares outstanding-basic |
52.2 | 51.2 | 50.0 | 41.1 | 39.0 | |||||||||||||||
Weighted average shares outstanding-assuming dilution |
53.4 | 54.6 | 52.0 | 41.9 | 50.3 | |||||||||||||||
Other Data: |
||||||||||||||||||||
Depreciation and amortization |
$ | 97.3 | $ | 63.5 | $ | 50.9 | $ | 51.0 | $ | 35.4 | ||||||||||
Capital expenditures |
$ | 217.8 | $ | 153.6 | $ | 71.1 | $ | 42.6 | $ | 37.0 | ||||||||||
Average daily COMEX price per pound of
copper cathode |
$ | 3.13 | $ | 3.22 | $ | 3.09 | $ | 1.68 | $ | 1.29 | ||||||||||
Average daily price per pound of aluminum rod |
$ | 1.21 | $ | 1.23 | $ | 1.22 | $ | 0.92 | $ | 0.85 | ||||||||||
| December 31, | ||||||||||||||||||||
| 2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
Balance Sheet Data: |
||||||||||||||||||||
Working capital(4) |
$ | 1,066.7 | $ | 737.7 | $ | 739.1 | $ | 378.6 | $ | 298.0 | ||||||||||
Total assets |
3,840.4 | 3,793.6 | 2,218.7 | 1,523.2 | 1,239.3 | |||||||||||||||
Total debt |
1,446.6 | 1,398.8 | 740.6 | 451.6 | 374.9 | |||||||||||||||
Dividends to common shareholders |
— | — | — | — | — | |||||||||||||||
Shareholders’ equity |
708.4 | 676.9 | 434.4 | 293.3 | 301.4 | |||||||||||||||
| (1) | Includes operating results of PDIC since October 31, 2007 and the effects of the
adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes. |
|
| (2) | This period includes the effects of the adoption of Statement of Financial
Accounting Standards (SFAS) No. 123 (Revised 2004), Share-Based Payment, and SFAS No. 158,
Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an
amendment of FASB Statements No. 87, 88, 106, and 132(R). |
|
| (3) | This period includes the preliminary opening balance sheet figures for Silec as
of December 31, 2005. Due to the purchase dates, the effects of the acquisitions on the
statements of operations’ data were not material. |
|
| (4) | Working capital means current assets less current liabilities. |
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Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”) is intended to help the reader understand General Cable Corporation’s financial position,
changes in financial condition, and results of operations. MD&A is provided as a supplement to the
Company’s Consolidated Financial Statements and the accompanying Notes to Consolidated Financial
Statements (“Notes”) and should be read in conjunction with these Consolidated Financial Statements
and Notes.
Overview
General Cable is a global leader in the development, design, manufacture, installation, marketing
and distribution of copper, aluminum and fiber optic wire and cable products. The Company’s
operations are divided into three reportable segments: North America, Europe and North Africa and
ROW.
The Company has a strong market position in each of the segments in which it competes due to
product, geographic, and customer diversity and the Company’s ability to operate as a low cost
provider. The Company sells a wide variety of copper, aluminum and fiber optic wire and cable
products, which it believes represents one of the most diversified product lines in the industry.
As a result, the Company is able to offer its customers a single source for most of their wire and
cable requirements. As of December 31, 2008, the Company manufactures its product lines in 46
facilities and sells its products worldwide through its global operations.
Certain statements in this report including, without limitation, statements regarding future
financial results and performance, plans and objectives, capital expenditures and the Company’s or
management’s beliefs, expectations or opinions, are forward-looking statements, and as such,
General Cable desires to take advantage of the “safe harbor” which is afforded such statements
under the Private Securities Litigation Reform Act of 1995. The Company’s forward-looking
statements should be read in conjunction with the Company’s comments in this report under the
heading, “Disclosure Regarding Forward-Looking Statements.” Actual results may differ materially
from those statements as a result of factors, risks and uncertainties over which the Company has no
control. For a list of some of these factors, risks and uncertainties, see Item 1A.
General Cable analyzes its worldwide operations based on three geographical reportable segments: 1)
North America, 2) Europe and North Africa and 3) ROW. The following table sets forth net sales and
operating income by geographic group for the periods presented, in millions of dollars:
| Year Ended December 31 | ||||||||||||
| (in millions) | 2008 | 2007 | 2006 | |||||||||
Net sales: |
||||||||||||
North America |
$ | 2,178.7 | $ | 2,243.7 | $ | 2,058.6 | ||||||
Europe and North Africa |
2,175.3 | 1,939.7 | 1,446.8 | |||||||||
ROW |
1,876.1 | 431.4 | 159.7 | |||||||||
Total |
$ | 6,230.1 | $ | 4,614.8 | $ | 3,665.1 | ||||||
Operating Income: |
||||||||||||
North America |
$ | 122.5 | $ | 179.4 | $ | 128.9 | ||||||
Europe and North Africa |
162.2 | 162.4 | 101.9 | |||||||||
ROW |
136.7 | 24.3 | 5.1 | |||||||||
Total |
$ | 421.4 | $ | 366.1 | $ | 235.9 | ||||||
General Cable’s reported net sales are directly influenced by the price of copper, and to a lesser
extent, aluminum. The price of copper and aluminum as traded on the London Metal Exchange (“LME”)
and COMEX has historically been subject to considerable volatility and, during the past few years,
global copper prices have established new average record highs as demonstrated in the table above
at Item 1 Raw Materials Sources and Availability.
General Cable generally passes changes in copper and aluminum prices along to its customers,
although there are timing delays of varying lengths depending upon the volatility of metals prices,
the type of product, competitive conditions and particular customer arrangements. A significant
portion of the Company’s electric utility and telecommunications business and, to a lesser extent,
the Company’s electrical infrastructure business has metal escalators included in customer
contracts under a variety of price setting and recovery formulas. The remainder of the Company’s
business requires that volatility in the cost of metals be recovered through negotiated price
changes with customers. In these instances, the ability to change the Company’s selling prices may
lag the movement in metal prices by a period of time as the customer price changes are implemented.
As a result of this and a number of other practices intended to match copper and aluminum
purchases with sales, profitability over time has historically not been significantly affected by changes in
copper and aluminum prices. General Cable hedges metal purchases but does not engage in
speculative metals trading.
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The Company has experienced volatility on raw materials other than copper and aluminum used in
cable manufacturing, such as insulating compounds, steel and wood reels, freight costs and energy
costs. Generally, the Company attempts to adjust selling prices in most of its markets in order to
offset the impact of this raw material price and other cost volatility, particularly in periods of
rising costs. However, the Company’s ability to ultimately realize price increases, in periods of
rising costs, is influenced by competitive conditions in its markets, including manufacturing
capacity utilization. In addition, a sudden rise in raw material prices when combined with the
normal lag time between an announced customer price increase and its effective date in the market,
may result in the Company not fully recovering these increased costs. If the Company were not able
to adequately increase selling prices in a period of rising raw material costs, the Company may
experience a decrease in reported earnings.
Current Business Environment
The wire and cable industry is competitive, mature and cost driven with minimal differentiation for
many product offerings among industry participants from a manufacturing or technology standpoint.
During recent years, the Company’s end markets have recovered from the previous low points of
demand experienced in 2003; however beginning in the fourth quarter of 2007 and continuing
throughout 2008, an economic slowdown in the United States and slowing growth in certain European
markets has resulted in lower demand during 2008 as compared to 2007. In the past several years,
there has been significant merger and acquisition activity, which, the Company believes, has led to
a reduction in inefficient, high cost capacity in the industry.
In addition to the factors previously mentioned, General Cable is currently being affected by the
following macro-level trends:
| • | Slowing global growth and in many markets recessionary conditions; |
| • | Weakness in demand for low-voltage electric utility products in North America and
construction products in Europe, particularly as a result of the accelerated deterioration
in the Spanish construction markets; |
| • | Slowing demand and lower pricing across a broad spectrum of product lines in North
America as a result of weak economic conditions and heightened competitive environment; |
| • | Continued decline in demand for copper based telecommunication products; |
| • | Continued political uncertainty and currency volatility in certain developing markets; |
| • | Worldwide underlying long term growth trends in electric utility and infrastructure
markets; |
| • | Continuing demand for natural resources, such as oil and gas, and alternative energy
initiatives; and |
| • | Increasing demand for further deployment of submarine power and fiber optic
communication systems. |
The Company’s overall financial results discussed in the following MD&A demonstrate the
diversification of the Company’s product offering. In addition to the aforementioned macro-level
trends, the Company anticipates that the following trends may affect the financial results of the
Company during 2009. The Company’s working capital requirements have been and are expected to be
impacted by continued volatile raw materials costs, including metals and insulating materials as
well as freight and energy costs. Raw material costs, particularly copper and aluminum prices,
have been and will likely continue to be volatile. Also, certain currencies around the world have
been and are anticipated to remain volatile, particularly in developing markets located in certain
countries in South America and Sub-Sahara Africa. Additionally, credit markets in the United
States and other regions around the world have grown increasingly restrictive due to economic
conditions and as a result access to capital will need to be actively managed, as more fully
discussed below.
As part of General Cable’s ongoing efforts to reduce total operating costs, the Company
continuously evaluates its ability to more efficiently utilize existing manufacturing capacity.
Such evaluation includes the costs associated with and benefits to be derived from the combination
of existing manufacturing assets into fewer plant locations and the possible outsourcing of certain
manufacturing processes. During 2006 and 2007, due to high utilization rates and strong economic
conditions, no facility closures occurred. However, during the fourth quarter 2007, the Company
rationalized outside plant telecommunication products manufacturing capacity due to continued
declines in telecommunications cable demand. The Company closed a portion of its
telecommunications capacity and recorded a pre-tax charge to write-off certain production equipment
of $6.6 million. This action freed approximately 100,000 square feet of manufacturing space to
manufacture energy, industrial and construction cable products for the Central and South American
markets as well as the local Mexican market. There were no facility closures during 2008.
General Cable believes its global investment in Lean Six Sigma (“Lean”) training, coupled with
effectively utilized manufacturing assets, provides a cost advantage compared to many of its
competitors and generates cost savings which help offset high raw material prices and other high
general economic costs over time. In addition, General Cable’s customer and supplier integration
capabilities, one-stop selling and geographic and product balance are sources of competitive
advantage. As a result, the Company believes it is well positioned, relative to many of its
competitors, in the current business environment.
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As more fully discussed below in the Liquidity and Capital Resources section, the Company’s current
business environment encompasses credit markets in the United States and in certain other regions
around the world that have grown increasingly restrictive. The Company has access to various
credit facilities around the world and believes that it can adequately fund its global working
capital requirements through both internal operating cash flow and use of the various credit
facilities. Overall, the capital structure changes made in the recent years should allow the
Company to maintain financial flexibility and a lower average effective interest rate on
outstanding debt when compared to prior years. However, the Company anticipates upward pressure on
interest rates on certain of its credit facilities outside of North America at the time of renewal
in the coming year. Additionally, as a result of the significant and rapid decline in metal prices
beginning in September 2008, the Company’s working capital requirements are expected to be reduced
resulting in significant operating cash flow generation which has been partially offset by lower
account receivables and inventory values.
Acquisitions and Divestitures
General Cable actively seeks to identify key global macroeconomic and geopolitical trends in order
to capitalize on expanding markets and new niche markets or exit declining or non-strategic markets
in order to achieve better returns. The Company also sets aggressive performance targets for its
business and intends to refocus or divest those activities, which fail to meet targets or do not
fit long-term strategies. The results of operations of the acquired businesses discussed below have
been included in the consolidated financial statements since the respective dates of acquisition.
On June 30, 2008, the Company and its joint venture partner, A. Soriano Corporation (Anscor),
announced that the Company acquired and consolidated Phelps Dodge
Philippines (PDP) through an increase in its equity investment from
40% to 60%. The Company paid approximately $16.4 million (at
prevailing exchange rates) in cash to the sellers in consideration for the additional equity
interest in PDP and incurred insignificant fees and expenses related to the transaction. PDP is a
joint venture established in 1955 by Anscor, a Philippine public holding company with diverse
investments, and Phelps Dodge International Corporation (PDIC), a subsidiary of the Company which
was acquired in the fourth quarter of 2007. PDP employs approximately 277 associates and operates
one of the largest wire and cable manufacturing facilities in the Philippines. The investment
complements the Company’s strategy in the region by providing a platform for further penetration
into Southeast Asia markets as well as supporting ongoing operations in Australia, the Middle East
and South Africa. In 2007, the last full year before the purchase of additional equity ownership,
PDP reported net revenues of approximately $100 million. Net assets and pro forma results of the
PDP acquisition are immaterial.
On May 21, 2008, the Company entered a joint venture for majority ownership of E.P.E /
EN.I.CA.BISKRA/SPA (Enica Biskra), an Algerian state-owned manufacturer of low and medium voltage
power and construction cables. Enica Biskra employs approximately 1,000 associates and is a
leading provider of utility cables to the principal Algerian state-owned power utility and gas
producer. The Company paid approximately $64.9 million in cash for its investment in Enica Biskra
and assumed existing debt of $43.0 million (at prevailing foreign currency exchange rates on the
date of purchase). Fees and expenses related to the acquisition totaled approximately $1.0 million.
In 2007, the last full year before the joint venture was established, Enica Biskra reported net
sales of approximately $102.0 million (based on 2007 average exchange rates). Net assets and pro
forma results of the Enica Biskra acquisition are immaterial.
On October 31, 2007, the Company acquired the worldwide wire and cable business of Freeport-McMoRan
Copper and Gold, Inc., which operates as Phelps Dodge International (“PDIC”), located principally
in Latin America, sub-Saharan Africa and Southeast Asia. PDIC has manufacturing, distribution and
sales facilities in 19 countries and nearly 3,000 employees. With more than 50 years of experience
in the wire and cable industry, PDIC manufactures a full range of electric utility, electrical
infrastructure, construction and communication products. The Company paid approximately $707.6
million in cash to the sellers in consideration for PDIC and $8.5 million in fees and expenses
related to the acquisition. In 2006, the last full year before the acquisition, PDIC reported
global net sales of approximately $1,168.4 million (based on average exchange rates). Certain pro
forma information has been provided in Note 3 to the Consolidated Financial Statements.
Additionally, pro forma information and PDIC audited financial statements were previously provided
on Current Reports on Form 8-K/A filed on November 1, 2007 and amended on January 14, 2008.
On April 30, 2007, the Company acquired Norddeutsche Seekabelwerke GmbH & Co. KG (“NSW”), located
in Nordenham, Germany from Corning Incorporated. As a result of the transaction, the Company
assumed liabilities in excess of the assets acquired, including approximately $40.1 million of
pension liabilities (based on the prevailing exchange rate at April 30, 2007). The Company
recorded proceeds of $28.0 million, net of $0.8 million fees and expenses, which included $12.3
million of cash acquired and $5.5 million for settlement of accounts receivable. NSW had revenues
of approximately $120 million in 2006 (based on 2006 average exchange rates) and has approximately
400 employees. NSW offers complete solutions for submarine cable systems including manufacturing,
engineering, seabed mapping, project management, and installation for the offshore communications,
energy exploration, transmission, distribution, and alternative energy markets. Pro forma results
of the NSW acquisition are not material.
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Critical Accounting Policies and Estimates
The Company’s consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. A summary of significant accounting
policies is provided in Note 2 to the Consolidated Financial Statements. The application of these
policies requires management to make estimates and judgments that affect the amounts reflected in
the consolidated financial statements. Management bases its estimates and judgments on historical
experience, information that is available to management about current events and actions the
Company may take in the future and various other factors that are believed to be reasonable under
the circumstances. Actual results may differ from these estimates under different assumptions or
conditions. The most critical judgments impacting the financial statements include those policies
described below. In addition, significant estimates and judgments are also involved in the
valuation allowances for sales incentives and accounts receivable; warranty, uncertain tax
positions, legal, environmental, asbestos and customer reel deposit liabilities; assets and
obligations related to other postretirement benefits; and self-insured workers’ compensation and
health insurance reserves. Management believes these judgments have been materially accurate in
the past and the basis for these judgments should not change significantly in the future.
Management periodically evaluates and updates the estimates used in the application of its
accounting policies, adjusts amounts in the consolidated financial statements as necessary and has
discussed the development, selection and disclosure of these estimates with the Audit Committee of
the Company’s Board of Directors.
Inventory Costing and Valuation
General Cable utilizes the LIFO method of inventory accounting for the majority of its metals
inventory. The Company’s use of the LIFO method results in its consolidated statement of operations
reflecting the current costs of metals, while metals inventories in the balance sheet are valued at
historical costs as the LIFO layers were created. If LIFO inventory quantities are reduced in a
period when replacement costs exceed the LIFO value of the inventory, the Company would experience
an increase in reported earnings. Conversely, if LIFO inventory quantities are reduced in a period
when replacement costs are lower than the LIFO value of the inventory, the Company would experience
a decline in reported earnings. If the Company were not able to recover the LIFO value of its
inventory in some future period when replacement costs were lower than the LIFO value of the
inventory, the Company would be required to take a charge to recognize in its consolidated
statement of operations an adjustment of LIFO inventory to market value.
The Company periodically evaluates the realizability of its inventory. In circumstances where
inventory levels are in excess of anticipated market demand, where inventory is deemed to be
technologically obsolete or not saleable due to its condition or where inventory costs exceed net
realizable value, the Company records a charge to cost of sales and reduces the inventory to its
net realizable value.
Pension Accounting
General Cable provides retirement benefits through contributory and non-contributory qualified and
non-qualified defined benefit pension plans covering eligible domestic and international employees
as well as through defined contribution plans and other postretirement benefits. Benefits under
General Cable’s qualified U.S. defined benefit pension plan generally are based on years of service
multiplied by a specific fixed dollar amount, and benefits under the Company’s qualified non-U.S.
defined benefit pension plans generally are based on years of service and a variety of other
factors that can include a specific fixed dollar amount or a percentage of either current salary or
average salary over a specific period of time. The amounts funded for any plan year for the
qualified U.S. defined benefit pension plan are neither less than the minimum required under
federal law nor more than the maximum amount deductible for federal income tax purposes. General
Cable’s non-qualified unfunded U.S. defined benefit pension plans include a plan that provides
defined benefits to select senior management employees beyond those benefits provided by other
programs. The Company’s non-qualified unfunded non-U.S. defined benefit pension plans include
plans that provide retirement indemnities to employees within the Company’s European business.
Pension obligations for the non-qualified unfunded defined benefit pension plans are provided for
by book reserves and are based on local practices and regulations of the respective countries.
General Cable makes cash contributions for the costs of the non-qualified unfunded defined benefit
pension plans as the benefits are paid.
Benefit costs for the defined benefit pension plans sponsored by General Cable are determined based
principally upon certain actuarial assumptions, including the discount rate and the expected
long-term rate of return on assets. The weighted-average discount rate used to determine the net
pension cost for 2008 was 6.00% for the U.S. defined benefit pension plans. The weighted-average
discount rate as of December 31, 2008 that was used to determine benefit obligations was 5.75% for
the U.S. defined benefit pension plans, and was determined based on a review of long-term bonds
that receive one of the two highest ratings given by a recognized rating agency which are expected
to be available during the period to maturity of the projected pension benefit obligations and
based on information received from actuaries. The weighted-average discount rate used to determine
the net pension cost for 2008 was 5.76% for the non-U.S. defined benefit pension plans. Non-U.S.
defined benefit pension plans followed a similar evaluation process based on financial markets in
those countries where General Cable provides a defined benefit pension plan, and the
weighted-average discount rate used to determine benefit obligations for General Cable’s non-U.S.
defined benefit pension plans was 5.91% as of December 31, 2008. General Cable’s expense under
both U.S. and non-U.S. defined benefit pension plans is determined using the discount rate as of
the beginning of the fiscal year, so 2009 expense for the defined benefit pension plans will be
based on the weighted-average discount rate of 5.75% for U.S. plans
and 5.91% for non-U.S. plans.
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The weighted-average long-term expected rate of return on assets is assumed to be 7.80% for 2009,
reflecting an 8.50% weighted-average rate for the U.S. plans. The weighted-average long-term
expected rate of return on assets is based on input from actuaries, including their review of
historical 10-year, 20-year, and 25-year rates of inflation and real rates of return on various
broad equity and bond indices in conjunction with the diversification of the asset portfolio. The
expected long-term rate of return on assets for the qualified U.S. defined benefit pension plan is
based on an asset allocation assumption of 65% allocated to equity investments, with an expected
real rate of return of 8%, and 35% to fixed-income investments, with an expected real rate of
return of 2%, and an assumed long-term rate of inflation of 3%. The actual asset allocations were
56% of equity investments and 44% of fixed-income investments at December 31, 2008 and 64% of
equity investments and 36% of fixed-income investments at December 31, 2007. The expected long-term
rate of return on assets of 6.7% for qualified non-U.S. defined benefit plans is based on a
weighted-average asset allocation assumption of 52% allocated to equity investments, 44% to
fixed-income investments and 4% to other investments. The actual weighted-average asset
allocations were 49% of equity investments, 47% of fixed-income investments and 4% of other
investments at December 31, 2008 and 56% of equity investments, 40% of fixed-income investments and
4% of other investments at December 31, 2007. Management believes that long-term asset allocations
on average and by location will approximate the Company’s assumptions and that the long-term rate
of return used by each country that is included in the weighted-average long-term expected rate of
return on assets is a reasonable assumption.
The determination of pension expense for the qualified defined benefit pension plans is based on
the fair market value of assets as of the measurement date. Investment gains and losses are
recognized in the measurement of assets immediately. Such gains and losses will be amortized and
recognized as part of the annual benefit cost to the extent that unrecognized net gains and losses
from all sources exceed 10% of the greater of the projected benefit obligation or the market value
of assets.
General Cable evaluates its actuarial assumptions at least annually, and adjusts them as necessary.
The Company uses a measurement date of December 31 for all of its defined benefit pension plans.
In 2008, pension expense for the Company’s defined benefit pension plans was $8.2 million. Based
on a weighted-average expected rate of return on plan assets of 7.80%, a weighted-average discount
rate of 5.90% and various other assumptions, the Company estimates its 2009 pension expense for its
defined benefit pension plans will increase approximately $8.5 million from 2008. A 1% decrease in
the assumed discount rate would increase pension expense by approximately $1.8 million. Future
pension expense will depend on future investment performance, changes in future discount rates and
various other factors related to the populations participating in the plans. In the event that
actual results differ from the actuarial assumptions, the funded status of the defined benefit
pension plans may change and any such change could result in a charge or credit to equity and an
increase or decrease in future pension expense and cash contributions.
Income Taxes
The Company provides for income taxes on all transactions that have been recognized in the
Consolidated Financial Statements in accordance with SFAS No. 109. Under SFAS 109, deferred tax
assets and liabilities are determined based on the differences between the financial statement
basis and tax basis of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records a valuation allowance to reduce deferred tax assets to the amount that it
believes is more likely than not to be realized. The valuation of the deferred tax asset is
dependent on, among other things, the ability of the Company to generate a sufficient level of
future taxable income. In estimating future taxable income, the Company has considered both
positive and negative evidence, such as historical and forecasted results of operations, including
prior losses, and has considered the implementation of prudent and feasible tax planning
strategies. At December 31, 2008, the Company had recorded a net
deferred tax asset of $82.2
million ($124.7 million net current deferred tax asset less $42.5 million net long term deferred
tax liability). The Company has and will continue to review on a quarterly basis its assumptions
and tax planning strategies, and, if the amount of the estimated realizable net deferred tax asset
is less than the amount currently on the balance sheet, the Company would reduce its deferred tax
asset, recognizing a non-cash charge against reported earnings. Likewise, if the Company
determines that a valuation allowance against a deferred tax asset is no longer appropriate, the
adjustment to the valuation allowance would reduce income tax expense. In 2008 and 2007, the
Company determined that improved business performance, expectations of future profitability, and
other relevant factors constituted sufficient positive evidence to recognize certain foreign and
state deferred tax assets. Accordingly, the Company adjusted the valuation allowances and
recognized income tax benefits of approximately $3.2 million in 2008 and $12.2 million in 2007.
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In July 2006, FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” was issued.
This Interpretation clarifies accounting for uncertain tax positions in accordance with SFAS No.
109. FIN 48 prescribes a recognition threshold that a tax position is required to meet before
being recognized in the financial statements and provides guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim periods, disclosure and transition
issues. This Interpretation is effective for fiscal years beginning after December 15, 2006. The
adoption of Interpretation 48 decreased shareholders’ equity as of January 1, 2007 by approximately
$18.8 million. See Note 11 for additional information.
The Company recognizes interest and penalties related to unrecognized tax benefits within the
income tax expense line in the accompanying consolidated statement of operations. Accrued interest
and penalties are included within the related tax liability line item in the consolidated balance
sheet.
Revenue Recognition
The majority of the Company’s revenue is recognized when goods are shipped to the customer, title
and risk of loss are transferred, pricing is fixed and determinable and collectibility is
reasonably assured. Most revenue transactions represent sales of inventory. A provision for
payment discounts, product returns, warranty and customer rebates is estimated based upon
historical experience and other relevant factors and is recorded within the same period that the
revenue is recognized. The Company has a portion of long-term product installation contract
revenue that is recognized based on the percentage-of-completion method generally based on the
cost-to-cost method if there are reasonably reliable estimates of total revenue, total cost, and
the extent of progress toward completion; and there is an enforceable agreement between parties who
can fulfill their contractual obligations. The Company reviews contract price and cost estimates
periodically as the work progresses and reflects adjustments proportionate to the
percentage-of-completion to income in the period when those estimates are revised. For these
contracts, if a current estimate of total contract cost indicates a loss on a contract, the
projected loss is recognized in full when determined.
Business Combination Accounting
Acquisitions entered into by the Company are accounted for using the purchase method of accounting.
The purchase method requires management to make significant estimates. Management must determine
the cost of the acquired entity based on the fair value of the consideration paid or the fair value
of the net assets acquired, whichever is more clearly evident. The cost is then allocated to the
assets acquired and liabilities assumed based on their estimated fair values at the acquisition
date. In addition, management must identify and estimate the fair values of intangible assets that
should be recognized as assets apart from goodwill as well as the fair value of tangible property,
plant and equipment and intangible assets acquired.
Long-Lived Assets, Goodwill and Impairment
The valuation and classification of long-lived assets and the assignment of useful depreciable
lives and salvage values involve significant judgments and the use of estimates. The testing of
these long-lived assets for impairment also requires a significant amount of judgment and
assumptions, particularly as it relates to identification of asset groups and the determination of
fair market value. The Company periodically evaluates the recoverability of the carrying amount of
long-lived assets whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be fully recoverable. The Company evaluates events or changes in circumstances
based mostly on actual historical operating results, but business plans, forecasts, general and
industry trends and anticipated cash flows are also considered. Impairment is assessed when the
undiscounted expected future cash flows derived from an asset are less than its carrying amount.
Impairment losses are measured as the amount by which the carrying value of an asset exceeds its
fair value and are recognized in earnings. The Company also continually evaluates the estimated
useful lives of all long-lived assets and, when warranted, revises such estimates based on current
events.
The carrying value of goodwill and other intangible assets with indefinite lives are reviewed
annually for possible impairment. The impairment review is incorporates both a market and income
valuation approach. The income approach relies on a discounted cash flow model that requires
significant management judgment with respect to sales, gross margin and expense growth rates, and
selection and use of an appropriate discount rate. The use of different assumptions would increase
or decrease estimated discounted future cash flows and could increase or decrease an impairment
charge. The occurrence of unexpected events or changes in circumstances, such as adverse business
conditions or other economic factors, would determine the need for impairment testing between
annual impairment tests.
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Share-Based Compensation
There are certain employees with various forms of share-based payment awards for which the Company
recognizes compensation costs for these awards based on their fair values. The fair values of
certain awards are estimated on the grant date using the Black-Scholes option pricing formula,
which incorporates certain assumptions regarding the expected term of an award and expected stock
price volatility. The Company will develop the expected term assumption based on the vesting
period and contractual term of an award, historical exercise and post-vesting cancellation
experience, stock price history, plan provisions that require exercise or cancellation of awards
after employees terminate, and the extent to which currently available information indicates that
the future is reasonably expected to differ from past experience. The Company develops the
expected volatility assumptions based on the monthly historical price data from the Company’s
common stock and other economic data trended into future years. After calculating the aggregate
fair value of an award, the Company uses an estimated forfeiture rate to discount the amount of
share-based compensation costs to be recognized in the operating results over the service period of
the award. The Company develops the forfeiture assumption based on its historical pre-vesting
cancellation experience. Key assumptions are described in further detail in Note 14 to the
consolidated financial statements.
New Accounting Standards
A discussion of recently issued accounting pronouncements is described in Note 2, “Summary of
Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Item 8 of
Part II of this Report, and we incorporate such discussion in this MD&A by reference and make it a
part hereof.
Results of Operations
The following table sets forth, for the periods indicated, consolidated statement of operations
data in millions of dollars and as a percentage of net sales. Percentages may not add due to
rounding.
| Year Ended December 31, | ||||||||||||||||||||||||
| 2008 | 2007 | 2006 | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
Net sales |
$ | 6,230.1 | 100.0 | % | $ | 4,614.8 | 100.0 | % | $ | 3,665.1 | 100.0 | % | ||||||||||||
Cost of sales |
5,427.7 | 87.1 | % | 3,952.1 | 85.6 | % | 3,194.1 | 87.1 | % | |||||||||||||||
Gross profit |
802.4 | 12.9 | % | 662.7 | 14.4 | % | 471.0 | 12.9 | % | |||||||||||||||
Selling, general and administrative expenses |
381.0 | 6.1 | % | 296.6 | 6.4 | % | 235.1 | 6.4 | % | |||||||||||||||
Operating income |
421.4 | 6.8 | % | 366.1 | 7.9 | % | 235.9 | 6.4 | % | |||||||||||||||
Other expense |
(27.2 | ) | (0.4 | )% | (3.4 | ) | (0.1 | )% | (0.1 | ) | — | % | ||||||||||||
Interest expense, net |
(55.8 | ) | (0.9 | )% | (29.6 | ) | (0.6 | )% | (35.6 | ) | (1.0 | )% | ||||||||||||
Loss on extinguishment of debt |
— | — | % | (25.3 | ) | (0.5 | )% | — | — | % | ||||||||||||||
Income before income taxes |
338.4 | 5.4 | % | 307.8 | 6.7 | % | 200.2 | 5.5 | % | |||||||||||||||
Income tax provision |
(112.7 | ) | (1.8 | )% | (99.4 | ) | (2.1 | )% | (64.9 | ) | (1.8 | )% | ||||||||||||
Minority interests in consolidated subsidiaries |
(13.1 | ) | (0.2 | )% | (0.2 | ) | — | % | — | — | % | |||||||||||||
Equity in net earnings of affiliated companies |
4.6 | 0.1 | % | 0.4 | — | % | — | — | % | |||||||||||||||
Net income |
217.2 | 3.5 | % | 208.6 | 4.5 | % | 135.3 | 3.7 | % | |||||||||||||||
Less: preferred stock dividends |
(0.3 | ) | — | % | (0.3 | ) | — | % | (0.3 | ) | — | % | ||||||||||||
Net income applicable to common
shareholders |
$ | 216.9 | 3.5 | % | $ | 208.3 | 4.5 | % | $ | 135.0 | 3.7 | % | ||||||||||||
Year Ended December 31, 2008 Compared with Year Ended December 31, 2007
The net income applicable to common shareholders was $216.9 million in 2008 compared to net income
applicable to common shareholders of $208.3 million in 2007. Generally, the increase in net income
applicable to common shareholders was principally due to the Company’s exposure to global
infrastructure markets, the full year benefit of the acquisition of PDIC, the acquisition of Enica
Biskra in May 2008 and favorable currency exchange translation all of which more than offset a
decrease in North America operating results and higher net interest expense as a result of
international working capital lines of credit supporting operations in the ROW segment and
incremental borrowings in the Europe and North Africa segment related to the May 2008 acquisition
of Enica Biskra. The net income applicable to common shareholders for 2008 included a pre-tax
$32.0 million lower of cost or market charge related to raw material metal inventory, a pre-tax
$2.4 million LIFO inventory quantity liquidation gain and a pre-tax $27.2 million charge related to
foreign currency transaction adjustments resulting principally from the sudden devaluation of
certain emerging market currencies in South America and Sub-Sahara Africa. In comparison, net
income applicable to common shareholders for 2007 included a pre-tax $4.5 million lower of cost or
market charge related to raw material metal inventory, a pre-tax $5.3 million benefit from the
favorable resolution of customer project performance obligations, a $6.6 million pre-tax charge
related to the write-off of certain telecommunication production equipment, a pre-tax $25.3 million
loss on extinguishment of debt related to the tender offer on our $285 million 9.5% Senior Notes
and a benefit of $5.7 million due to state deferred tax valuation allowance releases.
Additionally, the 2007 net income available to common shareholders includes the benefit of two
months of operations for the PDIC business acquired on October 31, 2007.
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Net Sales
The following tables set forth net sales, metal-adjusted net sales and metal pounds sold by
segment, in millions. For the metal-adjusted net sales results, net sales for 2007 have been
adjusted to reflect the 2008 copper COMEX average price of $3.13 per pound (a $0.09 decrease
compared to the prior period) and the aluminum rod average price of $1.21 per pound (a $0.02
decrease compared to the prior period). Metal-adjusted net sales, a non-GAAP financial measure,
are provided herein in order to eliminate the effect of metal price volatility from the comparison
of revenues from one period to another. The comparable GAAP financial measure is set forth above.
See previous discussion of metal price volatility in the “Overview” section.
| Net Sales | ||||||||||||||||
| Year Ended December 31, | ||||||||||||||||
| 2008 | 2007 | |||||||||||||||
| Amount | % | Amount | % | |||||||||||||
North America |
$ | 2,178.7 | 35 | % | $ | 2,243.7 | 49 | % | ||||||||
Europe and North Africa |
2,175.3 | 35 | % | 1,939.7 | 42 | % | ||||||||||
ROW |
1,876.1 | 30 | % | 431.4 | 9 | % | ||||||||||
Total net sales |
$ | 6,230.1 | 100 | % | $ | 4,614.8 | 100 | % | ||||||||
| Metal-Adjusted Net Sales | ||||||||||||||||
| Year Ended December 31, | ||||||||||||||||
| 2008 | 2007 | |||||||||||||||
| Amount | % | Amount | % | |||||||||||||
North America |
$ | 2,178.7 | 35 | % | $ | 2,248.7 | 49 | % | ||||||||
Europe and North Africa |
2,175.3 | 35 | % | 1,935.7 | 42 | % | ||||||||||
ROW |
1,876.1 | 30 | % | 376.2 | 9 | % | ||||||||||
Total metal-adjusted net sales |
$ | 6,230.1 | 100 | % | 4,560.6 | 100 | % | |||||||||
Metal adjustment |
— | 54.2 | ||||||||||||||
Total net sales |
$ | 6,230.1 | $ | 4,614.8 | ||||||||||||
| Metal Pounds Sold | ||||||||||||||||
| Year Ended December 31, | ||||||||||||||||
| 2008 | 2007 | |||||||||||||||
| Pounds | % | Pounds | % | |||||||||||||
North America |
366.8 | 33 | % | 394.9 | 49 | % | ||||||||||
Europe and North Africa |
346.5 | 32 | % | 336.8 | 41 | % | ||||||||||
ROW |
388.0 | 35 | % | 79.8 | 10 | % | ||||||||||
Total metal pounds sold |
1,101.3 | 100 | % | 811.5 | 100 | % | ||||||||||
Net sales increased $1,615.3 million to $6,230.1 million, or 35%, in 2008 from 2007 while
metal-adjusted net sales increased $1,669.5 million, or 37%, in 2008 from 2007. The metals-adjusted
net sales increase of $1,669.5 million included $1,601.2 million or 96.0% of the increase
attributable to acquisitions, primarily related to the PDIC business which was acquired on October
31, 2007 and the previously mentioned acquisitions in the Europe and North Africa segment. In
addition to the impact of acquisitions, the increase in metal-adjusted net sales reflects the
favorable impact of foreign currency exchange rate changes of approximately $110.5 million and
increases in selling prices/product mix improvements of approximately $206.3 million. These
increases are partially offset by a decrease in sales volume of approximately $223.5 million.
Volume, as measured by metal pounds sold, increased by 289.8 million pounds, or 36%, in 2008
compared to 2007 due primarily to acquired businesses. Excluding the impact of acquisitions, metal
pounds sold decreased by 39.6 million pounds or 4.9% as more fully described below. Metal pounds
sold is provided herein as the Company believes this metric to be a consistent year over year
measure of sales volume since it is not impacted by metal prices or foreign currency exchange rate
changes. Generally, the Company has attempted to recover higher metal costs and inflation on
non-metals raw materials used in cable manufacturing, such as insulating compounds and steel and
wood reels, as well as increased freight and energy costs through increased selling prices.
Metal-adjusted net sales in the North America segment decreased $70.0 million, or 3.1%, in 2008
compared to 2007. Lower sales volume of approximately $159.7 million was primarily the result of
ongoing weak economic conditions in the United States and continued softness in demand for electric
utility distribution and transmission cables combined with an overall decrease in demand for copper
intensive outside plant telecommunications cable from the Regional Bell Operating Companies (RBOCs)
and communications distribution products. This lower sales volume was partially offset by
favorable foreign currency exchange rate changes of approximately $4.7 million, principally related
to the Canadian dollar, and product mix
improvement of approximately $94.3 million. In general, for much of the year, the Company
increased selling prices to recover higher metal costs, inflation on non-metals raw materials and
increased freight and energy costs.
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The following additional trends in 2008 also affected the results of North America. Weakness in
the housing industry in the United States continued to negatively impact the demand for low-voltage
and smaller gauge size cables used in electric power distribution. While the passage of energy
legislation in the United States in 2005 aimed at improving the transmission grid infrastructure is
expected to contribute to the increase in demand for the Company’s products over time, growth rates
continue to be and are prospectively expected to be highly variable depending on related product
business cycles and the approval and funding cycle times for large utility projects. The Company
believes that utilities may also be curtailing capital expenditures or taking a more guarded
approach to grid reliability problems in the face of the economic conditions and tightened credit
markets in the United States. Demand trends for telecommunication products from the RBOCs continue
to decline due to the RBOCs broadband investment strategy exacerbated by the weakness in the U.S.
housing market as well as RBOC merger activity, allocation of capital to fiber-to-the-home
initiatives, and budgetary constraints caused partially by higher copper costs has reduced both
RBOC and distributor purchasing volume in this segment. The negative trends discussed above have
been partially offset by increasing demand for alternative energy products as well as products used
for energy exploration in the mining, oil, gas, and petrochemical markets, a trend the Company
expects to continue over the long-term partly as a result of volatile energy prices and federal
government economic stimulus plans.
Metal-adjusted net sales in the Europe and North Africa segment increased $239.6 million, or 12.4%,
in 2008 compared to 2007. The increase includes $136.0 million of net sales attributable to the
results of acquired businesses. In addition to the impact from acquisitions, the increase reflects
selling price increases in excess of higher metal costs and other inputs and product mix
improvement of approximately $53.2 million and favorable foreign currency exchange rate changes of
approximately $147.2 million, primarily due to the strength of the Euro relative to the dollar.
Excluding acquisitions, these increases were partially offset by a decrease in volume of
approximately $54.2 million. Lower demand for low-voltage and building wire products in the Spanish
domestic construction market has been partially offset by stronger electric utility and electrical
infrastructure demand throughout Europe, particularly, demand for medium-voltage high-voltage and
extra-high-voltage cables to upgrade the electricity grid as well as projects involving submarine
energy cables and other alternative energy projects for much of the year. European markets in
general have weakened near the end of the year and are expected to remain relatively weak into
2009.
Metal-adjusted net sales in the ROW segment increased $1,499.9 million in 2008 compared to 2007.
The increase reflects the inclusion of recent acquisitions, accounting for $1,465.2 million of the
metals-adjusted net sales increase. Acquisition related sales of electrical infrastructure and
electric utility products were strong, particularly in the developing countries of Central and
South America where there continues to be a high level of construction and mining activity as well
as programs to bring electricity further into the rural areas, such as Brazil’s “Lights for All”
program. A favorable price and product mix of $59.7 million has been offset by unfavorable
foreign currency exchange rate changes of approximately $41.4 million, primarily due to the
devaluation of most emerging market currencies in South America and Sub-Sahara Africa relative to
the dollar.
Gross Profit
Gross profit increased $139.7 million, or 21%, in 2008 from 2007. Gross profit as a percentage of
metal-adjusted net sales was 12.9% for 2008 and was 14.5% for 2007. Additionally, the acquisition
of PDIC accounted for $230.8 million or 28.8% of gross profit for 2008. The reduction in gross
profit margin on a metal-adjusted net sales basis is principally related to the lower of cost or
market accounting related charges of $32.0 million in 2008 and the general economic slowdown
experienced in the North America segment resulting in lower plant utilization, softening end user
demand and an unfavorable pricing environment on certain electric utility products for most of the
year.
Selling, General and Administrative Expense
Selling, general and administrative expense increased $84.4 million, or 28.5%, in 2008 from 2007.
Approximately $75.0 million or 89% of the increase is related to acquired businesses and strategic
employee additions throughout the Company in order to support the Company’s growth initiatives and
to increase process capability. The increase in SG&A costs was also due in part to unfavorable
foreign currency exchange rates in 2008 of $7.8 million. Reported SG&A was 6.1% of net sales in
2008, an improvement as compared to the prior year, at 6.5% of metal-adjusted net sales in 2007.
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Operating Income
The following table sets forth operating income by segment, in millions of dollars.
| Operating Income | ||||||||||||||||
| Year Ended December 31, | ||||||||||||||||
| 2008 | 2007 | |||||||||||||||
| Amount | % | Amount | % | |||||||||||||
North America |
$ | 122.5 | 29 | % | $ | 179.4 | 49 | % | ||||||||
Europe and North Africa |
162.2 | 39 | % | 162.4 | 44 | % | ||||||||||
ROW |
136.7 | 32 | % | 24.3 | 7 | % | ||||||||||
Total operating income |
$ | 421.4 | 100 | % | $ | 366.1 | 100 | % | ||||||||
Operating income increased $55.3 million to $421.4 million in 2008 from $366.1 million in 2007.
This increase is primarily attributable to the Company’s ROW segment which increased operating
income by $112.4 million, primarily as a result of the acquisition of PDIC, as well as a $12.2
million favorable impact of foreign currency exchange rate changes, a global selling price and
product mix improvement and ongoing Lean manufacturing cost containment and efficiency efforts.
These increases are partially offset by a $32.0 million lower of cost or market adjustment
primarily related to raw material metal inventory and the $56.9 million decrease in the operating
result of the Company’s North America segment.
The decrease in operating income for the North America segment of $56.9 million is largely the
result of lower volume as a result of continued softness in demand for the segment’s electric
utility and certain communication products as well as higher raw material and transportation costs.
Persistent softness in the housing market has had a negative impact on the demand for low-voltage
and smaller gauge size cables used in electric power distribution as well as copper-based
telecommunication products used by RBOC’s in new housing starts. A broad spectrum of other
product lines in North America also experienced reduced demand and pricing pressure as a result of
the weak economy and competitive environment as well as increased raw material and energy input
costs for most of the year.
Operating income for the Europe and North Africa segment decreased $0.2 million in 2008 from 2007.
Increased selling prices in excess of higher metals costs and other cost inputs for the year,
positive product mix changes and the favorable impact of $12.1 million of foreign currency exchange
rate changes helped to offset a raw material metal inventory lower of cost or market adjustment of
$8.0 million and continued softness in demand for residential low-voltage cables and building wire
due to the economic slowdown in the Spanish housing market. Additionally, the prior year included
the benefit from a $5.3 million favorable resolution of customer project performance obligations
during 2007.
Operating income for the ROW segment increased $112.4 million in 2008 from 2007. The increase in
operating income was primarily due the inclusion of a full year of operating results of the
acquired PDIC business. This increase in operating income has been offset by raw material metal
inventory lower of cost or market adjustments of approximately $23.6 million.
Other Expense
Other expense of $27.2 million in 2008 and $3.4 million in 2007 is principally comprised primarily
of foreign currency transaction losses that resulted from changes in exchange rates between the
designated functional currency and the currency in which a transaction is denominated. The change
year over year is primarily the result of the rapid and significant devaluation of certain emerging
market currencies principally in South America and Sub-Sahara Africa during the period from
mid-September through the end of October.
Interest Expense
Net interest expense increased to $55.8 million in 2008 from $29.6 million in 2007. The increase
in interest expense is due to higher average debt levels in 2008 as compared to 2007, primarily
related to the October 2007 issuance of the Company’s $475.0 million 1.00% Senior Convertible Notes
to partially fund the PDIC acquisition, the addition of PDIC credit facilities supporting
operations in the ROW segment and additional borrowings in Europe related to the May acquisition of
Enica Biskra as well as increased borrowing on the Company’s Amended Credit Facility throughout the
year. The Company also reported less interest income in 2008 as a result of using existing cash to
partially fund the PDIC acquisition and lower interest rates earned on cash. These increases were
partially offset by a year over year reduction in interest rates on the Company’s $125.0 million
floating rate Senior Notes.
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Loss on Extinguishment of Debt
During 2007, the Company recognized a pre-tax loss on the extinguishment of debt of approximately
$25.3 million, consisting of a $20.5 million inducement premium, related fees and expenses and the
write-off of approximately $4.8 million in
unamortized fees and expenses due to the tender offer and redemption of approximately $280.2
million of the Company’s $285.0 million in 9.5% Senior Notes during the first quarter of 2007 and
the redemption of the remaining $4.8 million outstanding 9.5% Senior Notes in November of 2007.
See the “Debt and Other Contractual Obligations” discussion below for additional information.
Tax Provision
The Company’s effective tax rate for 2008 and 2007 was 33.3% and 32.3%, respectively. The
effective tax rates for 2008 and 2007 were impacted by the recognition of approximately $3.2
million and $12.2 million, respectively, of certain foreign and state deferred tax assets due to
improved profitability in the relevant jurisdictions.
Preferred Stock Dividends
During 2008 and 2007, the Company accrued and paid $0.3 million in dividends on its Series A
preferred stock.
Year Ended December 31, 2007 Compared with Year Ended December 31, 2006
The net income applicable to common shareholders was $208.3 million in 2007 compared to net income
applicable to common shareholders of $135.0 million in 2006. The net income applicable to common
shareholders for 2007 included a $0.3 million dividend on the Series A preferred stock, a pre-tax
$4.5 million lower of cost or market charge related to raw material inventory, a pre-tax $5.3
million benefit from the favorable resolution of customer project performance obligations, $2.0
million in additional compensation expense from adopting SFAS 123(R), a $6.6 million pre-tax charge
related to the write-off of certain telecommunication production equipment, a pre-tax $25.3 million
loss on extinguishment of debt related to the tender offer on our $285 million 9.5% Senior Notes
and a benefit of $5.7 million due to state deferred tax valuation allowance releases.
Additionally, the 2007 net income available to common shareholders includes the benefit of two
months of operations for the PDIC business acquired on October 31, 2007.
The net income applicable to common shareholders for 2006 included a $0.3 million dividend on the
Series A preferred stock, $1.1 million in additional compensation expense from adopting SFAS
123(R), a pre-tax charge of $1.0 million to settle a patent dispute with a competitor and a benefit
of $6.3 million due to deferred tax valuation allowance releases.
Net Sales
The following tables set forth net sales, metal-adjusted net sales and metal pounds sold by
segment, in millions. For the metal-adjusted net sales results, net sales for 2006 have been
adjusted to reflect the 2007 copper COMEX average price of $3.22 per pound (a $0.13 increase
compared to the prior period) and the aluminum rod average price of $1.23 per pound (a $0.01
increase compared to the prior period). Metal-adjusted net sales, a non-GAAP financial measure,
are provided herein in order to eliminate the effect of metal price volatility from the comparison
of revenues from one period to another. The comparable GAAP financial measure is set forth above.
See previous discussion of metal price volatility in the “Overview” section.
| Net Sales | ||||||||||||||||
| Year Ended December 31, | ||||||||||||||||
| 2007 | 2006 | |||||||||||||||
| Amount | % | Amount | % | |||||||||||||
North America |
$ | 2,243.7 | 49 | % | $ | 2,058.6 | 56 | % | ||||||||
Europe and North Africa |
1,939.7 | 42 | % | 1,446.8 | 40 | % | ||||||||||
ROW |
431.4 | 9 | % | 159.7 | 4 | % | ||||||||||
Total net sales |
$ | 4,614.8 | 100 | % | $ | 3,665.1 | 100 | % | ||||||||
| Metal-Adjusted Net Sales | ||||||||||||||||
| Year Ended December 31, | ||||||||||||||||
| 2007 | 2006 | |||||||||||||||
| Amount | % | Amount | % | |||||||||||||
North America |
$ | 2,243.7 | 49 | % | $ | 2,100.4 | 56 | % | ||||||||
Europe and North Africa |
1,939.7 | 42 | % | 1,475.5 | 40 | % | ||||||||||
ROW |
431.4 | 9 | % | 164.5 | 4 | % | ||||||||||
Total metal-adjusted net sales |
4,614.8 | 100 | % | 3,740.4 | 100 | % | ||||||||||
Metal adjustment |
— | (75.3 | ) | |||||||||||||
Total net sales |
$ | 4,614.8 | $ | 3,665.1 | ||||||||||||
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| Metal Pounds Sold | ||||||||||||||||
| Year Ended December 31, | ||||||||||||||||
| 2007 | 2006 | |||||||||||||||
| Pounds | % | Pounds | % | |||||||||||||
North America |
394.9 | 49 | % | 428.2 | 56 | % | ||||||||||
Europe and North Africa |
336.8 | 41 | % | 307.9 | 40 | % | ||||||||||
ROW |
79.8 | 10 | % | 28.2 | 4 | % | ||||||||||
Total metal pounds sold |
811.5 | 100 | % | 764.3 | 100 | % | ||||||||||
Net sales increased $949.7 million, or 26%, in 2007 from 2006. After adjusting 2006 net sales to
reflect the $0.13 increase in the average monthly COMEX price per pound of copper and the $0.01
increase in the average aluminum rod price per pound in 2007, net sales increased $874.4 million,
or 23%, in 2007 from 2006. The metals-adjusted net sales increase of $874.4 million included $436.2
million of sales attributable to acquisitions, primarily related to the PDIC business which was
acquired on October 31, 2007 and previously mentioned acquisitions in Europe. In addition to the
impact of acquisitions, the increase in metal-adjusted net sales reflects the favorable impact of
foreign currency exchange rate changes of approximately $172 million and increases in selling
prices/product mix improvements of approximately $482 million. These increases are partially
offset by a decrease in sales volume of approximately $213 million. Volume, as measured by metal
pounds sold, increased by 47.2 million pounds, or 6%, in 2007 compared to 2006 due to acquired
businesses. Excluding the impact of acquisitions, metal pounds sold decreased by 43.8 million
pounds. Metal pounds sold is provided herein as the Company believes this metric to be a
consistent year over year measure of sales volume since it is not impacted by metal prices or
foreign currency exchange rate changes. Generally, the Company has attempted to recover higher
metal costs and inflation on non-metals raw materials used in cable manufacturing, such as
insulating compounds and steel and wood reels, as well as increased freight and energy costs
through increased selling prices.
Metal-adjusted net sales in the North America segment increased $143.3 million, or 7%, in 2007
compared to 2006. The increase reflects price and product mix improvement of approximately $289
million and favorable foreign currency exchange rate changes of approximately $19 million,
principally related to the Canadian dollar. In general, the Company increased selling prices to
recover continued higher metal costs, inflation on non-metals raw materials and increased freight
and energy costs. However, contractual customer pricing did not allow for increases related to
certain communications products. Through forward price agreements, the Company was economically
hedged against this exposure and the lower selling prices did not materially impact the Company’s
financial results for 2007. These increases were partially offset by a decrease in sales volume of
approximately $164 million. The decrease in sales volume was primarily the result of an overall
decrease in demand for outside plant telecommunications cable from the Regional Bell Operating
Companies (RBOCs) and decrease in demand from the communications distribution market combined with
a decrease in demand for electric utility distribution cables.
Continued weakness in the housing industry in the United States has had a negative impact on the
demand for low-voltage and smaller gauge size cables used in electric power distribution during the
second half of 2007. While the passage of energy legislation in the United States in 2005 aimed at
improving the transmission grid infrastructure is expected to contribute to the increase in demand
for the Company’s products over time, growth rates are expected to be highly variable depending on
related product business cycles and the approval and funding cycle times for large utility
projects. Demand trends for telecommunication products from the RBOCs continue to be dependent on
the selected strategy of their broadband rollout. Those favoring a copper/fiber hybrid model have
been showing flat to marginally decreased demand, while those taking a fiber-to-the-home strategy
continue to show weakness in demand for copper products. For example, total metal pounds shipped
for copper based telecommunication products have decreased 29.3 million pounds in 2007 or
approximately 36%. Demand trends continue to be affected by high copper prices, which make
alternatives to copper-based cable and wire comparatively more affordable, and by RBOC merger
activity and budgetary constraints. These decreases were partially offset by increasing demand for
products used for energy exploration in the mining, oil, gas, and petrochemical markets, a trend
the Company expects to continue partly as a result of higher oil prices. Additionally, demand for
low- and medium-voltage electrical infrastructure products driven by a continued turnaround in
industrial construction spending contributed to volume growth, as did the expansion of the
Company’s customer base for its ignition wire sets.
Metal-adjusted net sales in the Europe and North Africa segment increased $464.2 million, or 32%,
in 2007 compared to 2006. The increase includes $189 million of net sales attributable to the
results of acquired businesses. In addition to the impact from acquisitions, the increase reflects
selling price increases in excess of higher metal costs and other inputs and product mix
improvement of approximately $182 million and favorable foreign currency exchange rate changes of
approximately $131 million, primarily due to the strength of the Euro relative to the dollar. These
increases were partially offset by a decrease in volume of approximately $37 million. The volume
decline was primarily due to lower demand for low-voltage products and building wire in the Spanish
domestic construction market, partially offset by strong construction markets elsewhere in the
European Union. The decrease in volume was also partially offset by higher demand for
medium-voltage and high-voltage
cables in Europe to upgrade the electricity grid. The Company expects to continue to experience
strong demand for electric utility and industrial infrastructure products as well as its extra
high-voltage underground systems over time.
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Metal-adjusted net sales in the ROW segment increased $266.9 million, or 162%, in 2007 compared to
2006. The increase reflects the inclusion of recent acquisitions, accounting for $247.1 million of
the metals-adjusted net sales increase. Excluding the impact from acquisitions, the increase in
metals-adjusted net sales reflects favorable foreign currency exchange rate changes, principally
related to New Zealand and Australia, of approximately $21 million and price and product mix
improvement of $14 million. These increases were partially offset by a decrease in volume of
approximately $16 million. The decline in volume was attributable to softer than expected demand
in electric utility and electrical infrastructure products as it relates to the New Zealand
building industry as well as increased competitor pressure with regard to price and delivery in
Australia.
Gross Profit
Gross profit increased $191.7 million, or 41%, in 2007 from 2006. Gross profit as a percentage of
metal-adjusted net sales was 14.4% for 2007 and was 12.6% for 2006. Additionally, the acquisition
of PDIC accounted for $26.1 million or 4.0% of gross profit for 2007. The improved profit margin
on metal-adjusted net sales was the result of increased selling prices to recover raw material
costs, favorable product mix changes and improved efficiency as a result of continued Lean
manufacturing initiatives.
Selling, General and Administrative Expense
Selling, general and administrative expense increased $61.5 million, or 26%, in 2007 from 2006.
The increase in SG&A was primarily related to incremental SG&A costs of acquired businesses and
strategic employee additions throughout the Company in order to support the Company’s growth
initiatives and to increase process capability. Specifically, incremental SG&A costs of $17.9
million related to the acquisition of PDIC. The increase in SG&A costs was also due in part to
increased foreign currency exchange rates in 2007 compared to 2006. Reported SG&A was 6.4% of net
sales in 2007, essentially flat compared to the prior year, at 6.3% of metal-adjusted net sales in
2006.
Operating Income
The following table sets forth operating income by segment, in millions of dollars.
| Operating Income | ||||||||||||||||
| Year Ended December 31, | ||||||||||||||||
| 2007 | 2006 | |||||||||||||||
| Amount | % | Amount | % | |||||||||||||
North America |
$ | 179.4 | 49 | % | $ | 128.9 | 55 | % | ||||||||
Europe and North Africa |
162.4 | 44 | % | 101.9 | 43 | % | ||||||||||
ROW |
24.3 | 7 | % | 5.1 | 2 | % | ||||||||||
Total operating income |
$ | 366.1 | 100 | % | $ | 235.9 | 100 | % | ||||||||
Operating income increased $130.2 million, or 55%, from 2006. The increase in operating income was
primarily the result of increased selling prices to recover raw material costs, favorable product
mix changes, ongoing Lean manufacturing cost containment and efficiency efforts, $12.2 million due
to the impact of foreign currency exchange rate changes and higher demand for certain of the
Company’s products. Additionally, results from acquired businesses accounted for $21.0 million of
the operating income increase.
Operating income for the North America segment increased $50.5 million in 2007 from 2006. This
improvement in operating income was due to selling price increases in excess of higher metals
costs, raw material inflation and other cost inputs, improved product mix, improved product margins
on certain utility cable, increased demand for certain products, primarily products used in mining,
oil, gas and petrochemical applications and the reduction of costs as a result of continued
efficiency gains obtained through the implementation of Lean Six Sigma manufacturing cost
containment efforts During the fourth quarter 2007, the Company rationalized outside plant
telecommunication products manufacturing capacity due to continued declines in telecommunications
cable demand. The Company closed a portion of its telecommunications capacity located primarily at
its Tetla, Mexico facility and has taken a pre-tax charge to write-off certain production equipment
of $6.6 million. This action will free approximately 100,000 square feet of manufacturing space,
which the Company plans to utilize for other products for the Central and South American markets.
Operating income for the Europe and North Africa segment increased $60.5 million in 2007 from 2006.
The improvement in operating income was due to the continued implementation of Lean Six Sigma cost
saving initiatives, efficient manufacturing
and high factory utilization rates. Also, results from acquired businesses accounted for $17.3
million of the operating income increase. Increased selling prices in excess of higher metals
costs and other cost inputs, positive product mix changes, increase sales volume for certain
products and the impact of foreign currency exchange rate changes also contributed to the improved
operating income. Additionally, the Company benefited from a $5.3 million favorable resolution of
customer project performance obligations during 2007.
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Operating income for the ROW segment increased $19.2 million in 2007 from 2006. The increase in
operating income was in part due to the acquired PDIC business which accounted for $8.2 million,
favorable foreign currency exchange rate changes combined with selling price increases in excess of
higher metals costs and other cost inputs and other cost containment initiatives.
Other Expense
Other Expense
Other expense of $3.4 million in 2007 and $0.1 million in 2006 primarily represents foreign
currency transaction losses, which resulted from changes in exchange rates between the designated
functional currency and the currency in which the transaction is denominated.
Interest Expense
Net interest expense decreased to $29.6 million in 2007 from $35.6 million in 2006. The decrease
in interest expense is primarily due to interest savings from the November 2006 pay down of the
Company’s outstanding balance on its floating-rate Amended Credit Facility with the proceeds from
its fixed-rate 0.875% Convertible Notes and lower interest rates resulting from the March 2007
Senior Notes refinancing (see Loss on Extinguishment of Debt discussion which follows).
Additionally, the decrease in net interest expense is a result of increased interest income from
investments of the Company’s excess cash. The decrease in net interest expense was partially
offset by higher average debt levels in 2007 of $428.3 million as compared to 2006, primarily
related to the October 2007 issuance of the Company’s 1.00% Convertible Notes.
Loss on Extinguishment of Debt
During 2007, the Company recognized a pre-tax loss on the extinguishment of debt of approximately
$25.3 million, consisting of a $20.5 million inducement premium, related fees and expenses and the
write-off of approximately $4.8 million in unamortized fees and expenses due to the tender offer
and redemption of approximately $280.2 million of the Company’s $285.0 million in 9.5% Senior Notes
during the first quarter of 2007 and the redemption of the remaining $4.8 million outstanding 9.5%
Senior Notes in November of 2007. See the “Debt and Other Contractual Obligations” discussion
below for additional information.
Tax Provision
The Company’s effective tax rate for 2007 and 2006 was 32.3% and 32.4%, respectively. The
effective tax rates for 2007 and 2006 were reduced by the release of approximately $12.2 million
and $6.3 million, respectively, of certain foreign and state deferred tax asset valuation
allowances as it became more likely than not that the deferred tax assets would be utilized in
future years as a result of improved profitability in the relevant jurisdiction.
Preferred Stock Dividends
During 2007 and 2006, the Company accrued and paid $0.3 million in dividends on its Series A
preferred stock.
Liquidity and Capital Resources
In general, General Cable requires cash for working capital, capital expenditures, investment in
internal product development, debt repayment, salaries and related benefits, interest, Series A
preferred stock dividends, repurchase of common shares and taxes. General Cable’s working capital
requirement decreases when it experiences softening incremental demand for products and/or a
significant reduction in the price of copper, aluminum and/or other raw material cost inputs. Based
upon historical experience, the cash on its balance sheet and the expected availability of funds
under its current credit facilities, the Company believes its sources of liquidity will be
sufficient to enable it to meet the Company’s cash requirements for working capital, capital
expenditures, debt repayment, salaries and related benefits, interest, Series A preferred stock
dividends, repurchase of common shares and taxes for the next twelve months and foreseeable future.
General Cable Corporation is a holding company with no operations of its own. All of the Company’s
operations are conducted, and net sales are generated, by its subsidiaries and investments.
Accordingly, the Company’s cash flow comes from the cash flows of its global operations. The
Company’s ability to use cash flow from its international operations, if necessary, has
historically been adversely affected by limitations on the Company’s ability to repatriate such
earnings tax efficiently.
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Summary of Cash Flows
Cash flow provided by operating activities in 2008 was $229.4 million. This reflects net income
before depreciation and amortization, foreign currency exchange loss, deferred income taxes, excess
tax benefit from stock based compensation and loss on the disposal of property of $352.5 million.
Additionally, cash inflows resulted from decreases in accounts receivables and other assets of
$26.7 million and $18.6 million, respectively, as well as a $32.0 million lower of cost or market
raw material inventory charge. The decrease in accounts receivables is partly due to demand
trends, which are discussed below related to inventory, and to a lesser extent global selling
prices in response to lower raw material costs in the fourth quarter of the year. The Company
believes that its accounts receivable balances are collectible and the Company has established
appropriate procedures to facilitate collection. The decrease in other assets is primarily the
result of changes in the fair market value of commodity and foreign currency derivative assets.
The lower of cost or market provision was recorded for copper and aluminum raw material inventory
in which the replacement costs at the end of the year were lower than the LIFO value of the
acquired copper and aluminum raw material inventory. These positive cash flows have been partially
offset by a $70.3 million increase in inventories and a $130.1 million decrease in accounts
payable, accrued and other liabilities. The increase in inventory reflects weaker demand in Europe
specifically related to the Spanish market as well as weaker markets in the ROW segment near the
end of the year. The Company is adjusting its production in these regions in order to balance
inventory quantities in 2009. The inventory increases above were offset by a reduction in North
America where demand weakness began in late 2007 allowing elevated North America inventories to be
reduced in 2008. The decrease in accounts payable, accrued and other liabilities was a result of
declining manufacturing activity in the later half of the year due to the lower demand for certain
products mentioned previously as well as metal price volatility experienced in the fourth quarter
of 2008. More specifically, the Company liquidated certain fixed dollar denominated obligations in
emerging markets to reduce the overall currency exposure that resulted in currency devaluation
charges in the latter part of 2008.
Cash flow used by investing activities was $263.3 million in 2008, reflecting $217.8 million of
capital expenditures and $50.3 million principally reflecting the Enica Biskra acquisition and the
increase in equity ownership of PDP. The Company anticipates capital spending to be approximately
$120 to $130 million in 2009, primarily supporting new products and capabilities in developing
markets and alternative energy markets.
Cash flow provided by financing activities in 2008 was $29.6 million. This cash inflow reflects the
receipt of $93.3 million of net additional borrowings in Europe and ROW to fund working capital,
$6.1 million of excess tax benefits from stock-based compensation, $2.2 million from the exercise
of stock options and $124.7 million from borrowing under the Company’s Amended Credit Facility.
These cash inflows were partially offset by the repayment of the Company’s Amended Credit Facility
borrowings of $184.7 million, the repurchase of common shares for $11.7 million and the dividend
payment on the Series A preferred stock of $0.3 million. See the “Debt and Other Contractual
Obligations” section below for details.
Debt and Other Contractual Obligations
The Company’s outstanding debt obligations of $1,446.6 million as of December 31, 2008 consisted of
$475.0 million of 1.00% Convertible Notes due in 2012, $355.0 million of 0.875% Convertible Notes
due in 2013, $200.0 million of 7.125% Senior Notes due in 2017, $125.0 million of Senior Floating
Rate Notes due in 2015, $64.1 million of Spanish Term Loans, $84.9 million Silec credit facilities,
$71.5 million PDIC credit facilities, $2.3 million in capital leases and $68.8 million of various
short and medium term loans. A separate description of our various borrowings, many of which are
subject to certain collateral levels, is provided below and additional discussion is included at
Note 9 to the Consolidated Financial Statements.
The Company’s 1.00% Senior Convertible Notes were issued in September 2007 in the amount of $475.0
million. The Notes were sold to qualified institutional buyers in reliance on Rule 144A under the
Securities Act of 1933, as amended (the “Securities Act”). Subsequently, on April 16, 2008, the
notes and the common stock issuable upon conversion of the notes were registered on a Registration
Statement on Form S-3. The 1.00% Senior Convertible Notes bear interest at a fixed rate of 1.00%,
payable semi-annually in arrears, on April 15 and October 15, and mature in 2012. The 1.00% Senior
Convertible Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured
basis, by the Company’s wholly-owned U.S. subsidiaries. The estimated fair value of the 1.00%
Senior Convertible Notes was approximately $285.0 million at December 31, 2008.
The Company’s 0.875% Convertible Notes were issued in November of 2006 in the amount of $355.0
million, pursuant to the Company’s effective Registration Statement on Form S-3. The 0.875%
Convertible Notes bear interest at a fixed rate of 0.875%, payable semi-annually in arrears, on May
15 and November 15, and mature in 2013. As a result of exceeding certain average stock price
thresholds as defined in Note 9 of the Consolidated Financial Statements, the Company reclassified
$355.0 million as a current liability as of December 31, 2007. The 0.875% Convertible Notes are
unconditionally guaranteed, jointly and severally, on a senior unsecured basis, by the Company’s
wholly-owned U.S. subsidiaries. The estimated fair value of the 0.875% Convertible Notes was
approximately $184.6 million at December 31, 2008.
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The Company completed the issuance and sale of $325.0 million in aggregate principal amount of new
senior unsecured notes, comprised of $200.0 million of 7.125% Senior Fixed Rate Notes due 2017 (the
“7.125% Senior Notes”) and $125.0 million of Senior Floating Rate Notes due 2015 (the “Senior
Floating Rate Notes” and together with the “7.125% Senior Notes”, the “Notes”) on July 26, 2007 to
replace the unregistered Notes with registered Notes with like terms pursuant to an effective
Registration Statement on Form S-4. The Notes are jointly and severally guaranteed by the
Company’s U.S. subsidiaries. The estimated fair value of the 7.125% Senior Notes and Senior
Floating Rate Notes was approximately $132.8 million and $59.2 million, respectively, at December
31, 2008.
The Senior Floating Rate Notes bear interest at an annual rate equal to the 3-month LIBOR rate plus
2.375%, which combine for a rate of 6.3% at December 31, 2008. Interest on the Senior Floating
Rate Notes is payable quarterly in arrears in cash on January 1, April 1, July 1 and October 1 of
each year, commencing on July 1, 2007. The 7.125% Senior Notes bear interest at a rate of 7.125%
per year and are payable semi-annually in arrears in cash on April 1 and October 1 of each year,
commencing on October 1, 2007. The Senior Floating Rate Notes mature on April 1, 2015 and the
7.125% Senior Notes mature on April 1, 2017.
The Spanish Term Loan of 50 million euros was issued in December 2005 and was available in up to
three tranches, with an interest rate of Euribor plus 0.8% to 1.5% depending on certain debt
ratios. Two of the tranches have expired. The remaining tranche (maturing in 2012) was paid and
terminated, in June 2008, with net payment of approximately 27.2 million euros or $43.0 million.
In February 2008, the Company entered into a term loan in the amount of 20 million euros with an
interest rate of Euribor plus 0.5%. The term loan is payable in semi-annual installments, due in
August and February, maturing in February 2013. Simultaneously, the Company entered into a fixed
interest rate swap to coincide with the terms and conditions of the term loan starting in August
2008 and maturing in February 2013 that will effectively hedge the variable interest rate with a
fixed interest rate of 4.2%. In April 2008, the Company entered into a term loan in the amount of
10 million euros with an interest rate of Euribor plus 0.75%. The term loan is payable in
semi-annual installments, due in April and October, maturing in April 2013. Simultaneously, the
Company entered into a fixed interest rate swap to coincide with the terms and conditions of the
term loan starting in October 2008 and maturing in April 2013 that will effectively hedge the
variable interest rate with a fixed interest rate of 4.58%. In June 2008, the Company entered
into a term loan in the amount of 21 million euros with an interest rate of Euribor plus 0.75%. The
term loan is payable in quarterly installments, due in March, June, September and December,
maturing in June 2013. Simultaneously, the Company entered into a fixed interest rate swap to
coincide with the terms and conditions of the term loan starting in September 2008 and maturing in
June 2013 that will effectively hedge the variable interest rate with a fixed interest rate of
4.48%. As of December 31, 2008, the U.S. dollar equivalent of $64.1 million was outstanding under
these term loan facilities. The proceeds were was used to partially fund the acquisition of Enica
Biskra and for general working capital purposes. There is no remaining availability under these
Spanish Term Loans. The weighted average interest rate including the effect of the interest rate
swaps was 4.4% under these term loan facilities as of December 31, 2008.
Three Spanish Credit Facilities totaling 45 million euros were established in 2008, and mature in
2010, 2011 and 2013 and carry an interest rate of Euribor plus 0.4% to 0.65% depending on certain
debt ratios. No funds are currently drawn under these facilities, leaving undrawn availability of
approximately the U.S. dollar equivalent of $62.8 million as of December 31, 2008. Commitment fees
ranging from 15 to 25 basis points per annum on any unused commitments under these credit
facilities are payable on a quarterly basis.
The Spanish Term Loan and Spanish Credit Facility are subject to certain financial ratios of the
Company’s European subsidiaries, the most restrictive of which is net debt to EBITDA (earnings
before interest, taxes, depreciation and amortization). The indebtedness under the combined
facilities is guaranteed by the Company’s Portuguese subsidiary and by Silec Cable, S.A.
During the fourth quarter of 2007, the Company further amended its senior secured revolving credit
facility (“Amended Credit Facility”), which increased the borrowing limit on the Senior Revolving
Credit Facility from $300 million to $400 million. Additionally, the amendment extended the
maturity date by almost two years to July 2012, and increased the existing interest rates across a
pricing grid, which is dependent upon excess availability, as defined. Additionally, the amendment
eliminated or relaxed several provisions, expanded permitted indebtedness to include acquired
indebtedness of newly acquired foreign subsidiaries, and increased the level of permitted
loan-funded acquisitions. The amendment permitted the Company to draw funds from its Amended
Credit Facility to partially fund the acquisition of Phelps Dodge International (“PDIC”) in
conjunction with funds raised through the above mentioned September 2007 1.00% Senior Convertible
Notes offering and available cash on the Company’s balance sheet. At December 31, 2008, the
Company had no outstanding borrowings and undrawn availability of $301.3 million under the Amended
Credit Facility. The Company was in compliance with all covenants under the Amended Credit Facility
as of December 31, 2008. The Company had outstanding letters of credit related to this Amended
Credit Facility of $29.5 million at December 31, 2008.
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On October 31, 2007 the Company acquired PDIC and assumed the U.S. dollar equivalent of $64.3
million (at the prevailing exchange rate on that date) of mostly short-term PDIC debt as a part of
the acquisition. As of December 31, 2008, PDIC related debt was $71.5 million of which
approximately $71.0 million was short-term financing agreements at various interest rates. The
weighted average interest rate was 5.3% as of December 31, 2008. The Company has approximately
$338.0 million of excess availability under the various credit facilities.
As of December 31, 2008, Silec’s debt was the U.S. dollar equivalent of $84.9 million. The debt
consisted of approximately $41.5 million relating to an uncommitted accounts receivable facility of
up to $69.9 million and approximately $43.4 million of short-term financing agreements of up to
$50.4 million. The Company has approximately $28.4 million of excess availability under the
uncommitted accounts receivable facility and $7.0 million availability under the short-term
financing agreements. The weighted average interest rate for the uncommitted accounts receivable
facility and the short-term financing arrangements was 4.4%.
As of December 31, 2008, ECN Cable’s debt was the U.S. dollar equivalent of $17.4 million. The debt
consisted of approximately $1.8 million relating to an uncommitted accounts receivable facility of
up to $23.9 million and approximately $15.6 million of credit facilities of up to $54.1 million.
The Company has approximately $60.6 million of excess availability under the uncommitted accounts
receivable facility and the credit facilities. The weighted average interest rate for the
uncommitted accounts receivable facility and the credit facilities was 5.8%.
The Company’s Spanish operating company, Grupo General Cable Sistemas (“Grupo General”),
participates in accounts payable confirming arrangements with several European financial
institutions. Grupo General negotiates payment terms with suppliers of generally 180 days and
submits invoices to the financial institutions with instructions for the financial institutions to
transfer funds from Grupo General’s accounts on the due date (on day 180) to the receiving parties
to pay the invoices in full. The banks may, at their discretion, negotiate directly with the
suppliers for earlier payment terms at a discount, and the discount is kept by the banks. The
suppliers may also decline to participate in an early payment arrangement. At December 31, 2008,
these arrangements had a maximum availability limit of the equivalent of $408.6 million, of which
approximately $238.5 million was utilized. If these arrangements were reduced or terminated, Grupo
General would have to pay its suppliers directly.
The Company’s defined benefit plans at December 31, 2008 and 2007 were underfunded by $122.2
million and $72.5 million, respectively. During 2008 and 2007, as a result of lower than expected
asset performance, the Company recorded an after tax loss to accumulated other comprehensive income
of $29.5 million and $0.8 million, respectively. The Company estimates its 2009 pension expense for
its defined benefit pension plans will increase approximately $8.5 million from 2008 and cash
contributions are expected to decrease approximately $0.1 million. In 2007, pension expense
increased approximately $0.1 million, excluding a $3.2 million curtailment charge and a $4.3
million settlement gain, from 2006 and cash contributions increased approximately $8.1 million from
2006.
As of December 31, 2008, the Company was in compliance with all debt covenants.
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The Company anticipates being able to meet its obligations as they come due based on historical
experience and the expected availability of funds under its current credit facilities. The
Company’s contractual obligations and commercial commitments as of December 31, 2008 (in millions
of dollars) are summarized below:
| Payments Due by Period | ||||||||||||||||||||
| Less than | 1 – 3 | 4 – 5 | After 5 | |||||||||||||||||
| Contractual obligations(1): | Total | 1 Year | Years | Years | Years | |||||||||||||||
Total debt (excluding capital leases) |
$ | 1,444.3 | $ | 229.4 | $ | 30.4 | $ | 850.5 | $ | 334.0 | ||||||||||
Capital leases |
2.3 | 1.1 | 1.2 | — | — | |||||||||||||||
Interest payments on 7.125% Senior Notes |
149.6 | 14.2 | 28.5 | 28.5 | 78.4 | |||||||||||||||
Interest payments on Senior Floating Rate Notes |
54.8 | 7.8 | 15.7 | 15.7 | 15.6 | |||||||||||||||
Interest payments on 0.875% Convertible Notes |
20.2 | 3.1 | 6.2 | 6.2 | 4.7 | |||||||||||||||
Interest payments on 1.00% Senior Convertible Notes |
23.8 | 4.8 | 9.5 | 9.5 | — | |||||||||||||||
Interest payments on Spanish term loans |
14.0 | 2.8 | 5.6 | 5.6 | — | |||||||||||||||
Operating leases(2) |
41.8 | 16.4 | 15.5 | 4.9 | 5.0 | |||||||||||||||
Preferred stock dividend payments |
2.1 | 0.3 | 0.6 | 0.6 | 0.6 | |||||||||||||||
Defined benefit pension obligations(3) |
9.3 | 9.3 | — | — | — | |||||||||||||||
Postretirement benefits |
9.9 | 1.4 | 2.7 | 2.1 | 3.7 | |||||||||||||||
Interest rate swap agreements(4) |
74.6 | — | 9.0 | 65.6 | — | |||||||||||||||
Commodity futures and forward pricing
agreements(4) |
288.6 | 234.0 | 54.6 | — | — | |||||||||||||||
Foreign currency contracts(4) |
438.3 | 318.5 | 119.8 | — | — | |||||||||||||||
FIN 48 obligation, including interest and
penalties(5) |
— | — | — | — | — | |||||||||||||||
Total |
$ | 2,573.6 | $ | 843.1 | $ | 299.3 | $ | 989.2 | $ | 442.0 | ||||||||||
| (1) | This table does not include interest payments on General Cable’s revolving credit
facilities because the future amounts are based on variable interest rates and the amount of
the borrowings under the Amended Credit Facility and Spanish Credit Facility fluctuate
depending upon the Company’s working capital requirements. |
|
| (2) | Operating lease commitments are described under “Off Balance Sheet Assets and
Obligations.” |
|
| (3) | Defined benefit pension obligations reflect the Company’s estimates of
contributions that will be required in 2009 to meet current law minimum funding
requirements. Amounts beyond one year have not been provided because they are not
determinable. |
|
| (4) | Information on these items is provided under Item 7A, “Quantitative and
Qualitative Disclosures about Market Risk.” |
|
| (5) | FIN 48 obligations of $73.8 million have not been reflected in the above table due
to the inherent uncertainty as to the amount and timing of settlement, which is contingent
upon the occurrence of possible future events, such as examinations and determinations by
various tax authorities. |
Off Balance Sheet Assets and Obligations
As part of the BICC plc acquisition, BICC agreed to indemnify General Cable against environmental
liabilities existing at the date of the closing of the purchase of the business. In the sale of
the businesses to Pirelli, General Cable generally indemnified Pirelli against any environmental
liabilities on the same basis as BICC plc indemnified the Company in the earlier acquisition.
However, the indemnity the Company received from BICC plc related to the European business sold to
Pirelli terminated upon the sale of those businesses to Pirelli. In addition, General Cable has
agreed to indemnify Pirelli against any warranty claims relating to the prior operation of the
business. General Cable has also agreed to indemnify Southwire Company against certain liabilities
arising out of the operation of the business sold to Southwire prior to its sale. As a part of the
2005 acquisition, SAFRAN SA agreed to indemnify General Cable against certain environmental
liabilities existing at the date of the closing of the purchase of Silec.
In 2007, the Company acquired the worldwide wire and cable business of Freeport-McMoRan Copper and
Gold Inc., which operates as PDIC. As part of this acquisition, the seller agreed to indemnify the
Company for certain environmental liabilities existing at the date of the closing of the
acquisition. The seller’s obligation to indemnify the Company for these particular liabilities
generally survives four years from the date the parties executed the definitive purchase agreement
unless the Company has properly notified the seller before the expiry of the four year period. The
seller also made certain representations and warranties related to environmental matters and the
acquired business and agreed to indemnify the Company for breaches of those representation and
warranties for a period of four years from the closing date. Indemnification claims for breach of
representations and warranties are subject to an overall indemnity limit of approximately $105
million, which applies to all warranty and indemnity claims for the transaction.
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During 2007, one of the Company’s international operations contracted with a bank to transfer
accounts receivable that it was owed from one customer to the bank in exchange for payments of
approximately $3.0 million. As the transferor, the Company surrendered control over the financial
assets included in the transfer and had no further rights regarding the transferred assets. The
transfers were treated as sales and the approximate $3.0 million received was accounted for as
proceeds from the sales.
All assets sold were removed from the Company’s balance sheet upon completion of the transfers, and
no further obligations exist under these agreements. During 2008, no accounts receivable due from
customers were sold or transferred to the bank in exchange for early cash payment.
General Cable has entered into various operating lease agreements related principally to certain
administrative, manufacturing and distribution facilities and transportation equipment. Future
minimum rental payments required under non-cancelable lease agreements at December 31, 2008 were as
follows: 2009 – $16.4 million, 2010 – $9.5 million, 2011 – $6.0 million, 2012 — $3.1 million, 2013
– $1.8 million and thereafter $5.0 million. Rental expense recorded in income from continuing
operations was $19.1 million, $14.4 million and $11.3 million for the years ended December 31,
2008, 2007 and 2006, respectively.
As of December 31, 2008, the Company had $152.6 million in letters of credit, $151.3 million in
various performance bonds and $462.0 million in other guarantees. These letters of credit,
performance bonds and guarantees are periodically renewed and are generally related to risk
associated with self insurance claims, defined benefit plan obligations, contract performance,
quality and other various bank and financing guarantees. See Liquidity and Capital Resources for
excess availability under the Company’s various credit borrowings.
See the previous section, “Debt and Other Contractual Obligations,” for information on debt-related
guarantees.
Environmental Matters
The Company’s expenditures for environmental compliance and remediation amounted to approximately
$1.9 million, $2.8 million and $2.0 million in 2008, 2007 and 2006, respectively. In addition,
certain of General Cable’s subsidiaries have been named as potentially responsible parties in
proceedings that involve environmental remediation. The Company has accrued $1.1 million at
December 31, 2008 for all environmental liabilities. Environmental matters are described in Item 1,
Item 3 and Note 17 to the Consolidated Financial Statements, which are incorporated herein by
reference. While it is difficult to estimate future environmental liabilities, the Company does
not currently anticipate any material adverse effect on results of operations, cash flows or
financial position as a result of compliance with federal, state, local or foreign environmental
laws or regulations or remediation costs.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General Cable is exposed to various market risks, including changes in interest rates, foreign
currency exchange rates and raw material (commodity) prices. To manage risk associated with the
volatility of these natural business exposures, General Cable enters into interest rate, commodity
and foreign currency derivative agreements as well as copper and aluminum forward pricing
agreements. General Cable does not purchase or sell derivative instruments for trading purposes.
General Cable does not engage in trading activities involving commodity contracts for which a lack
of marketplace quotations would necessitate the use of fair value estimation techniques.
Interest Rate Risk
General Cable utilizes interest rate swaps to manage its interest expense exposure by fixing its
interest rate on a portion of the Company’s floating rate debt. Under the swap agreements, General
Cable typically pays a fixed rate while the counterparty pays to General Cable the floating rate
per the terms of the debt being hedged.
As of December 31, 2008, the Company has four interest rate swaps outstanding. The first
arrangement was designated in the United States and includes a notional value of $9.0 million, an
interest rate of 4.49% and matures in October 2011. The remaining three arrangements were
designated in Spain, in 2008, and have notional values of 18.0 million euros, 10.0 million euros
and 19.95 million euros, respectively, interest rates of 4.2%, 4.58% and 4.48%, respectively, and
maturity dates in 2013 (February, April and June, respectively). The Company does not provide or
receive any collateral specifically for this contract. The fair value of interest rate
derivatives, which are designated as and qualify as cash flow hedges as defined in SFAS No. 133,
are based on quoted market prices and assistance of a third party provided calculations, which
reflect the present values of the difference between estimated future variable-rate receipts and
future fixed-rate payments. At December 31, 2008 and 2007, the net unrealized loss on interest rate
derivatives and the related carrying value was $0.7 million and $0.5 million, respectively. A 10%
change in the variable rate would change the unrealized loss by $0.3 million in 2008. All interest
rate derivatives are marked-to-market with changes in the fair value of qualifying cash flow hedges
recorded as other comprehensive income.
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Raw Material Price Risk
General Cable’s reported net sales are directly influenced by the price of copper and to a lesser
extent aluminum. The price of copper and aluminum as traded on the London Metal Exchange (“LME”)
and COMEX has historically been subject to considerable volatility and, during the past few years,
global copper prices have established average record highs as
demonstrated above in the table in Item 1 Raw Materials Sources and Availability. This copper and
aluminum price volatility is representative of all reportable segments.
General Cable utilizes the LIFO method of inventory accounting for its metals inventory. The
Company’s use of the LIFO method results in its consolidated statement of operations reflecting the
current costs of metals, while metals inventories in the balance sheet are valued at historical
costs as the LIFO layers were created. As a result of volatile copper prices, the replacement cost
of the Company’s copper inventory exceeded the historic LIFO cost by approximately $104 million and
$162 million at December 31, 2008 and 2007, respectively. If LIFO inventory quantities are reduced
in a period when replacement costs exceed the LIFO value of the inventory, the Company would
experience an increase in reported earnings. Conversely, if LIFO inventory quantities are reduced
in a period when replacement costs are lower than the LIFO value of the inventory, the Company
would experience a decline in reported earnings. If the Company were not able to recover the LIFO
value of its inventory in some future period when replacement costs were lower than the LIFO value
of the inventory, the Company would be required to take a charge to recognize in its statement of
operations an adjustment of LIFO inventory to market value. During 2006, we increased inventory
quantities and therefore there was not a liquidation of LIFO inventory impact in this period.
During 2007, the Company reduced copper inventory quantities globally which resulted in a $0.1
million gain because LIFO inventory quantities were reduced in a period when replacement costs were
higher than the LIFO value of the inventory. During 2008, the Company reduced its copper
inventory quantities globally resulting in a $2.4 million LIFO gain since LIFO inventory quantities
were reduced in a period when replacement costs were higher than the LIFO value of the inventory.
For the majority of its business outside of North America, General Cable enters into commodity
futures contracts, which are designated as and qualify as cash flow hedges as defined in SFAS 133,
for the purchase of copper and aluminum for delivery in a future month to match certain production
needs. At December 31, 2008 and 2007, General Cable had an unrealized loss of $84.7 million and
$18.8 million, respectively, on the commodity futures. A 10% change in the price of copper and
aluminum would result in a change in the unrealized loss of $11.0 million in 2008.
In North America, and to a lesser extent in Europe and North Africa and ROW, General Cable enters
into forward pricing agreements for the purchase of copper and aluminum for delivery in a future
month to match certain sales transactions. The Company accounts for these forward pricing
arrangements under the “normal purchases and normal sales” scope exception of SFAS No. 133 because
these arrangements are for purchases of copper and aluminum that will be delivered in quantities
expected to be used by the Company over a reasonable period of time in the normal course of
business. For these arrangements, it is probable at the inception and throughout the life of the
arrangements that the arrangements will not settle net and will result in physical delivery of the
inventory. At December 31, 2008 and 2007, General Cable had $90.5 million and $90.1 million,
respectively, of future copper and aluminum purchases that were under forward pricing agreements.
At December 31, 2008 and 2007, General Cable had an unrealized loss of $25.1 million and $4.0
million, respectively, related to these transactions. General Cable expects the unrealized losses
under these agreements to be offset as a result of firm sales price commitments with customers.
Foreign Currency Exchange Rate Risk
The Company enters into forward exchange contracts, which are designated as and qualify as cash
flow hedges as defined in SFAS 133, principally to hedge the currency fluctuations in certain
transactions denominated in foreign currencies, thereby limiting the Company’s risk that would
otherwise result from changes in exchange rates. Principal transactions hedged during the year were
firm sales and purchase commitments. The fair value of foreign currency contracts represents the
amount required to enter into offsetting contracts with similar remaining maturities based on
quoted market prices. At December 31, 2008 and 2007, the net unrealized gain on the net foreign
currency contracts was $0.4 million and $8.2 million, respectively. A 10% change in the exchange
rate for these currencies would change the unrealized loss by $39.7 million in 2008.
Fair Value of Designated Derivatives
Unrealized gains and losses on the designated cash flow hedge financial instruments identified
above are recorded in other comprehensive income (loss) until the underlying transaction occurs and
is recorded in the statement of operations at which point such amounts included in other
comprehensive income (loss) are recognized in earnings. This recognition generally will occur over
periods of less than one year. During the years ended December 31, 2008 and 2007, a pre-tax $5.5
million loss and a pre-tax $0.9 million loss, respectively, were reclassified from accumulated
other comprehensive income to the statement of operations. A pre-tax loss of $62.5 million is
expected to be reclassified into earnings from other comprehensive income during 2009.
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The notional amounts and fair values of these designated cash flow financial instruments at
December 31, 2008 and 2007 are shown below (in millions). The net carrying amount of the designated
cash flow and hedge financial instruments was a net liability of $85.0 million and a net liability
of $11.1 million at December 31, 2008 and 2007, respectively.
| 2008 | 2007 | |||||||||||||||
| Notional | Fair | Notional | Fair | |||||||||||||
| Amount | Value | Amount | Value | |||||||||||||
Cash flow hedges: |
||||||||||||||||
Interest rate swap |
$ | 74.6 | $ | (0.7 | ) | $ | 9.0 | $ | (0.5 | ) | ||||||
Commodity futures |
198.1 | (84.7 | ) | 297.7 | (18.8 | ) | ||||||||||
Foreign currency forward exchange |
438.3 | 0.4 | 380.5 | 8.2 | ||||||||||||
| $ | (85.0 | ) | $ | (11.1 | ) | |||||||||||
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| Page | ||||
Report of Independent Registered Public Accounting Firm |
59 | |||
Consolidated Statements of Operations for the Years Ended December 31, 2008, 2007 and 2006 |
60 | |||
Consolidated Balance Sheets at December 31, 2008 and 2007 |
61 | |||
Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006 |
62 | |||
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December
31, 2008, 2007 and 2006 |
63 | |||
Notes to Consolidated Financial Statements |
64 | |||
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
48
Table of Contents
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. The Company periodically evaluates the design and effectiveness of its disclosure controls and internal control over financial reporting. The Company makes modifications to improve the design and effectiveness of its disclosure controls and internal control structure, and may take other corrective action, if its evaluations identify a need for such modifications or actions. The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. The Company periodically evaluates the design and effectiveness of its disclosure controls and internal control over financial reporting. The Company makes modifications to improve the design and effectiveness of its disclosure controls and internal control structure, and may take other corrective action, if its evaluations identify a need for such modifications or actions. The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.
A control system, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in decision-making can be faulty, and
that breakdowns can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more people, or by
management override of the control. The design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future conditions; over time,
controls may become inadequate because of changes in conditions, or the degree of compliance with
the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not be detected. However, these
inherent limitations are known features of the financial reporting process. Therefore, it is
possible to design into the process safeguards to reduce, though not eliminate, this risk.
In connection with the preparation of this Annual Report on Form 10-K, as of December 31, 2008, an
evaluation was performed under the supervision and with the participation of the Company’s
management, including the CEO and CFO, of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the
Exchange Act). Based on that evaluation, the Company’s CEO and CFO concluded that the Company’s
disclosure controls and procedures were effective as of December 31, 2008.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such item is defined in the Exchange Act Rules 13a-15(f) and 15d-15(f). In connection with the preparation of this Annual Report on Form 10-K, as of December 31, 2008, the Company conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). As a result of this process, management concluded that internal control over financial reporting was effective as of December 31, 2008. Management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include an assessment of certain elements of internal control over financial reporting of Enica Biskra acquired on May 21, 2008 and PDP acquired on June 30, 2008, which are included in the consolidated financial statements of the Company for the year ended December 31, 2008.
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such item is defined in the Exchange Act Rules 13a-15(f) and 15d-15(f). In connection with the preparation of this Annual Report on Form 10-K, as of December 31, 2008, the Company conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). As a result of this process, management concluded that internal control over financial reporting was effective as of December 31, 2008. Management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include an assessment of certain elements of internal control over financial reporting of Enica Biskra acquired on May 21, 2008 and PDP acquired on June 30, 2008, which are included in the consolidated financial statements of the Company for the year ended December 31, 2008.
Changes in Internal Control over Financial Reporting
There have been no other changes in the Company’s internal control over financial reporting, as such item is defined in Exchange Act Rules 13a — 15(f) and 15d — 15(f), during the most recently completed fiscal quarter ended December 31, 2008, that have materially affected, or are reasonable likely to materially affect the Company’s internal control over financial reporting.
There have been no other changes in the Company’s internal control over financial reporting, as such item is defined in Exchange Act Rules 13a — 15(f) and 15d — 15(f), during the most recently completed fiscal quarter ended December 31, 2008, that have materially affected, or are reasonable likely to materially affect the Company’s internal control over financial reporting.
Deloitte & Touche LLP, an independent registered public accounting firm that audited the Company’s
financial statements included in this Annual Report on Form 10-K, has issued an attestation report
on Company’s internal control over financial reporting.
49
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
General Cable Corporation
Highland Heights, KY
General Cable Corporation
Highland Heights, KY
We have audited the internal control over financial reporting of General Cable Corporation and
subsidiaries (the “Company”) as of December 31, 2008, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. As described in Management’s Annual Report on Internal Control over Financial
Reporting, management excluded from its assessment the internal control over financial reporting at
E.P.E. / EN.I.CA.BISKRA/SPA (“Enica Biskra”), acquired on May 21, 2008, and Phelps Dodge
Philippines, Inc. (“PDP”), a joint venture in which the
Company acquired and consolidated through an increase of its equity
investment from 40% to 60%, on June 30, 2008, and whose financial statements reflect aggregate total assets and
revenues constituting 3% and 5%, respectively, of the related consolidated financial statement
amounts as of and for the year ended December 31, 2008. Accordingly, our audit did not include the
internal control over financial reporting at Enica Biskra and PDP. The Company’s management is
responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the
supervision of, the company’s principal executive and principal financial officers, or persons
performing similar functions, and effected by the company’s board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2008, based on the criteria established in Internal Control
— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements and financial statement schedule as of
and for the year ended December 31, 2008 of the Company and our report dated March 2, 2009
expressed an unqualified opinion on those financial statements and included an explanatory
paragraph regarding the adoption of Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes — an interpretation of Financial Accounting Standards
Board Statement No. 109, on January 1, 2007, and Statement of Financial Accounting Standards No.
158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Benefit Plans — an
amendment of FASB Statements No. 87, 88, 106, and 132(R), on December 31, 2006.
Cincinnati, Ohio
March 2, 2009
March 2, 2009
50
Table of Contents
ITEM 9B. OTHER INFORMATION
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the information on the Company’s Executive Officers in Item 1 under the heading, “Executive
Officers of the Registrant.” Except as set forth in Item 1, the additional information required by
this item, including information on the Directors of the Company, is included in the definitive
Proxy Statement which General Cable intends to file with the Securities and Exchange Commission
within 120 days after December 31, 2008, and is incorporated herein by reference.
General Cable’s amended and restated by-laws provide that its Board of Directors is divided into
three classes (Class I, Class II and Class III). At each annual meeting of the shareholders,
directors constituting one class are elected for a three-year term. Each of the directors will be
elected to serve until a successor is elected and qualified or until such director’s earlier
resignation or removal.
The Board of Directors of the Company has determined that Craig P. Omtvedt, Chairman of the Audit
Committee, and Audit Committee members, Mr. Welsh, Mr. Lawton and Mr. Smialek, are audit committee
financial experts as defined by Item 401(h) of Regulation S-K and are independent within the
meaning of Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act.
The Company has adopted a Code of Business Conduct and Ethics that applies to its directors,
officers (including the Company’s principal executive officer, principal financial officer and
principal accounting officer) and employees. The Company has also adopted Corporate Governance
Principles and Guidelines, an Audit Committee Charter, a Compensation Committee Charter and a
Corporate Governance Committee Charter (collectively “Charters”). Copies of the Code of Business
Conduct and Ethics, Corporate Governance Principles and Guidelines and each of the Charters are
available on the Company’s website, www.generalcable.com, and may be found under the “Investor
Information” section by clicking on “Corporate Governance”. Any of the foregoing documents is also
available in print to any shareholders who request the documents. The Company intends to satisfy
the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or waiver from, a
provision of our Code of Ethics by posting such information on our website at the location
specified above.
On May 16, 2008, the Company submitted its Annual Chief Executive Officer Certification to the New
York Stock Exchange as required by Section 303A.12 (a) of the New York Stock Exchange Listed
Company Manual.
The Chief Executive Officer and Chief Financial Officer Certifications required under Section 302
of the Sarbanes-Oxley Act are filed as exhibits to the Company’s Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included in the definitive Proxy Statement which General
Cable intends to file with the Securities and Exchange Commission within 120 days after December
31, 2008, and is incorporated herein by reference.
51
Table of Contents
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
A description of General Cable’s equity compensation plans is set forth in Note 14 of the Notes to
Consolidated Financial Statements. The following table sets forth information about General
Cable’s equity compensation plans as of December 31, 2008 (in thousands, except per share price):
| Number of securities | ||||||||||||
| Number of | Weighted- | remaining available for | ||||||||||
| securities to be | average | future issuance under | ||||||||||
| issued upon exercise | exercise price | equity compensation plans | ||||||||||
| of outstanding | of outstanding | (excluding securities | ||||||||||
| options (1) | options | reflected in first column) | ||||||||||
Shareholder approved plans: |
||||||||||||
1997 Stock Incentive Plan(2) |
239 | $ | 10.12 | 287 | ||||||||
2005 Stock Incentive Plan |
459 | 54.35 | 801 | |||||||||
Non-shareholder approved plans: |
||||||||||||
2000 Stock Option Plan(2) |
108 | 10.95 | 290 | |||||||||
Total |
806 | $ | 35.40 | 1,378 | ||||||||
| (1) | Excludes restricted stock shares of 90,909 awarded and outstanding from the 1997
Plan, restricted stock shares of 311,692 and restricted stock units of 67,250 awarded and
outstanding from the 2005 Plan through December 31, 2008. |
|
| (2) | No new awards were issued under these plans since May 10, 2005. |
Other information required by this item is included in the definitive Proxy Statement which General
Cable intends to file with the Securities and Exchange Commission within 120 days after December
31, 2008, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included in the definitive Proxy Statement which General
Cable intends to file with the Securities and Exchange Commission within 120 days after December
31, 2008, and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is included in the definitive Proxy Statement which General
Cable intends to file with the Securities and Exchange Commission within 120 days after December
31, 2008, and is incorporated herein by reference.
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
| (a) | Documents filed as part of the Form 10-K: |
| 1. | Consolidated Financial Statements are included in Part II, Item 8. |
||
| 2. | Financial Statement Schedule filed herewith for 2008, 2007 and 2006: |
II. Valuation and Qualifying Accounts Page 109
All other schedules for which provisions are made in the applicable regulation of
the Securities and Exchange Commission have been omitted as they are not
applicable, not required, or the required information is included in the
Consolidated Financial Statements or Notes thereto.
| 3. | The exhibits listed on the accompanying Exhibit Index are filed herewith or
incorporated herein by reference. |
Documents indicated by an asterisk (*) are filed herewith; documents indicated by a
double asterisk (**) identify each management contract or compensatory plan.
Documents not indicated by an asterisk are incorporated by reference to the
document indicated.
52
Table of Contents
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
General Cable Corporation has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
| General Cable Corporation |
||||
| Signed: March 2, 2009 | By: | /s/ GREGORY B. KENNY | ||
| Gregory B. Kenny | ||||
| President and Chief Executive Officer | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated: |
/s/ GREGORY B. KENNY
|
President, Chief Executive Officer and
Director (Principal Executive Officer) |
March 2, 2009 | ||
/s/ ROBERT J. SIVERD
|
Executive Vice President, General Counsel and Secretary |
March 2, 2009 | ||
/s/ BRIAN J. ROBINSON
|
Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
March 2, 2009 | ||
/s/ JOHN E. WELSH, III
|
Non-executive Chairman and Director | March 2, 2009 | ||
/s/ GREGORY E. LAWTON
|
Director | March 2, 2009 | ||
/s/ CRAIG P. OMTVEDT
|
Director | March 2, 2009 | ||
/s/ ROBERT L. SMIALEK
|
Director | March 2, 2009 |
53
Table of Contents
Exhibit Index
| Exhibit | ||||
| Number | Description | |||
| 2.1 | Share Purchase Agreement among Grupo General Cable Sistemas, S.A., Safran SA, and Sagem Communications, dated November
18, 2005 (incorporated by reference to exhibit 99.2 to the Form 8-K Current Report as filed on December 22, 2005). |
|||
| 2.2 | Stock Purchase Agreement, dated as of September 12, 2007, by and among Freeport-McMoRan Copper & Gold Inc., Phelps Dodge
Corporation, Phelps Dodge Industries, Inc., Habirshaw Cable and Wire Corporation and General Cable Corporation
(incorporated by reference to Exhibit 2.1 to the form 8-K as filed on September 12, 2007). |
|||
| 2.2.1 | Letter Agreement, dated October 29, 2007, to the Stock Purchase Agreement, dated as of September 12, 2007, by and among
Freeport-McMoRan Cooper & Gold Inc., Phelps Dodge Corporation, Phelps Dodge Industries, Inc., Habirshaw Cable and Wire
Corporation and General Cable Corporation. (incorporated by reference to Exhibit 10.109 of the Quarterly Report on Form
10-Q for the quarter ended September 28, 2007). |
|||
| 3.1 | Amended and Restated Certificate of Incorporation of the Company was filed as Exhibit 3.1 to Post-Effective Amendment
No. 1 to Form S-4 (File No. 333-143017). Note: The certificate was amended in May 2007. |
|||
| 3.2 | Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.1 to the Form 8-K as filed on July
25, 2007). |
|||
| 3.3 | Amended and Restated By-Laws of the Company (incorporated by reference to the Form 8-K as filed on December 18, 2008). |
|||
| 4.1 | Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1
(File No. 333-22961) of the Company filed with the Securities and Exchange Commission on March 7, 1997, as amended (the
“Initial S-1”).). |
|||
| 4.2 | Certificate of Designations (incorporated by reference to Exhibit 4.1 to the Form 8-K filed December 12, 2003). |
|||
| 4.3 | Indenture among the Company, certain guarantors and U.S. Bank National Association, as trustee (incorporated by
reference to Exhibit 4.2 to the Form 8-K filed December 12, 2003). |
|||
| 4.4 | Registration Rights Agreement among the Company and the Initial Purchasers relating to the Series A Redeemable
Convertible Preferred Stock (incorporated by reference to Exhibit 4.3 to the Form 8-K filed December 12, 2003). |
|||
| 4.5 | Registration Rights Agreement among the Company, certain guarantors and the Initial Purchasers relating to the Notes
(incorporated by reference to Exhibit 4.4 to the Form 8-K filed December 12, 2003). |
|||
| 4.6 | Indenture for the $315.0 million 0.875% Senior Convertible Notes Due 2013 dated November 9, 2006 (incorporated by
reference to Exhibit 4.1 to the Form 8-K Current Report as filed on November 16, 2006). |
|||
| 4.7 | Supplemental Indenture dated as of March 15, 2007, among the Company, certain guarantors, and U.S. Bank National
Association, as trustee (incorporated by reference to Exhibit 4.1 to the Form 8-K Current Report as filed on March 15,
2007). |
|||
| 4.8 | Indenture dated as of March 21, 2007, among the Company, certain guarantors, and U.S. Bank National Association, as
trustee (incorporated by reference to Exhibit 4.1 to the Form 8-K Current Report as filed on March 21, 2007). |
|||
| 4.9 | Indenture for the $475.0 million 1.00% Senior Convertible Notes Due 2012, dated October 2, 2007, by and among General
Cable Corporation, the subsidiary guarantors named therein, and U.S. Bank National Association, as Trustee (incorporated
by reference to Exhibit 4.1 to the Form 8-K as filed on October 2, 2007). |
|||
| 4.10 | Registration Rights Agreement dated March 21, 2007, among the Company, certain guarantors and Goldman, Sachs & Co., as
representative of the several purchasers named in Schedule I to the Purchase Agreement (incorporated by reference to
Exhibit 10.1 to the Form 8-K Current Report as filed on March 21, 2007). |
|||
| 4.11 | Registration Rights Agreement, dated as of October 2, 2007, by and among General Cable Corporation, the subsidiary
guarantors named therein, and Merrill Lynch, Pierce, Fenner & Smith Incorporated. (Incorporated by reference to Exhibit
10.1 to the Form 8-K filed October 2, 2007). |
|||
| 4.12 | Second Supplemental Indenture, among the Company, the Additional Guarantor, the other Guarantors and the Trustee
(incorporated by reference to Exhibits 4.1, 4.2, 4.3 to Form 8-K as filed on April 18, 2008). |
|||
| 4.13 | Prospectus Supplemental No. 1, supplements and amends the prospectus dated April 16, 2008 relating to the resale by the
selling security holders of the Company’s $475.0 million 1.00% Senior Convertible Notes due 2012 (incorporated by
reference to Form 424B7 filed on August 1, 2008). |
|||
| 10.2** | General Cable Corporation 1997 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to the Initial S-1). |
|||
| 10.2.1** | General Cable Corporation 1997 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10.4 to the Annual
Report on Form 10-K of General Cable Corporation for the year ended December 31, 1997). |
|||
| 10.2.2** | Form of Grant Agreement pursuant to the General Cable Corporation 1997 Stock Incentive Plan (incorporated by reference
to exhibit 10.67 to the Quarterly Report on Form 10-Q of General Cable Corporation for the quarter ended October 1,
2004). |
|||
| 10.3** | General Cable Corporation 1998 Annual Incentive Plan (incorporated by reference to Exhibit 10.2 to the Annual Report on
Form 10-K of General Cable Corporation for the year ended December 31, 1997). |
|||
| 10.4** | General Cable Corporation 2000 Stock Option Plan (incorporated by reference to Exhibit 10.42 to the Annual Report on
Form 10-K of General Cable Corporation for the year ended December 31, 2000). |
|||
| 10.4.1** | General Cable Corporation 2000 Stock Option Plan, amended and restated as of July 30, 2002 (incorporated by reference to
exhibit 10.55 to the Annual Report on Form 10-K of General Cable Corporation for the year ended December 31, 2002). |
|||
| 10.4.2** | Form of Grant Agreement pursuant to the General Cable Corporation 2000 Stock Option Plan (incorporated by reference to
exhibit 10.68 to the Quarterly Report on Form 10-Q of General Cable Corporation for the quarter ended October 1, 2004). |
|||
| 10.5** | Employment Agreement dated May 13, 1997, between Gregory B. Kenny and the Company (incorporated by reference to Exhibit
10.6 to the Initial S-1). |
|||
| 10.5.1** | Amendment dated March 16, 1998 to Employment Agreement dated May 13, 1997, between Gregory B. Kenny and the Company
(incorporated by reference to Exhibit 10.8 to the Annual Report on Form 10-K of General Cable Corporation for the year
ended December 31, 1997). |
|||
54
Table of Contents
| Exhibit | ||||
| Number | Description | |||
| 10.5.2** | Change-in-Control Agreement dated May 13, 1997, between Gregory B. Kenny and the Company (incorporated by reference to
Exhibit 10.10 to the Initial S-1). |
|||
| 10.5.3** | Employment Agreement dated October 18, 1999, between Gregory B. Kenny and the Company (incorporated by reference to
Exhibit 10.22 to the Quarterly Report on Form 10-Q of General Cable Corporation for the quarterly period ended September
30, 1999). |
|||
| 10.5.4** | Change-in-Control Agreement dated October 18, 1999 between Gregory B. Kenny and the Company (incorporated by reference
to Exhibit 10.26 to the Quarterly Report on Form 10-Q of General Cable Corporation for the quarterly period ended
September 30, 1999). |
|||
| 10.5.5** | Amended and Restated Employment Agreement dated April 28, 2000, between Gregory B. Kenny and the Company (incorporated
by reference to Exhibit 10.34 to the Quarterly Report on Form 10-Q of General Cable Corporation for the quarterly period
ended March 31, 2000). |
|||
| 10.5.6** | Amended and Restated Change-in-Control Agreement dated April 28, 2000 between Gregory B. Kenny and the Company
(incorporated by reference to Exhibit 10.38 to the Quarterly Report on Form 10-Q of General Cable Corporation for the
quarterly period end March 31, 2000). |
|||
| 10.5.7** | Amendment dated August 6, 2001, to Employment Agreement between Gregory B. Kenny and General Cable Corporation
(incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of General Cable Corporation for the
quarterly period ended September 30, 2001). |
|||
| 10.5.8** | Amendment dated August 6, 2001, to Change-in-Control Agreement between Gregory B. Kenny and General Cable Corporation
(incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q of General Cable Corporation for the
quarterly period ended September 30, 2001). |
|||
| 10.5.9** | Amendment No. 2 dated July 11, 2003 to Employment Agreement dated April 28, 2000 between Gregory B. Kenny and the
Company (incorporated by reference to exhibit 10.56 to the Quarterly Report on Form 10-Q of General Cable Corporation
for the quarterly period ended June 30, 2003). |
|||
| 10.5.10** | Assignment Agreement dated June 9, 2003 by Gregory B. Kenny to General Cable Corporation (incorporated by reference to
exhibit 10.59 to the Annual Report on Form 10-K of General Cable Corporation for the year ended December 31, 2003). |
|||
| 10.5.11** | Salary Adjustment for Chief Executive Officer dated January 26, 2005 (incorporated by reference to exhibit 99 to the
Form 8-K Current Report as filed on February 1, 2005). |
|||
| 10.5.12** | Salary Adjustment for Chief Executive Officer dated February 7, 2006 (incorporated by reference to the Form 8-K Current
Report as filed on February 7, 2006). |
|||
| 10.5.13** | Gregory B. Kenny Amended and Restated Employment agreement termed Termination Agreement, dated December 19, 2007
(Incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 18, 2007). |
|||
| 10.6** | Employment Agreement dated May 13, 1997, between Robert J. Siverd and the Company (incorporated by reference to Exhibit
10.10 to the Initial S-1). |
|||
| 10.6.1** | Change-in-Control Agreement dated May 13, 1997, between Robert J. Siverd and the Company (incorporated by reference to
Exhibit 10.12 to the Initial S-1). |
|||
| 10.6.2** | Employment Agreement dated October 18, 1999, between Robert J. Siverd and the Company (incorporated by reference to
Exhibit 10.24 to the Quarterly Report on Form 10-Q of General Cable Corporation for the quarterly period ended September
30, 1999). |
|||
| 10.6.3** | Change-in-Control Agreement dated October 18, 1999 between Robert J. Siverd and the Company (incorporated by reference
to Exhibit 10.28 to the Quarterly Report on Form 10-Q of General Cable Corporation for the quarterly period ended
September 30, 1999). |
|||
| 10.6.4** | Amended and Restated Employment Agreement dated April 28, 2000, between Robert J. Siverd and the Company (incorporated
by reference to Exhibit 10.36 to the Quarterly Report on Form 10-Q of General Cable Corporation for the quarterly period
ended March 31, 2000). |
|||
| 10.6.5** | Amended and Restated Change-in-Control Agreement dated April 28, 2000 between Robert J. Siverd and the Company
(incorporated by reference to Exhibit 10.40 to the Quarterly Report on Form 10-Q of General Cable Corporation for the
quarterly period ended March 31, 2000). |
|||
| 10.6.6** | Amendment No. 1 dated July 11, 2003 to Employment Agreement dated April 28, 2000 between Robert J. Siverd and the
Company (incorporated by reference to exhibit 10.58 to the Quarterly Report on Form 10-Q of General Cable Corporation
for the quarterly period ended June 30, 2003). |
|||
| 10.6.7** | Assignment Agreement dated June 9, 2003 by Robert J. Siverd to General Cable Corporation (incorporated by reference to
exhibit 10.61 to the Annual Report on Form 10-K of General Cable Corporation for the year ended December 31, 2003). |
|||
| 10.6.8** | Robert J. Siverd Amended and Restated Employment agreement termed Termination Agreement dated December 19, 2007
(Incorporated by reference to Exhibit 10.2 to Form 8-K filed on December 18, 2007). |
|||
| 10.7** | Letter of understanding with Brian J. Robinson as Senior Vice President, Chief Financial Officer and Treasurer dated
December 22, 2006 (incorporated by reference to exhibits 99.1 and 99.2 to the Form 8-K Current Report as filed on
December 22, 2006). |
|||
| 10.7.1** | Brian J. Robinson Novation Agreement dated December 19, 2007 (Incorporated by reference to Exhibit 10.3 to Form 8-K
filed on December 18, 2007). |
|||
| 10.8** | General Cable Corporation Deferred Compensation Plan dated April 1, 1996 (incorporated by reference to Exhibit 10.17 to
the Annual Report on Form 10-K of General Cable Corporation for the year ended December 31, 1998). |
|||
| 10.8.1** | Amended and Restated General Cable Corporation Deferred Compensation Plan dated December 14, 1998 (incorporated by
reference to Exhibit 10.18 to the Annual Report on Form 10-K of General Cable Corporation for the year ended December
31, 1998). |
|||
| 10.8.2** | General Cable Corporation Deferred Compensation Plan (Amended and Restated Effective January 1, 2008) (Incorporated by
reference to Exhibit 10.1 to Form 8-K filed on November 15, 2007). |
|||
| 10.8.3** | Fourth Amendment to the General Cable Corporation Deferred Compensation Plan (incorporated by reference to Exhibit 10.2
to the Form 8-K as filed on June 27, 2007). |
|||
55
Table of Contents
| Exhibit | ||||
| Number | Description | |||
| 10.8.4 | ** | Registration Statement of additional Common Stock shares under the Deferred Compensation Plan (incorporated by reference
to Form S-8 filed on June 30, 2008) |
||
| 10.9 | Credit Agreement between the Company, Chase Manhattan Bank, as Administrative Agent, and the lenders signatory thereto
dated May 28, 1999 (incorporated by reference to Exhibit 10.19 to the Quarterly Report on Form 10-Q of General Cable
Corporation for the quarterly period ended September 30, 1999). |
|||
| 10.9.1 | Amendment dated October 8, 1999 to the Credit Agreement between the Company, Chase Manhattan Bank, as Administrative
Agent, and the lenders signatory thereto dated May 28, 1999 (incorporated by reference to Exhibit 10.20 to the Quarterly
Report on Form 10-Q of General Cable Corporation for the quarterly period ended September 30, 1999). |
|||
| 10.9.2 | Second amendment dated March 9, 2000 to the Credit Agreement between the Company, Chase Manhattan Bank, as
Administrative Agent, and the lenders signatory thereto dated May 28, 1999 (incorporated by reference to Exhibit 10.32
to the Quarterly Report on Form 10-Q of General Cable Corporation for the quarterly period ended March 31, 2000). |
|||
| 10.9.3 | Third amendment dated January 24, 2001 to the Credit Agreement between the Company, Chase Manhattan Bank, as
Administrative Agent, and the lenders signatory thereto dated May 28, 1999 (incorporated by reference to Exhibit 10.41
to the Annual Report on Form 10-K of General Cable Corporation for the year ended December 31, 2000). |
|||
| 10.9.4 | Amendment dated April 19, 2002 to the Credit Agreement between the Company, JP Morgan Chase Bank, as Administrative
Agent, and the lenders signatory thereto dated May 28, 1999 (incorporated by reference to Exhibit 10.1 to the Quarterly
Report on Form 10-Q of General Cable Corporation for the quarterly period ended March 31, 2002). |
|||
| 10.9.5 | Fifth Amendment dated October 11, 2002 to the Credit Agreement between the Company, JP Morgan Chase Bank, as
Administrative Agent, and the lenders signatory thereto dated May 28, 1999 (incorporated by reference to Form 8-K filed
on October 14, 2002). |
|||
| 10.9.6 | Sixth Amendment dated December 26, 2002 to the Credit Agreement between the Company, JP Morgan Chase Bank, as
Administrative Agent, and the lenders signatory thereto dated May 28, 1999 (incorporated by reference to exhibit 10.54
to the Annual Report on Form 10-K of General Cable Corporation for the year ended December 31, 2002). |
|||
| 10.10 | Master Pooling and Servicing Agreement, dated as of May 9, 2001, among General Cable Capital Funding, Inc., General
Cable Industries, Inc. and The Chase Manhattan Bank (incorporated by reference to Exhibit 10.47 to the Annual Report on
Form 10-K of General Cable Corporation for the year ended December 31, 2001). |
|||
| 10.10.1 | Series 2001-1 Supplement to Master Pooling and Servicing Agreement, dated as of May 9, 2001, among General Cable Capital
Funding, Inc., General Cable Industries, Inc. and The Chase Manhattan Bank (incorporated by reference to Exhibit 10.48
to the Annual Report on Form 10-K of General Cable Corporation for year ended December 31, 2001). |
|||
| 10.10.2 | Series VFC Supplement to Master Pooling and Servicing Agreement, dated as of May 9, 2001, among General Cable Capital
Funding, Inc., General Cable Industries, Inc. and The Chase Manhattan Bank (incorporated by reference to Exhibit 10.49
to the Annual Report on Form 10-K of General Cable Corporation for the year ended December 31, 2001). |
|||
| 10.10.3 | First amendment dated December 21, 2001 to the Series 2001-1 Supplement to Master Pooling and Servicing Agreement dated
as of May 9, 2001, (incorporated by reference to Exhibit 10.51 to the Annual Report on Form 10-K of General Cable
Corporation for the year ended December 31, 2001). |
|||
| 10.11 | Credit Agreement between the Company, Merrill Lynch Capital as Collateral and Syndication Agent, UBS AG as
Administrative Agent and the lenders signatory thereto dated November 24, 2003 (incorporated by reference to exhibit
10.63 to the Annual Report on Form 10-K of General Cable Corporation for the year ended December 31, 2003). |
|||
| 10.11.1 | First Amendment dated April 14, 2004, to the Credit Agreement between the Company, Merrill Lynch Capital as Collateral
and Syndication Agent, UBS AG as Administrative Agent and the lenders signatory thereto dated November 24, 2003
(incorporated by reference to exhibit 10.66 to the Quarterly Report on Form 10-Q of General Cable Corporation for the
quarter ended March 31, 2004). |
|||
| 10.11.2 | Amended and restated Credit Agreement dated October 22, 2004, between the Company and Merrill Lynch Capital as
collateral and syndication agent, UBS AG as Administrative Agent and the lenders signatory thereto (incorporated by
reference to exhibit 10.69 to the Quarterly Report on Form 10-Q of General Cable Corporation for the quarter ended
October 1, 2004). |
|||
| 10.11.3 | First Amendment dated June 13, 2005 to the Amended and Restated Credit Agreement between the Company, Merrill Lynch
Capital as Collateral and Syndication Agent, UBS AG as Administrative Agent and the lenders signatory thereto
(incorporated by reference to exhibit 10.70 to the Quarterly Report on Form 10-Q of General Cable Corporation for the
quarter ended July 1, 2005). |
|||
| 10.11.4 | Second Amended and restated Credit Agreement dated November 23, 2005, between the Company and Merrill Lynch Capital as
Collateral and Administrative Agent, National City Business Credit, Inc., as Syndication Agent and the lenders signatory
thereto (incorporated by reference to exhibit 10.65 to the Annual Report on Form 10-K/A of General Cable Corporation for
the year ended December 31, 2005). |
|||
| 10.11.5 | First Amendment to the Second Amended and Restated Credit Agreement between the Company and Merrill Lynch Capital as
Collateral and Administrative Agent, National City Business Credit, Inc., as Syndication Agent and the lenders signatory
thereto (incorporated by reference to exhibit 10.90 of the Quarterly Report on Form 10-Q for the quarter ended September
29, 2006). |
|||
| 10.11.6 | Second Amendment to the Second Amended and Restated Credit Agreement between the Company and Merrill Lynch Capital as
Collateral and Administrative Agent, National City Business Credit, Inc., as Syndication Agent and the lenders signatory
thereto (incorporated by reference to Exhibit 10.1 to the Form 8-K Current Report as filed on March 6, 2007. |
|||
| 10.11.7 | Third Amended and Restated Credit Agreement, dated October 31, 2007, by and among GCI, as Borrower, the Company and
those certain other subsidiaries of the Company party thereto, as Guarantors, the Issuing Banks, the Lenders and Merrill
Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Administrative Agent for the Lenders,
Collateral Agent and Security Trustee (incorporated by reference to Exhibit 10.1 to the Form 8-K as filed on November 1,
2007). |
|||
56
Table of Contents
| Exhibit | ||||
| Number | Description | |||
| 10.12 | Master Agreement confirming the initiation of a $75.0 million cross currency and interest rate swap between General
Cable Corporation and Merrill Lynch Capital Services, Inc., dated October 13, 2005 (incorporated by reference to exhibit
10.65 to the Annual Report on Form 10-K/A of General Cable Corporation for the year ended December 31, 2005). |
|||
| 10.12.1 | Master Agreement confirming the initiation of a $75.0 million cross currency and interest rate swap between General
Cable Corporation and Bank of America, N.A., dated October 13, 2005 (incorporated by reference to exhibit 10.65 to the
Annual Report on Form 10-K/A of General Cable Corporation for the year ended December 31, 2005). |
|||
| 10.13 | Form of Intercompany Agreement among Wassall PLC, Netherlands Cable V.B. and the Company (incorporated by reference to
Exhibit 10.14 to the Initial S-1). |
|||
| 10.14 | Stock Purchase Agreement dated May 13, 1997, among Wassall PLC, General Cable Industries Inc. and the Company
(incorporated by reference to Exhibit 10.15 to the Initial S-1). |
|||
| 10.15 | ** | BICCGeneral Supplemental Executive Retirement Plan dated December 15, 1999 (incorporated by reference to Exhibit 10.29
to the Annual Report on Form 10-K of General Cable Corporation for the year ended December 31, 1999). |
||
| 10.16 | ** | BICCGeneral Mid-Term Incentive Plan dated February 1, 2000 (incorporated by reference to Exhibit 10.30 to the Annual
Report on Form 10-K of General Cable Corporation for the year ended December 31, 1999). |
||
| 10.17 | Share Purchase Agreement between General Cable Corporation and Pirelli Cavi e Sistemi S.p.A. dated February 9, 2000
(incorporated by reference to Exhibit 10.31 to the Annual Report on Form 10-K of General Cable Corporation for the year
ended December 31, 1999). |
|||
| 10.18 | ** | Amended and Restated Employment Agreement dated April 28, 2000, between Stephen Rabinowitz and the Company (incorporated
by reference to Exhibit 10.33 to the Quarterly report on Form 10-Q of General Cable Corporation for the quarterly period
ended March 31, 2000). |
||
| 10.19 | ** | Term Sheet dated August 7, 2001, for Retirement and Termination of Employment Agreement dated October 18, 1999, as
Amended, between General Cable Corporation and Stephen Rabinowitz (incorporated by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q of General Cable Corporation for the quarterly period ended September 30, 2001). |
||
| 10.20 | Asset Purchase Agreement between Southwire Company and General Cable Industries, Inc. and General Cable Corporation
dated September 5, 2001 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of General Cable
Corporation for the quarterly period end September 30, 2001). |
|||
| 10.21 | Receivables Sale Agreement, dated as of May 9, 2001, between General Cable Industries, Inc. and General Cable Capital
Funding, Inc. (incorporated by reference to Exhibit 10.50 to the Annual Report on Form 10-K of General Cable Corporation
for the year ended December 31, 2001). |
|||
| 10.22 | Trust Termination Agreement for General Cable 2001 Master Trust dated November 24, 2003 (incorporated by reference to
exhibit 10.62 to the Annual Report on Form 10-K of General Cable Corporation for the year ended December 31, 2003). |
|||
| 10.23 | Corporate Governance Principles and Guidelines dated January 2004 (incorporated by reference to exhibit 10.65 to the
Annual Report on Form 10-K of General Cable Corporation for the year ended December 31, 2003). |
|||
| 10.24 | Credit Agreement between Grupo General Cable Sistemas, S.A., and Banco de Sabadell, S.A., as Agent and Financial
Institution, dated December 22, 2005 (incorporated by reference to exhibit 10.65 to the Annual Report on Form 10-K/A of
General Cable Corporation for the year ended December 31, 2005. |
|||
| 10.25 | ** | Director Compensation Program modification dated January 26, 2005 (incorporated by reference to exhibit 99 to the Form
8-K Current Report as filed on February 1, 2005). |
||
| 10.26 | ** | Salary Adjustment for Chief Financial Officer and for Executive Vice President, General Counsel and Secretary dated
February 18, 2005 (incorporated by reference to exhibit 99 to the Form 8-K Current Report as filed on February 22,
2005). |
||
| 10.27 | ** | General Cable Corporation 2005 Stock Incentive Plan (incorporated by reference to exhibit 10.1 to the Form 8-K Current
Report as filed on May 16, 2005). |
||
| 10.28 | ** | Incentive Stock Option Agreement (incorporated by reference to exhibit 10.2 to the Form 8-K Current Report as filed on
May 16, 2005). |
||
| 10.29 | ** | Nonqualified Stock Option Agreement (incorporated by reference to exhibit 10.3 to the Form 8-K Current Report as filed
on May 16, 2005). |
||
| 10.30 | ** | Restricted Stock Agreement (incorporated by reference to exhibit 10.4 to the Form 8-K Current Report as filed on May 16,
2005). |
||
| 10.31 | ** | Stock Unit Agreement (incorporated by reference to exhibit 10.5 to the Form 8-K Current Report as filed on May 16, 2005). |
||
| 10.32 | ** | Salary Adjustment for Executive Vice President, General Counsel and Secretary dated February 23, 2006 (incorporated by
reference to the Form 8-K Current Report as filed on February 23, 2006). |
||
| 10.33 | ** | Separation Agreement and General Release of Claims and Amendment to Separation Agreement and General Release of Claims
between General Cable Corporation and its Chief Financial Officer dated May 30, 2006 (incorporated by reference to
exhibit 99.1 to the Form 8-K Current Report as filed on June 2, 2006). |
||
| 10.34 | Agreement for Convertible Note Hedges dated November 9, 2006, between the Company and Merrill Lynch, Pierce, Fenner &
Smith Inc. (incorporated by reference to exhibit 10.1 to the Form 8-K as filed on November 16, 2006). |
|||
| 10.35 | Agreement for Convertible Note Hedges dated November 9, 2006 between the Company and Credit Suisse Securities (USA) LLC
(incorporated by reference to exhibit 10.2 to the Form 8-K as filed on November 16, 2006). |
|||
| 10.36 | Agreement for Convertible Note Hedges dated November 9, 2006 between the Company and Wachovia (incorporated by reference
to exhibit 10.3 to the Form 8-K as filed on November 16, 2006). |
|||
| 10.37 | Agreement for Warrant Transactions dated November 9, 2006 between the Company and Merrill Lynch, Pierce, Fenner & Smith
Inc. (incorporated by reference to exhibit 10.4 to the Form 8-K as filed on November 16, 2006). |
|||
| 10.38 | Agreement for Warrant Transactions dated November 9, 2006 between the Company and Credit Suisse Securities (USA) LLC
(incorporated by reference to exhibit 10.5 to the Form 8-K as filed on November 16, 2006). |
|||
| 10.39 | Agreement for Warrant Transactions dated November 9, 2006 between the Company and Wachovia (incorporated by reference to
exhibit 10.6 to the Form 8-K as filed on November 16, 2006). |
|||
| 10.40 | Agreement for Convertible Note Hedges dated November 15, 2006 between the Company and Merrill Lynch, Pierce, Fenner &
Smith Inc. (incorporated by reference to exhibit 10.7 to the Form 8-K as filed on November 16, 2006). |
|||
| 10.41 | Agreement for Convertible Note Hedges dated November 15, 2006 between the Company and Credit Suisse Securities (USA) LLC
(incorporated by reference to exhibit 10.8 to the Form 8-K as filed on November 16, 2006). |
|||
57
Table of Contents
| Exhibit | ||||
| Number | Description | |||
| 10.42 | Agreement for Convertible Note Hedges dated November 15, 2006 between the Company and Wachovia (incorporated by
reference to exhibit 10.9 to the Form 8-K as filed on November 16, 2006). |
|||
| 10.43 | Agreement for Warrant Transactions dated November 15, 2006 between the Company and Merrill Lynch, Pierce, Fenner & Smith
Inc. (incorporated by reference to exhibit 10.10 to the Form 8-K as filed on November 16, 2006). |
|||
| 10.44 | Agreement for Warrant Transactions dated November 15, 2006 between the Company and Credit Suisse Securities (USA) LLC
(incorporated by reference to exhibit 10.11 to the Form 8-K as filed on November 16, 2006). |
|||
| 10.45 | Agreement for Warrant Transactions dated November 15, 2006 between the Company and Wachovia (incorporated by reference
to exhibit 10.12 to the Form 8-K as filed on November 16, 2006). |
|||
| 10.46 | ** | Salary Adjustment for President and Chief Executive Officer and Executive Vice President, General Counsel and Secretary
dated February 14, 2007 (incorporated by reference to the Form 8-K Current Report as filed on February 16, 2007). |
||
| 10.47 | Purchase Agreement dated as of March 15, 2007, among the Company, certain guarantors and Goldman, Sachs & Co., as
representative of the several purchasers named in Schedule I to the Purchase Agreement (incorporated by reference to
Exhibit 10.2 to the Form 8-K Current Report as filed on March 21, 2007). |
|||
| 10.48 | ** | Amendment to the Supplemental Executive Retirement Plan of General Cable Corporation (incorporated by reference to
Exhibit 10.1 to the Form 8-K as filed on June 27, 2007). |
||
| 10.49 | ** | General Cable Corporation Executive Officer Severance Benefit Plan effective January 1, 2008 (Incorporated by reference
to Exhibit 10.4 to Form 8-K filed on December 18, 2007). |
||
| 10.50 | ** | Separation Agreement and Addendum, Departure of Principal Officer (incorporated by reference to Current Report on Form
8-K as filed on July 24, 2008) |
||
| 10.51 | Joinder Agreement, between the Additional Guarantor and GE Financial (incorporated by reference to Exhibit 10.1 to Form
8-K as filed on April 18, 2008). |
|||
| 10.52 | Registration Statement of additional Common Stock shares under the General Cable Savings Plan (incorporated by reference
to Form S-8 filed on June 30, 2008) |
|||
| 10.53 | Pro forma financial information and PDIC audited financial statements are incorporated by reference to Current Report on
Form 8-K on November 1, 2007, amended on January 14, 2008 and April 18, 2008 |
|||
| 10.54 | ** | Salary Adjustment for President and Chief Executive Officer and Executive Vice President, Chief Financial Officer and
Treasurer and Executive Vice President, General Counsel and Secretary dated February 5, 2008 (incorporated by reference
to the Form 8-K Current Report as filed on February 5, 2008) |
||
| 10.55 | General Cable adopted a written trading plan under Rule 10b5-1 of the Securities and Exchange Act of 1934, as amended.
The Company implemented this written trading plan in connection with its share repurchase program, which was authorized
by the Company’s Board of Directors and announced on October 29, 2008 (incorporated by reference to Form 8-K Current
Report as filed on October 29, 2008 and November 26, 2008). |
|||
| 12.1 | Computation of Ratio of Earnings to Fixed Charges. |
|||
| 14.0 | Code of Business Conduct and Ethics — available on the Company’s website at www.generalcable.com |
|||
| 21.1 | List of Subsidiaries of General Cable. |
|||
| 23.1 | Consent of Deloitte & Touche LLP. |
|||
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15(d) — 14. |
|||
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15(d) — 14. |
|||
| 32.1 | Certification pursuant to 18 U.S.C. §1350, as adopted under Section 906 of the Sarbanes-Oxley Act of 2002. |
|||
58
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
General Cable Corporation
Highland Heights, KY
General Cable Corporation
Highland Heights, KY
We have audited the accompanying consolidated balance sheets of General Cable Corporation and
subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related consolidated
statements of operations, changes in shareholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2008. Our audits also included the financial statement
schedule listed in the Index at Item 15. These financial statements and financial statement
schedule are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of General Cable Corporation and subsidiaries as of December 31, 2008 and
2007, and the results of their operations and their cash flows for each of the three years in the
period ended December 31, 2008, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the Company adopted Financial
Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an
interpretation of Financial Accounting Standards Board Statement No. 109, on January 1, 2007, and
Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Benefit Plans – an amendment of FASB Statements No. 87, 88, 106,
and 132(R), on December 31, 2006.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Company’s internal control over financial reporting as of December 31,
2008, based on the criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2009
expressed an unqualified opinion on the Company’s internal control over financial reporting.
Cincinnati, Ohio
March 2, 2009
March 2, 2009
59
Table of Contents
GENERAL CABLE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(in millions, except per share data)
(in millions, except per share data)
| Year Ended December 31, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
Net sales |
$ | 6,230.1 | $ | 4,614.8 | $ | 3,665.1 | ||||||
Cost of sales |
5,427.7 | 3,952.1 | 3,194.1 | |||||||||
Gross profit |
802.4 | 662.7 | 471.0 | |||||||||
Selling, general and administrative expenses |
381.0 | 296.6 | 235.1 | |||||||||
Operating income |
421.4 | 366.1 | 235.9 | |||||||||
Other expense |
(27.2 | ) | (3.4 | ) | (0.1 | ) | ||||||
Interest income (expense): |
||||||||||||
Interest expense |
(68.1 | ) | (48.4 | ) | (40.0 | ) | ||||||
Interest income |
12.3 | 18.8 | 4.4 | |||||||||
Loss on extinguishment of debt |
— | (25.3 | ) | — | ||||||||
| (55.8 | ) | (54.9 | ) | (35.6 | ) | |||||||
Income before income taxes |
338.4 | 307.8 | 200.2 | |||||||||
Income tax provision |
(112.7 | ) | (99.4 | ) | (64.9 | ) | ||||||
Minority interest in consolidated subsidiaries |
(13.1 | ) | (0.2 | ) | — | |||||||
Equity in net earnings of affiliated companies |
4.6 | 0.4 | — | |||||||||
Net income |
217.2 | 208.6 | 135.3 | |||||||||
Less: preferred stock dividends |
(0.3 | ) | (0.3 | ) | (0.3 | ) | ||||||
Net income applicable to common shareholders |
$ | 216.9 | $ | 208.3 | $ | 135.0 | ||||||
EPS |
||||||||||||
Earnings per common share-basic |
$ | 4.16 | $ | 4.07 | $ | 2.70 | ||||||
Weighted average common shares-basic |
52.2 | 51.2 | 50.0 | |||||||||
Earnings per common share-assuming dilution |
$ | 4.07 | $ | 3.82 | $ | 2.60 | ||||||
Weighted average common shares-assuming dilution |
53.4 | 54.6 | 52.0 | |||||||||
See accompanying Notes to Consolidated Financial Statements.
60
Table of Contents
GENERAL CABLE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in millions, except share data)
(in millions, except share data)
| December 31, | ||||||||
| 2008 | 2007 | |||||||
Assets |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 282.6 | $ | 325.7 | ||||
Receivables, net of allowances of $19.3 million in 2008 and $17.9
million in 2007 |
1,032.0 | 1,121.4 | ||||||
Inventories |
953.2 | 928.8 | ||||||
Deferred income taxes |
132.3 | 123.6 | ||||||
Prepaid expenses and other |
77.6 | 73.7 | ||||||
Total current assets |
2,477.7 | 2,573.2 | ||||||
Property, plant and equipment, net |
880.9 | 738.8 | ||||||
Deferred income taxes |
53.9 | 42.6 | ||||||
Goodwill |
171.9 | 116.1 | ||||||
Intangible assets, net |
201.8 | 236.7 | ||||||
Unconsolidated affiliated companies |
7.5 | 29.5 | ||||||
Other non-current assets |
46.7 | 56.7 | ||||||
Total assets |
$ | 3,840.4 | $ | 3,793.6 | ||||
Liabilities and Shareholders’ Equity |
||||||||
Current Liabilities: |
||||||||
Accounts payable |
$ | 757.2 | $ | 937.3 | ||||
Accrued liabilities |
423.3 | 397.3 | ||||||
Current portion of long-term debt |
230.5 | 500.9 | ||||||
Total current liabilities |
1,411.0 | 1,835.5 | ||||||
Long-term debt |
1,216.1 | 897.9 | ||||||
Deferred income taxes |
96.4 | 118.5 | ||||||
Other liabilities |
276.2 | 190.0 | ||||||
Total liabilities |
2,999.7 | 3,041.9 | ||||||
Commitments and Contingencies |
||||||||
Minority interest in consolidated subsidiaries |
132.3 | 74.8 | ||||||
Shareholders’ Equity: |
||||||||
Redeemable convertible preferred stock, at redemption value
(liquidation preference of $50.00 per share): |
||||||||
2008 – 76,233 shares outstanding |
||||||||
2007 – 101,940 shares outstanding |
3.8 | 5.1 | ||||||
Common stock, $0.01 par value, issued and outstanding shares: |
||||||||
2008 – 51,775,200 (net
of 6,177,498
treasury
shares) |
||||||||
2007 – 52,430,149 (net
of 5,121,841
treasury
shares) |
0.6 | 0.6 | ||||||
Additional paid-in capital |
288.4 | 268.0 | ||||||
Treasury stock |
(71.9 | ) | (60.3 | ) | ||||
Retained earnings |
644.7 | 428.3 | ||||||
Accumulated other comprehensive income (loss) |
(157.2 | ) | 35.2 | |||||
Total shareholders’ equity |
708.4 | 676.9 | ||||||
Total liabilities and shareholders’ equity |
$ | 3,840.4 | $ | 3,793.6 | ||||
See accompanying Notes to Consolidated Financial Statements.
61
Table of Contents
GENERAL CABLE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in millions)
(in millions)
| Year Ended December 31, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
Cash flows of operating activities: |
||||||||||||
Net income |
$ | 217.2 | $ | 208.6 | $ | 135.3 | ||||||
Adjustments to reconcile net income to net cash provided by
operating activities: |
||||||||||||
Depreciation and amortization |
97.3 | 63.5 | 50.9 | |||||||||
Foreign currency exchange loss |
27.2 | 3.4 | 0.1 | |||||||||
Loss on extinguishment of debt |
— | 25.3 | — | |||||||||
Inventory impairment charges |
32.0 | — | — | |||||||||
Deferred income taxes |
11.3 | (11.6 | ) | 4.7 | ||||||||
Excess tax benefits from stock-based compensation |
(6.1 | ) | (11.1 | ) | (19.0 | ) | ||||||
Loss on disposal of property |
5.6 | 8.8 | 2.5 | |||||||||
Changes in operating assets and liabilities, net of effect of
acquisitions and divestitures: |
||||||||||||
(Increase) decrease in receivables |
26.7 | (6.5 | ) | (94.7 | ) | |||||||
Increase in inventories |
(70.3 | ) | (13.5 | ) | (142.4 | ) | ||||||
(Increase) decrease in other assets |
18.6 | (1.4 | ) | 0.5 | ||||||||
Increase (decrease) in accounts payable, accrued and
other liabilities |
(130.1 | ) | (33.8 | ) | 156.1 | |||||||
Net cash flows of operating activities |
229.4 | 231.7 | 94.0 | |||||||||
Cash flows of investing activities: |
||||||||||||
Capital expenditures |
(217.8 | ) | (153.6 | ) | (71.1 | ) | ||||||
Proceeds from properties sold |
6.2 | 1.1 | 0.8 | |||||||||
Proceeds from acquisition including cash acquired |
— | 28.0 | — | |||||||||
Acquisitions, net of cash acquired |
(50.3 | ) | (634.8 | ) | (26.9 | ) | ||||||
Other |
(1.4 | ) | (0.5 | ) | 1.4 | |||||||
Net cash flows of investing activities |
(263.3 | ) | (759.8 | ) | (95.8 | ) | ||||||
Cash flows of financing activities: |
||||||||||||
Preferred stock dividends paid |
(0.3 | ) | (0.3 | ) | (0.3 | ) | ||||||
Settlement of net investment hedge |
— | (30.5 | ) | |||||||||
Excess tax benefits from stock-based compensation |
6.1 | 11.1 | 19.0 | |||||||||
Proceeds from revolving credit borrowings |
124.7 | 100.0 | 264.1 | |||||||||
Repayments of revolving credit borrowings |
(184.7 | ) | (40.0 | ) | (379.2 | ) | ||||||
Proceeds of other debt |
93.3 | 7.3 | 6.9 | |||||||||
Issuance of long-term debt |
— | 800.0 | 355.0 | |||||||||
Payment of deferred financing fees |
— | (19.0 | ) | (9.4 | ) | |||||||
Settlement of long-term debt |
— | (305.5 | ) | — | ||||||||
Purchase of note hedges |
— | — | (124.5 | ) | ||||||||
Proceeds from issuance of warrants |
— | — | 80.4 | |||||||||
Purchase of treasury shares |
(11.7 | ) | — | — | ||||||||
Proceeds from exercise of stock options |
2.2 | 5.0 | 22.7 | |||||||||
Net cash flows of financing activities |
29.6 | 528.1 | 234.7 | |||||||||
Effect of exchange rate changes on cash and cash equivalents |
(38.8 | ) | 15.2 | 5.4 | ||||||||
Decrease in cash and cash equivalents |
(43.1 | ) | 15.2 | 238.3 | ||||||||
Cash and cash equivalents – beginning of period |
325.7 | 310.5 | 72.2 | |||||||||
Cash and cash equivalents – end of period |
$ | 282.6 | $ | 325.7 | $ | 310.5 | ||||||
Supplemental Information |
||||||||||||
Cash paid during the period for: |
||||||||||||
Income tax payments |
$ | 84.8 | $ | 98.8 | $ | 46.3 | ||||||
Interest paid |
$ | 47.5 | $ | 51.7 | $ | 36.7 | ||||||
Non-cash investing and financing activities: |
||||||||||||
Issuance of nonvested shares |
$ | 4.5 | $ | 10.5 | $ | 6.4 | ||||||
See accompanying Notes to Consolidated Financial Statements.
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GENERAL CABLE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
(dollars in millions, share amounts in thousands)
(dollars in millions, share amounts in thousands)
| Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Preferred | Common | Add’l | Other | Other | ||||||||||||||||||||||||||||||||||||
| Stock | Stock | Paid in | Treasury | Retained | Comprehensive | Shareholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stock | Earnings | Income/(Loss) | Equity | Total | |||||||||||||||||||||||||||||||
Balance, December 31, 2005 |
130 | $ | 6.5 | 49,520 | $ | 0.5 | $ | 246.3 | $ | (52.2 | ) | $ | 103.8 | $ | (6.8 | ) | $ | (4.8 | ) | $ | 293.3 | |||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||||||||||
Net income |
135.3 | 135.3 | ||||||||||||||||||||||||||||||||||||||
Foreign currency translation adj. |
30.6 | 30.6 | ||||||||||||||||||||||||||||||||||||||
Pension adjustments, net of $3.5
million tax expense |
6.4 | 6.4 | ||||||||||||||||||||||||||||||||||||||
Unrealized investment gain |
2.9 | 2.9 | ||||||||||||||||||||||||||||||||||||||
Loss on change in fair value of
financial instruments, net of $16.7
million tax benefit |
(28.7 | ) | (28.7 | ) | ||||||||||||||||||||||||||||||||||||
Comprehensive income |
146.5 | |||||||||||||||||||||||||||||||||||||||
Adoption of SFAS 158, net of $3.8
million tax benefit |
(7.0 | ) | (7.0 | ) | ||||||||||||||||||||||||||||||||||||
Preferred stock dividend |
(0.3 | ) | (0.3 | ) | ||||||||||||||||||||||||||||||||||||
Note hedge transaction |
(124.5 | ) | (124.5 | ) | ||||||||||||||||||||||||||||||||||||
Issuance of warrants |
80.4 | 80.4 | ||||||||||||||||||||||||||||||||||||||
Reclass of unearned stock compensation |
(4.8 | ) | 4.8 | — | ||||||||||||||||||||||||||||||||||||
Issuance of nonvested shares |
213 | — | ||||||||||||||||||||||||||||||||||||||
Stock option and RSU expense |
1.1 | 1.1 | ||||||||||||||||||||||||||||||||||||||
Exercise of stock options |
2,120 | 0.1 | 22.6 | 22.7 | ||||||||||||||||||||||||||||||||||||
Treasury shares related to nonvested
stock vesting |
(30 | ) | (0.8 | ) | (0.8 | ) | ||||||||||||||||||||||||||||||||||
Amortization of nonvested shares |
3.8 | 3.8 | ||||||||||||||||||||||||||||||||||||||
Excess tax benefits from stock-based
compensation |
19.0 | 19.0 | ||||||||||||||||||||||||||||||||||||||
Conversion of preferred stock |
(28 | ) | (1.4 | ) | 140 | 1.4 | — | |||||||||||||||||||||||||||||||||
Other |
— | — | 39 | — | 0.2 | — | — | — | — | 0.2 | ||||||||||||||||||||||||||||||
Balance, December 31, 2006 |
102 | $ | 5.1 | 52,002 | $ | 0.6 | $ | 245.5 | $ | (53.0 | ) | $ | 238.8 | $ | (2.6 | ) | $ | — | $ | 434.4 | ||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||||||||||
Net income |
208.6 | 208.6 | ||||||||||||||||||||||||||||||||||||||
Foreign currency translation adj. |
51.3 | 51.3 | ||||||||||||||||||||||||||||||||||||||
Defined benefit plans adjustments, net of
$0.1 million tax expense |
4.8 | 4.8 | ||||||||||||||||||||||||||||||||||||||
Unrealized investment gain, net of $0.3
million tax expense |
0.8 | 0.8 | ||||||||||||||||||||||||||||||||||||||
Loss on change in fair value of
financial instruments, net
of $16.5
million tax benefit |
(19.0 | ) | (19.0 | ) | ||||||||||||||||||||||||||||||||||||
Comprehensive income |
246.5 | |||||||||||||||||||||||||||||||||||||||
Preferred stock dividend |
(0.3 | ) | (0.3 | ) | ||||||||||||||||||||||||||||||||||||
Issuance of nonvested shares |
143 | |||||||||||||||||||||||||||||||||||||||
Stock option and RSU expense |
2.5 | 2.5 | ||||||||||||||||||||||||||||||||||||||
Exercise of stock options |
405 | 5.0 | 5.0 | |||||||||||||||||||||||||||||||||||||
Treasury shares related to nonvested
stock vesting |
(83 | ) | (4.3 | ) | (4.3 | ) | ||||||||||||||||||||||||||||||||||
Amortization of nonvested shares |
3.8 | 3.8 | ||||||||||||||||||||||||||||||||||||||
Excess tax benefits from stock-based
compensation |
11.1 | 11.0 | ||||||||||||||||||||||||||||||||||||||
Fin 48 adoption |
(18.8 | ) | (18.8 | ) | ||||||||||||||||||||||||||||||||||||
Other |
— | — | (37 | ) | — | 0.1 | (3.0 | ) | — | (0.1 | ) | — | (2.9 | ) | ||||||||||||||||||||||||||
Balance, December 31, 2007 |
102 | $ | 5.1 | 52,430 | $ | 0.6 | $ | 268.0 | $ | (60.3 | ) | $ | 428.3 | $ | 35.2 | $ | — | $ | 676.9 | |||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||||||||||
Net income |
217.2 | 217.2 | ||||||||||||||||||||||||||||||||||||||
Foreign currency translation adj. |
(122.8 | ) | (122.8 | ) | ||||||||||||||||||||||||||||||||||||
Defined benefit plans adjustments, net of
$18.2 million tax expense |
(29.5 | ) | (29.5 | ) | ||||||||||||||||||||||||||||||||||||
Unrealized
investment gain, net of $1.0
million tax expense |
(5.8 | ) | (5.8 | ) | ||||||||||||||||||||||||||||||||||||
Loss on change in fair value of
financial instruments, net
of $24.9
million tax benefit |
(34.3 | ) | (34.3 | ) | ||||||||||||||||||||||||||||||||||||
Comprehensive income |
24.8 | |||||||||||||||||||||||||||||||||||||||
Preferred stock dividend |
(0.3 | ) | (0.3 | ) | ||||||||||||||||||||||||||||||||||||
Issuance of nonvested shares |
32 | |||||||||||||||||||||||||||||||||||||||
Stock option and RSU expense |
6.0 | 6.0 | ||||||||||||||||||||||||||||||||||||||
Exercise of stock options |
232 | 2.4 | 2.4 | |||||||||||||||||||||||||||||||||||||
Treasury shares related to nonvested
stock vesting |
(31 | ) | (1.8 | ) | (1.8 | ) | ||||||||||||||||||||||||||||||||||
Amortization of nonvested shares |
4.2 | 4.2 | ||||||||||||||||||||||||||||||||||||||
Excess tax benefits from stock-based
compensation |
6.1 | 6.1 | ||||||||||||||||||||||||||||||||||||||
Conversion of preferred stock |
(26 | ) | (1.3 | ) | 129 | 1.3 | — | |||||||||||||||||||||||||||||||||
Purchase treasury shares |
(1,000 | ) | (11.7 | ) | (11.7 | ) | ||||||||||||||||||||||||||||||||||
Other |
(18 | ) | 0.4 | 1.9 | (0.5 | ) | 1.8 | |||||||||||||||||||||||||||||||||
Balance, December 31, 2008 |
76 | $ | 3.8 | 51,774 | $ | 0.6 | $ | 288.4 | $ | (71.9 | ) | $ | 644.7 | $ | (157.2 | ) | $ | — | $ | 708.4 | ||||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
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GENERAL CABLE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. General
General Cable Corporation and Subsidiaries (General Cable) is a leading global developer, designer,
manufacturer, marketer and distributor in the wire and cable industry. The Company sells copper,
aluminum and fiber optic wire and cable products worldwide. The Company’s operations are divided
into three main reportable segments: North America, Europe and North Africa and Rest of World (ROW)
which consists of operations in Latin America, Sub-Saharan Africa, Middle East and Asia Pacific. As
of December 31, 2008, General Cable operated 46 manufacturing facilities, which includes 2
facilities owned by companies in which the Company has an equity investment, in 22 countries with
regional distribution centers around the world in addition to the corporate headquarters in
Highland Heights, Kentucky.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The Company’s consolidated financial statements include the accounts of wholly-owned subsidiaries,
majority-owned controlled subsidiaries and variable interest entities where the Company is the
primary beneficiary. The Company records its investment in each unconsolidated affiliated company
(generally 20-50 percent ownership in which it has the ability to exercise significant influence)
at its respective equity in net assets. Other investments (less than 20 percent ownership) are
recorded at cost. All intercompany transactions and balances among the consolidated companies have
been eliminated.
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. These estimates are based on historical experience and
information that is available to management about current events and actions the Company may take
in the future. Significant items subject to estimates and assumptions include valuation allowances
for sales incentives, accounts receivable, inventory and deferred income taxes; legal,
environmental, asbestos, uncertain tax positions, warranty and customer reel deposit liabilities;
assets and obligations related to pension and other postretirement benefits; business combination
accounting and related purchase accounting valuations; financial instruments; and self-insured
workers’ compensation and health insurance reserves. There can be no assurance that actual results
will not differ from these estimates.
Revenue Recognition
The majority of the Company’s revenue is recognized when goods are shipped to the customer, title
and risk of loss are transferred, pricing is fixed and determinable and collectibility is
reasonably assured. Most revenue transactions represent sales of inventory. A provision for
payment discounts, product returns, warranty and customer rebates is estimated based upon
historical experience and other relevant factors and is recorded within the same period that the
revenue is recognized. The Company has a portion of long-term product installation contract
revenue that is recognized based on the percentage-of-completion method generally based on the
cost-to-cost method if there are reasonably reliable estimates of total revenue, total cost, and
the extent of progress toward completion; and there is an enforceable agreement between parties who
can fulfill their contractual obligations. The Company reviews contract price and cost estimates
periodically as the work progresses and reflects adjustments proportionate to the
percentage-of-completion to income in the period when those estimates are revised. For these
contracts, if a current estimate of total contract cost indicates a loss on a contract, the
projected loss is recognized in full when determined.
Stock-Based Compensation
General Cable has various plans which provide for granting options and common stock to certain
employees and independent directors of the Company and its subsidiaries. SFAS 123(R) requires all
share-based payments to employees, including grants of employee stock options, to be recognized in
the financial statements based on their fair values. Under the provisions of the statement, the
Company must determine the appropriate fair value model to be used for valuing share-based payments
and the amortization method for the compensation cost. The Company has applied SFAS 123(R) to new
awards and to awards modified, repurchased or cancelled after January 1, 2006. Compensation cost
for the portion of the awards for which the requisite service had not been rendered, that were
outstanding as of January 1, 2006, is being recognized as the requisite service is rendered on or
after January 1, 2006 (generally over the remaining vesting period). Information on General
Cable’s equity compensation plans and additional information on compensation costs from stock-based
compensation are described in Note 13 & 14.
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Table of Contents
Earnings Per Share
Earnings per common share-basic is determined by dividing net income applicable to common
shareholders by the weighted average number of common shares-basic outstanding. Earnings per common
share-assuming dilution is computed based on the weighted average number of common shares-assuming
dilution outstanding which gives effect (when dilutive) to stock options, other stock-based awards,
the assumed conversion of the Company’s preferred stock, 1.00% Senior Convertible Notes and 0.875%
Convertible Notes, if applicable, and other potentially dilutive securities. See discussion in
Note 15.
Foreign Currency Translation
For operations outside the United States that prepare financial statements in currencies other than
the U.S. dollar, results of operations and cash flows are translated at average exchange rates
during the period, and assets and liabilities are translated at spot exchange rates at the end of
the period. Foreign currency translation adjustments are included as a separate component of
accumulated other comprehensive income (loss) in shareholders’ equity. The effects of changes in
exchange rates between the designated functional currency and the currency in which a transaction
is denominated are recorded as foreign currency transaction gains (losses) in the Consolidated
Statements of Operations.
Business Combination Accounting
Acquisitions entered into by the Company are accounted for using the purchase method of accounting.
The purchase method requires management to make significant estimates. Management must determine
the cost of the acquired entity based on the fair value of the consideration paid or the fair value
of the net assets acquired, whichever is more clearly evident. The cost is then allocated to the
assets acquired and liabilities assumed based on their estimated fair values at the acquisition
date. In addition, management must identify and estimate the fair values of intangible assets that
should be recognized as assets apart from goodwill as well as the fair value of tangible property,
plant and equipment acquired.
Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or
less from the date of purchase to be cash equivalents. Cash equivalents are carried at cost, which
approximates fair value.
Inventories
General Cable values its North American inventories and its non-North American metal inventories
using the last-in first-out (LIFO) method and all remaining inventories using the first-in
first-out (FIFO) method. Inventories are stated at the lower of cost or market value. The Company
determines whether a lower of cost or market provision is required on a quarterly basis by
computing whether inventory on hand, on a LIFO basis, can be sold at a profit based upon current
selling prices less variable selling costs. In the event that provisions are required, the Company
will determine the amount of the provision by writing down the value of the inventory to the level
of current selling prices less variable selling costs.
The Company has consignment inventory at certain of its customer locations for purchase and use by
the customer or other parties. General Cable retains title to the inventory and records no sale
until it is ultimately sold either to the customer storing the inventory or to another party. In
general, the value and quantity of the consignment inventory is verified by General Cable through
either cycle counting or annual physical inventory counting procedures.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Costs assigned to property, plant and equipment
relating to acquisitions are based on estimated fair values at the acquired date. Depreciation is
provided using the straight-line method over the estimated useful lives of the assets: new
buildings, from 15 to 50 years; and machinery, equipment and office furnishings, from 2 to 15
years. Leasehold improvements are depreciated over the life of the lease or over the useful life if
shorter. The Company’s manufacturing facilities perform major maintenance activities during planned
shutdown periods which traditionally occur in July and December, and costs related to major
maintenance activities are expensed as incurred.
The Company periodically evaluates the recoverability of the carrying amount of long-lived assets
(including property, plant and equipment and intangible assets with determinable lives) whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be fully
recoverable. The Company evaluates events or changes in circumstances based mostly on actual
historical operating results, but business plans, forecasts, general and industry trends and
anticipated cash flows are also considered. Impairment is assessed when the undiscounted expected
future cash flows derived from an asset are less than its carrying amount. Impairment losses are
measured as the amount by which the carrying value of an asset exceeds its fair value and are
recognized in earnings. The Company also continually evaluates the estimated useful lives of all
long-lived assets and, when warranted, revises such estimates based on current events.
Goodwill and Intangible Assets
Goodwill and intangible assets with indefinite useful lives are not amortized, but are reviewed at
least annually for impairment. If the carrying amount of goodwill or an intangible asset with an
indefinite life exceeds its fair value, an
impairment loss is recognized in the amount equal to the excess. Intangible assets that are not
deemed to have an indefinite life, principally customer relationships, are amortized over their
useful lives based on the expected economic benefit consistent with the historical customer
attrition rates.
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Table of Contents
Fair Value of Financial Instruments
The Company carries derivative assets, derivative liabilities and available-for-sale (AFS)
marketable equity securities held in rabbi trust as part of the Company’s deferred compensation
plan at fair value. The Company determines the fair market value of its financial instruments based
on the fair value hierarchy established in SFAS 157 Fair Value Measurements which requires an
entity to maximize the use of observable inputs (Level 1) and minimize the use of unobservable
inputs (Level 3) when measuring fair value. The three levels of inputs that may be used to measure
fair values include:
Level 1
|
Quoted prices in active markets for identical assets or
liabilities. Level 1 assets and liabilities include debt and
equity securities and derivative contracts that are traded in an
active exchange market, as well as certain U.S. Treasury
securities that are highly liquid and are actively traded in
over-the-counter markets. |
|
Level 2
|
Observable inputs other than Level 1 prices such as quoted prices
for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full
term of the assets or liabilities. Level 2 assets and liabilities
include debt securities with quoted prices that are traded less
frequently than exchange-traded instruments and derivative
contracts whose value is determined using a pricing model with
inputs that are observable in the market or can be derived
principally from or corroborated by observable market data. |
|
Level 3
|
Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities. Level 3 assets and liabilities include financial
instruments whose value is determined using pricing models,
discounted cash flow methodologies, or similar techniques, as well
as instruments for which the determination of fair value requires
significant management judgment or estimation. Unobservable inputs
shall be developed based on the best information available, which
may include the Company’s own data. |
Forward Pricing Agreements for Purchases of Copper and Aluminum
In the normal course of business, General Cable enters into forward pricing agreements for
purchases of copper and aluminum to match certain sales transactions. The Company accounts for
these forward pricing arrangements under the “normal purchases and normal sales” scope exemption of
SFAS No. 133 because these arrangements are for purchases of copper and aluminum that will be
delivered in quantities expected to be used by the Company over a reasonable period of time in the
normal course of business. For these arrangements, it is probable at the inception and throughout
the life of the arrangements that the arrangements will not settle net and will result in physical
delivery of the inventory. General Cable expects to recover the cost of copper and aluminum under
these agreements as a result of firm sales price commitments with customers. See Note 10.
Pension Plans
General Cable provides retirement benefits through contributory and non-contributory qualified and
non-qualified defined benefit pension plans covering eligible domestic and international employees
as well as through defined contribution plans and other postretirement benefits. Benefits under
General Cable’s qualified U.S. defined benefit pension plan generally are based on years of service
multiplied by a specific fixed dollar amount, and benefits under the Company’s qualified non-U.S.
defined benefit pension plans generally are based on years of service and a variety of other
factors that can include a specific fixed dollar amount or a percentage of either current salary or
average salary over a specific period of time. The amounts funded for any plan year for the
qualified U.S. defined benefit pension plan are neither less than the minimum required under
federal law nor more than the maximum amount deductible for federal income tax purposes. General
Cable’s non-qualified unfunded U.S. defined benefit pension plans include a plan that provides
defined benefits to select senior management employees beyond those benefits provided by other
programs. The Company’s non-qualified unfunded non-U.S. defined benefit pension plans include
plans that provide retirement indemnities to employees within the Company’s Europe and North Africa
and ROW segments. Pension obligations for the non-qualified unfunded defined benefit pension plans
are provided for by book reserves and are based on local practices and regulations of the
respective countries. General Cable makes cash contributions for the costs of the non-qualified
unfunded defined benefit pension plans as the benefits are paid.
On June 27, 2007, the Board of Directors of the Company approved amendments to the General Cable
Supplemental Executive Retirement Plan (“SERP”) and the General Cable Corporation Deferred
Compensation Plan (“DCP”) and the merger of the SERP into the DCP. The Company received written
acknowledgement and acceptance of the SERP amendments and merger from each participant in the SERP.
The amendments and merger were made in order to simplify, limit and better align these specific
compensation plans with the Company’s compensation policies.
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Table of Contents
As of December 31, 2006, the Company adopted the recognition provisions of SFAS No. 158 and
initially applied them to the funded status of its defined benefit pension plans and postretirement
benefits other than pensions. This statement
required the Company to recognize an asset or liability for the underfunded status of its defined
benefit pension plans and postretirement benefits other than pensions in its Consolidated Balance
Sheet for the year ended December 31, 2006. The initial recognition of the funded status of its
defined benefit pension plans and postretirement benefits other than pensions resulted in a
decrease in Shareholders’ Equity of $7.0 million, which was net of a tax benefit of $3.8 million
Self-insurance
The Company is self-insured for certain employee medical benefits, workers’ compensation benefits,
environmental and asbestos-related issues. The Company purchased stop-loss coverage in order to
limit its exposure to any significant level of employee medical claims and workers’ compensation
claims in 2008 and 2007. Certain insurers are also partly responsible for coverage on many of the
asbestos-related issues (see Note 17 for information relating to the release of one of these
insurers during 2006). Self-insured losses are accrued based upon estimates of the aggregate
liability for uninsured claims incurred using the Company’s historical claims experience.
Concentration of Labor Subject to Collective Bargaining Agreements
At December 31, 2008, approximately 13,000 persons were employed by General Cable, and collective
bargaining agreements covered approximately 7,000 employees, or 54% of total employees, at various
locations around the world. During the five calendar years ended December 31, 2008, the Company
experienced two strikes in North America both of which were settled on satisfactory terms. There
were no other major strikes at any of the Company’s facilities during the five years ended December
31, 2008. In the United States, Canada, Chile, Thailand, Venezuela and Zambia union contracts will
expire at seven facilities in 2009 and seven facilities in 2010 representing approximately 9.6% and
14.6%, respectively, of total employees as of December 31, 2008. The Company believes it will
successfully renegotiate these contracts as they come due. For countries not specifically
discussed above, labor agreements are generally negotiated on an annual or bi-annual basis.
Concentration of Risk
General Cable sells a broad range of products globally. Concentrations of credit risk with respect
to trade receivables are limited due to the large number of customers, including members of buying
groups, composing General Cable’s customer base. General Cable customers generally receive a 30 to
60 day payment period on purchases from the Company, with certain exception in European markets.
Certain automotive aftermarket customers of the Company receive payment terms ranging from 45 days
to 210 days, which is common in this particular market. Ongoing credit evaluations of customers’
financial condition are performed, and generally, no collateral is required. General Cable
maintains reserves for potential credit losses and such losses, in the aggregate, have not exceeded
management’s estimates. Certain subsidiaries also maintain credit insurance for certain customer
balances. Bad debt expense associated with uncollectible accounts for the years ended December 31,
2008, 2007 and 2006 was $4.3 million, $9.7 million and $2.2 million, respectively.
In North America, the Company has centralized the purchasing of its copper, aluminum and other
significant raw materials to capitalize on economies of scale and to facilitate the negotiation of
favorable purchase terms from suppliers. In 2008, the Company’s largest supplier of copper rod
accounted for approximately 91% of its North American copper purchases while the largest supplier
of aluminum rod accounted for approximately 84% of its North American aluminum purchases. The
Company’s European operations purchases copper and aluminum rod from many suppliers or brokers with
each generally providing a small percentage of the total copper and aluminum rod purchased. The
Company’s ROW segment internally produces the majority of its copper and aluminum rod production
needs and obtains cathode and ingots from various suppliers with each supplier generally providing
a small percentage.
Income Taxes
The Company provides for income taxes on all transactions that have been recognized in the
Consolidated Financial Statements in accordance with SFAS No. 109. Under SFAS 109, deferred tax
assets and liabilities are determined based on the differences between the financial statement
basis and tax basis of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records a valuation allowance to reduce deferred tax assets to the amount that it
believes is more likely than not to be realized. The valuation of the deferred tax asset is
dependent on, among other things, the ability of the Company to generate a sufficient level of
future taxable income. In estimating future taxable income, the Company has considered both
positive and negative evidence, such as historical and forecasted results of operations, including
prior losses, and has considered the implementation of prudent and feasible tax planning
strategies. At December 31, 2008, the Company had recorded a net
deferred tax asset of $82.2 million ($124.7 million net
current deferred tax asset less $42.5 million net long term deferred
tax liability). The Company has and will continue to review on a quarterly basis its assumptions
and tax planning strategies, and, if the amount of the estimated realizable net deferred tax asset
is less than the amount currently on the balance sheet, the Company would reduce its deferred tax
asset, recognizing a non-cash charge against reported earnings.
Likewise, if the Company determines that a valuation allowance against a deferred tax asset is no
longer appropriate, the adjustment to the valuation allowance would reduce income tax expense. In
2008 and 2007, the Company determined that improved business performance, expectations of future
profitability, and other relevant factors constituted sufficient positive evidence to recognize
certain foreign and state deferred tax assets. Accordingly, the Company adjusted the valuation
allowances and recognized income tax benefits of approximately $3.2 million in 2008 and $12.2
million in 2007.
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In July 2006, FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” was issued.
This Interpretation clarifies accounting for uncertain tax positions in accordance with SFAS No.
109. FIN 48 prescribes a recognition threshold that a tax position is required to meet before
being recognized in the financial statements and provides guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim periods, disclosure and transition
issues. This Interpretation is effective for fiscal years beginning after December 15, 2006. The
adoption of Interpretation 48 decreased shareholders’ equity as of January 1, 2007 by approximately
$18.8 million. See Note 11 for additional information.
The Company recognizes interest and penalties related to unrecognized tax benefits within the
income tax expense line in the accompanying consolidated statement of operations. Accrued interest
and penalties are included within the related tax liability line item in the consolidated balance
sheet.
The Company presents taxes assessed by a governmental authority that are directly imposed on a
revenue-producing transaction between a seller and a customer including, but not limited to, sales,
use, value added, and some excise taxes on a net basis.
Derivative Financial Instruments
Derivative financial instruments are utilized to manage interest rate, commodity and foreign
currency risk. General Cable does not hold or issue derivative financial instruments for trading
purposes. Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, requires that all derivatives be recorded on the
balance sheet at fair value. The accounting for changes in the fair value of the derivative depends
on the intended use of the derivative and whether it qualifies for hedge accounting. SFAS No. 133,
as applied to General Cable’s risk management strategies, may increase or decrease reported net
income, and shareholders’ equity, or both, prospectively depending on changes in interest rates and
other variables affecting the fair value of derivative instruments and hedged items, but will have
no effect on cash flows or economic risk. See further discussion in Note 10 & 19.
Foreign currency and commodity contracts that are designated as and qualify as cash flow hedges are
used to hedge future sales and purchase commitments. Interest rate swaps that are also designated
as and qualify as cash flow hedges are used to achieve a targeted mix of floating rate and fixed
rate debt. Unrealized gains and losses on the designated cash flow financial instruments,
excluding ineffectiveness, which is recorded in earnings are recorded in other comprehensive income
(loss) until the underlying transaction occurs and is recorded in the statement of operations at
which point such amounts included in other comprehensive income (loss) are recognized in earnings.
This recognition generally will occur over periods of less than one year.
The Company’s U.S. dollar to Euro cross currency and interest rate swap expired on November 15,
2007. The instrument was designated as and qualified as a hedge of the Company’s net investment in
its European operations and was used to hedge the effects of the changes in spot exchange rates on
the value of the net investment. At the maturity date, November 15, 2007, the Company paid
approximately $30.5 million to settle the net investment hedge. The unrealized loss recognized in
other comprehensive income (loss) may be recorded in the statement of operations if the Company
divests of its European operations at some future date.
Shipping and Handling Costs
All shipping and handling amounts billed to a customer in a sales transaction are classified as
revenue. Shipping and handling costs associated with storage and handling of finished goods and
storage and handling of shipments to customers are included in cost of sales and totaled $165.4
million, $117.2 million and $102.7 million for the years ended December 31, 2008, 2007 and 2006,
respectively.
Advertising Expense
Advertising expense consists of expenses relating to promoting the Company’s products, including
trade shows, catalogs, and e-commerce promotions, and is charged to expense when incurred.
Advertising expense was $11.1 million, $9.5 million and $8.2 million in 2008, 2007 and 2006,
respectively.
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New Accounting Standards
In May 2008, the FASB issued Staff Position (FSP) APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash Upon Conversion (including Partial Cash Settlement). The
FSP specifies that when issuers of convertible
debt instruments recognize interest cost in subsequent periods, they should separately account for
the liability and equity components of the instrument in a manner that will reflect the entity’s
nonconvertible debt borrowing rate on the instrument’s issuance date. The FSP will be effective
for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years.
The transition provision will require that entities retrospectively apply the FSP for all periods
presented. The Company’s two convertible issuances (see Note 9) will be affected by adopting the
FSP. The Company estimates the impact of adopting the FSP on January 1, 2009 will result in a
reduction of the Company’s senior convertible notes of approximately $192.6 million, an increase in
additional paid-in capital of approximately $203.3 million and an increase in deferred taxes of
approximately $37.2 million. The Company estimates the impact of the non-cash interest expense
will reduce earning approximately $31.0 million or $0.60 basic earning per share for fiscal year
2009. The non-cash interest expense would have been approximately $29.0 million, $18.0 million and
$1.2 million for each of the years ended December 31, 2008, 2007 and 2006.
In March 2008, the Financial Accounting Standards Board (FASB) issued Statement No. 161,
Disclosures about Derivative Instruments and Hedging Activities an Amendment of FASB Statement No.
133. Statement No. 161 requires qualitative disclosures about the Company’s objectives and
strategies for using derivatives, quantitative disclosures about the fair value of gains and losses
on derivative instruments and disclosures about credit-risk-related contingent features in
derivative agreements. The Statement is effective for fiscal years and interim periods beginning
after November 15, 2008. The Company is currently evaluating the impact of adopting SFAS No. 161
on its disclosures for the consolidated financial position, results of operations and cash flows.
In February 2008, FSP No. 157-2 partially delayed the effective date of SFAS No. 157, Fair Value
Measurements for non-financial assets and non-financial liabilities that are recognized or
disclosed at fair value in the financial statements on a nonrecurring basis. This FSP is effective
for fiscal years beginning after November 15, 2008. However, this scope exception does not apply
to assets acquired and liabilities assumed in a business combination that are required to be
measured at fair value under FASB Statement No. 141, Business Combinations or FASB No. 141R,
Business Combinations. The Company is currently evaluating the impact of adopting FSP No. 157-2 on
its consolidated financial position, results of operations and cash flows. As discussed below in
Note 19, the Company has adopted SFAS No. 157 with the exception of FSP No. 157-2 as it relates to
nonrecurring non-financial assets and non-financial liabilities.
In December 2007, the FASB issued Statement No. 141 (revised 2007), Business Combinations, and
Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements. Statement No. 141
(revised 2007) requires an acquirer to measure the identifiable assets acquired, the liabilities
assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition
date, with goodwill being the excess value over the net identifiable assets acquired. This standard
also requires the fair value measurement of certain other assets and liabilities related to the
acquisition such as contingencies and research and development. Statement No. 160 clarifies that a
noncontrolling interest in a subsidiary should be reported at fair value as equity in the
consolidated financial statements. Consolidated net income should include the net income for both
the parent and the noncontrolling interest with disclosure of both amounts on the consolidated
statement of operations. The calculation of earnings per share will continue to be based on income
amounts attributable to the parent. The Statements are effective for fiscal years beginning after
December 15, 2008. The Company is currently evaluating the impact of adopting SFAS No. 160 and
141(R) on its consolidated financial position, results of operations and cash flows.
3. Acquisitions and Divestitures
On June 30, 2008, the Company and its joint venture partner, A. Soriano Corporation (Anscor),
announced that the Company acquired and consolidated Phelps Dodge
Philippines (PDP) through an increase in its equity investment from
40% to 60%. The Company paid approximately $16.4 million in cash to
the sellers in consideration for the additional equity interest in PDP and incurred insignificant
fees and expenses related to the transaction. PDP is a joint venture established in 1955 by
Anscor, a Philippine public holding company with diverse investments, and Phelps Dodge
International Corporation (PDIC), a subsidiary of the Company which was acquired in the fourth
quarter of 2007. PDP employs approximately 277 associates and operates one of the largest wire
and cable manufacturing facilities in the Philippines. The investment complements the Company’s
strategy in the region by providing a platform for further penetration into Southeast Asia markets
as well as supporting ongoing operations in Australia, the Middle East and South Africa. In 2007,
the last full year before the purchase of additional equity ownership, PDP reported net revenues
of approximately $100 million (based on average exchange rates). Net assets and pro forma results
of the PDP acquisition are immaterial.
On May 21, 2008, the Company entered a joint venture for majority ownership of E.P.E /
EN.I.CA.BISKRA/SPA (Enica Biskra), an Algerian state-owned manufacturer of low and medium voltage
power and construction cables. Enica Biskra employs approximately 1,000 associates and is a
leading provider of utility cables to the principal Algerian state-owned power utility and gas
producer. The Company paid approximately $64.9 million in cash for its investment in Enica Biskra
and assumed existing debt of $43.0 million (at prevailing foreign currency exchange rates on the
date of purchase). Fees and
expenses related to the acquisition totaled approximately $1.0 million. In 2007, the last full
year before the joint venture was established, Enica Biskra reported net sales of approximately
$102.0 million (based on 2007 average exchange rates). Net assets and pro forma results of the
Enica Biskra acquisition are immaterial.
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On October 31, 2007, the Company acquired Phelps Dodge International (PDIC), with operations
principally located in Latin America, sub-Saharan Africa and Southeast Asia. PDIC has
manufacturing, distribution and sales facilities in 19 countries and nearly 3,000 employees. With
more than 50 years of experience in the wire and cable industry, PDIC manufactures a full range of
electric utility, electrical infrastructure, construction and communication products. The Company
paid approximately $707.6 million in cash to the sellers in consideration for PDIC and $9.2 million
in fees and expenses related to the acquisition. In 2006, the last full year before the
acquisition, PDIC reported global net sales of approximately $1,168.4 million (based on average
exchange rates).
The following table represents the final purchase price allocation based on the estimated fair
values, or other measurements as applicable, of the assets acquired and the liabilities assumed as
well as $8.0 million for the purchase of additional minority interest, in millions:
| October 31, 2007 | ||||
Assets |
||||
Cash |
$ | 99.0 | ||
Accounts receivable |
279.8 | |||
Inventories |
280.7 | |||
Property, plant and equipment |
190.3 | |||
Intangible assets |
237.4 | |||
Goodwill |
159.7 | |||
Other current and noncurrent assets |
75.0 | |||
Total assets |
$ | 1,321.9 | ||
Liabilities |
||||
Current liabilities |
$ | 396.5 | ||
Other liabilities |
114.3 | |||
Total liabilities |
$ | 510.8 | ||
Minority Interest |
$ | 86.3 | ||
The Company finalized the purchase price allocation in October 2008. The amount of goodwill
recognized for the purchase of PDIC represents the excess of the fair value of identified
intangible assets and tangible net assets that is partly attributable to PDIC’s 50 plus years of
experience in the wire and cable industry, its full range of product offerings and its presence in
strategic locations around the world. Further, a certain amount of goodwill is tax deductible in
various tax jurisdictions in future periods based on the Company making certain tax elections or
other relevant actions. See Note 7 for further discussion.
The following table presents, in millions, actual consolidated results of operations for the
Company for the year ended December 31, 2008 and 2007, including the operations of PDIC, and
presents the unaudited pro forma consolidated results of operations for the Company for the fiscal
year ended December 31, 2007 as though the acquisition of PDIC had been completed as of the
beginning of that period. This pro forma information is intended to provide information regarding
how the Company might have looked if the acquisition had occurred as of January 1, 2007. The pro
forma adjustments represent management’s best estimates based on information available at the time
the pro forma information was prepared and may differ from the adjustments that may actually have
been required. Accordingly, the pro forma financial information should not be relied upon as being
indicative of the historical results that would have been realized had the acquisition occurred as
of the dates indicated or that may be achieved in the future.
| Year Ended December 31 | ||||||||||||
| 2008 | 2007 | 2007 | ||||||||||
| (As reported) | (As reported) | (Pro forma) | ||||||||||
Revenue |
$ | 6,230.1 | $ | 4,614.8 | $ | 5,552.4 | ||||||
Net income applicable to common shareholders |
$ | 216.9 | $ | 208.3 | $ | 263.3 | ||||||
Earnings per common share — assuming dilution |
$ | 4.07 | $ | 3.82 | $ | 4.82 | ||||||
Pro forma adjustments have been made to interest expense, depreciation and amortization, income
taxes and minority interest in consolidated subsidiaries to present the amounts on a purchase
accounting adjusted basis.
On April 30, 2007, the Company acquired Norddeutsche Seekabelwerke GmbH & Co. KG (“NSW”), located
in Nordenham, Germany from Corning Incorporated. As a result of the transaction, the Company
assumed liabilities in excess of the assets acquired, including approximately $40.1 million of
pension liabilities (based on the prevailing exchange rate at April 30, 2007). The Company
recorded proceeds of $27.7 million ($11.0 million was received in the third quarter 2007) net of
$1.1 million fees and expenses, which included $12.3 million of cash acquired and $5.5 million for
settlement of accounts receivable from the former parent company.
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The final purchase price allocation based on the estimated fair values, or other measurements as
applicable, of the assets acquired and the liabilities assumed at the date of acquisition is as
follows (in millions at the prevailing exchange rate at April 30, 2007):
| April 30, 2007 | ||||
Assets |
||||
Cash |
$ | 12.3 | ||
Accounts receivable |
27.8 | |||
Inventories |
29.2 | |||
Property, plant and equipment |
2.5 | |||
Other current and noncurrent assets |
0.3 | |||
Total assets |
$ | 72.1 | ||
Liabilities |
||||
Current liabilities |
$ | 40.5 | ||
Other liabilities |
1.4 | |||
Pension liabilities |
40.1 | |||
Total liabilities |
$ | 82.0 | ||
NSW had revenues of approximately $120 million in 2006 the last year before the acquisition (based
on 2006 average exchange rates) and has approximately 400 employees. NSW offers complete solutions
for submarine cable systems including manufacturing, engineering, seabed mapping, project
management, and installation for the offshore communications, energy exploration, transmission,
distribution, and alternative energy markets. Pro forma results of the NSW acquisition are not
material.
The results of operations of the acquired businesses discussed above have been included in the
consolidated financial statements since the respective dates of acquisition.
4. Other Expense
Other expense includes foreign currency transaction gains or losses, which result from changes in
exchange rates between the designated functional currency and the currency in which a transaction
is denominated. During 2008, 2007 and 2006, the Company recorded a $27.2 million loss, $3.4
million loss and a $0.1 million loss, respectively, resulting from foreign currency transaction
gains and losses. The change 2008 over 2007 is primarily the result of the rapid and significant
devaluation of certain emerging market currencies principally in South America and Sub-Sahara
Africa.
5. Inventories
Inventories consisted of the following (in millions):
| December 31, | ||||||||
| 2008 | 2007 | |||||||
Raw materials |
$ | 197.4 | $ | 145.5 | ||||
Work in process |
168.9 | 154.3 | ||||||
Finished goods |
586.9 | 629.0 | ||||||
Total |
$ | 953.2 | $ | 928.8 | ||||
At December 31, 2008 and December 31, 2007, $610.1 million and $616.6 million, respectively, of
inventories were valued using the LIFO method. Approximate replacement costs of inventories valued
using the LIFO method totaled $505.9 million at December 31, 2008 and $792.3 million at December
31, 2007.
If in some future period the Company was not able to recover the LIFO value of its inventory when
replacement costs were lower than the LIFO value of the inventory, the Company would be required to
record a lower of cost or market LIFO inventory adjustment to recognize the charge in its
consolidated statement of operations. In 2008, a $32.0 million lower of cost or market provision
was recorded for copper and aluminum raw material inventory in which the replacement costs at the
end of the year were lower than the LIFO value of the acquired copper and aluminum raw material
inventory. Approximately, $23.6 million of the lower of cost or market adjustment is attributable
to the high LIFO value of metal inventory acquired in the PDIC acquisition. In 2007, a $4.5 million
lower of cost or market provision was recorded for copper and aluminum raw material inventory
obtained as a result of the PDIC acquisition in which the replacement costs at the end of the year
were lower than the LIFO value of the acquired copper and aluminum raw material inventory. There
was no lower of cost or market provision recorded in 2006. Additionally, during 2008 and 2007,
the Company reduced copper and aluminum inventory quantities globally, during which time the
replacement costs throughout the year exceeded the LIFO value for the majority of the year, which
resulted in a $2.4 million and $0.1 million gain, respectively.
At December 31, 2008 and 2007, the Company had approximately $30.2 million and $38.8 million,
respectively of consignment inventory at locations not operated by the Company with approximately
74%, respectively, of the consignment inventory being located throughout the United States and
Canada.
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6. Property, Plant and Equipment
Property, plant and equipment consisted of the following (in millions):
| December 31, | ||||||||
| 2008 | 2007 | |||||||
Land |
$ | 93.1 | $ | 84.4 | ||||
Buildings and leasehold improvements |
214.7 | 186.7 | ||||||
Machinery, equipment and office furnishings |
783.3 | 670.9 | ||||||
Construction in progress |
121.0 | 95.0 | ||||||
Total — gross book value |
1,212.1 | 1,037.0 | ||||||
Less accumulated depreciation |
(331.2 | ) | (298.2 | ) | ||||
Total — net book value |
$ | 880.9 | $ | 738.8 | ||||
Depreciation expense totaled $75.5 million, $55.8 million and $45.5 million for the years ended
December 31, 2008, 2007 and 2006, respectively.
During the fourth quarter 2007, the Company rationalized outside plant telecommunication products
manufacturing capacity due to continued declines in telecommunications cable demand. The Company
closed a portion of its telecommunications capacity and has taken a pre-tax charge to write-off
certain production equipment of $6.6 million. This action will free approximately 100,000 square
feet of manufacturing space, which the Company plans to utilize for other products for the Central
and South American markets.
On December 27, 2005, General Cable entered into a capital lease for certain pieces of equipment
being used at the Company’s Indianapolis polymer plant. The capital lease agreement provides that
the lease payments for the machinery and equipment will be approximately $0.6 million
semi-annually, or approximately $1.2 million on an annual basis. The lease expires in December of
2010, and General Cable has the option to purchase the machinery and equipment for fair value at
the end of the lease term. The present value of the minimum lease payments on the capital lease at
inception was approximately $5.0 million which is reflected in fixed assets and in short-term and
long-term lease obligations in the Company’s consolidated balance sheet. The Company has not
entered into a material capital lease in 2007 or 2008.
Capital leases included within property, plant and equipment on the balance sheet were $5.3 million
at December 31, 2008 and $5.7 million at December 31, 2007. Accumulated depreciation on capital
leases was $3.2 million at December 31, 2008 and $2.5 million at December 31, 2007.
7. Goodwill and Other Intangible Assets, net
The amounts of goodwill and indefinite-lived intangible assets were as follows in millions of
dollars:
| Goodwill | Indefinite-lived assets – Trade names | |||||||||||||||||||||||||||||||
| North | Europe and | North | Europe and | |||||||||||||||||||||||||||||
| America | North Africa | ROW | Total | America | North Africa | ROW | Total | |||||||||||||||||||||||||
Balance at January 1, 2007 |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | 0.5 | $ | — | $ | 0.5 | ||||||||||||||||
Acquisitions |
— | — | 116.1 | 116.1 | — | — | 132.4 | 132.4 | ||||||||||||||||||||||||
Currency translation and
other adjustments(1) |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Balance at December 31, 2007 |
— | — | 116.1 | 116.1 | — | 0.5 | 132.4 | 132.9 | ||||||||||||||||||||||||
Acquisitions |
0.8 | 26.4 | 43.6 | 70.8 | — | — | — | — | ||||||||||||||||||||||||
Currency translation and
other adjustments |
— | (3.5 | ) | (11.5 | ) | (15.0 | ) | — | — | (9.8 | ) | (9.8 | ) | |||||||||||||||||||
Balance at December 31, 2008 |
$ | 0.8 | $ | 22.9 | $ | 148.2 | $ | 171.9 | $ | — | $ | 0.5 | $ | 122.6 | $ | 123.1 | ||||||||||||||||
| (1) | The Company did not record currency translation or other purchase price allocation adjustments during 2007 because the
acquisition of PDIC occurred on October 31, 2007. |
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Acquisitions during 2008 include goodwill of $26.4 million, before currency translation
adjustments, related to the acquisition of Enica Biskra in the Company’s Europe and North Africa
segment as well as final purchase accounting allocation adjustments of $43.6 million in 2008 in the
Company’s ROW segment related to the acquisition of PDIC. The amount of goodwill of $159.7 million,
before currency translation adjustments, recognized for the PDIC acquisition reflects
the fair market value of PDIC in excess of the fair value of identified intangible assets and
tangible net assets as of the date of the acquisition October 31, 2007. The Company finalized the
purchase price allocation for the PDIC acquisition in October 2008, which included, among other
things, the finalization of asset and liability valuations and the related tax impact. Goodwill
and trade names were not impaired as a result of the annual impairment testing performed by the
Company in accordance with Financial Accounting Standard Board No. 142, “Goodwill and Other
Intangible Assets”.
The amounts of other intangible assets — customer relationships were as follows in millions of
dollars:
| December 31 | ||||||||
| 2008 | 2007 | |||||||
Amortized intangible assets: |
||||||||
Customer relationships |
$ | 106.4 | $ | 106.4 | ||||
Accumulated amortization |
(19.1 | ) | (2.6 | ) | ||||
Foreign currency translation adjustment |
(8.6 | ) | — | |||||
Total Amortized intangible assets |
$ | 78.7 | $ | 103.8 | ||||
As part of the PDIC acquisition and the related purchase accounting adjustments, the Company
acquired certain trade names and customer relationships for which the fair market value as of
October 31, 2007 was $132.4 million and $104.9 million, respectively, before currency translation
adjustments. Amortized intangible assets are stated at cost less accumulated amortization as of
December 31, 2008 and 2007. Customer relationships have been determined to have a useful life in
the range of 3.5 to 10 years and the Company has accelerated the amortization expense to align with
the historical customer attrition rates. The amortization of intangible assets in 2008 and 2007
was $16.5 million and $14.8 million, respectively. The estimated amortization expense for the next
five years is in millions of dollars: 2009 — $14.1 million, 2010 — $13.2 million, 2011 — $10.1
million, 2012 — $8.5 million, and 2013 — $7.6 million and $25.2 million thereafter.
8. Accrued Liabilities
Accrued liabilities consisted of the following (in millions):
| December 31, | ||||||||
| 2008 | 2007 | |||||||
Payroll related accruals |
$ | 85.1 | $ | 87.4 | ||||
Customers deposits and prepayments |
33.5 | 34.2 | ||||||
Taxes other than income |
17.9 | 26.5 | ||||||
Customer rebates |
78.8 | 93.0 | ||||||
Insurance claims and related expenses |
15.6 | 23.5 | ||||||
Current deferred tax liability |
11.7 | 28.8 | ||||||
Derivative liability |
64.7 | 11.1 | ||||||
Other accrued liabilities |
116.0 | 92.8 | ||||||
Total |
$ | 423.3 | $ | 397.3 | ||||
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9. Long-Term Debt
Long-term debt consisted of the following (in millions):
| December 31 | ||||||||
| 2008 | 2007 | |||||||
1.00% Senior Convertible Notes due 2012 |
$ | 475.0 | $ | 475.0 | ||||
0.875% Convertible Notes due 2013 |
355.0 | 355.0 | ||||||
7.125% Senior Notes due 2017 |
200.0 | 200.0 | ||||||
Senior Floating Rate Notes |
125.0 | 125.0 | ||||||
Silec credit facilities |
84.9 | 63.5 | ||||||
PDIC credit facilities |
71.5 | 37.7 | ||||||
Spanish Term Loan |
64.1 | 31.3 | ||||||
Asset Based Loan |
— | 60.0 | ||||||
Capital leases |
2.3 | 3.4 | ||||||
Other |
68.8 | 47.9 | ||||||
Total debt |
1,446.6 | 1,398.8 | ||||||
Less current maturities |
230.5 | 500.9 | ||||||
Long-term debt |
$ | 1,216.1 | $ | 897.9 | ||||
Weighted average interest rates on the above outstanding balances were as follows:
1.00% Senior Convertible Notes due 2012 |
1.00 | % | 1.00 | % | ||||
0.875% Convertible Notes due 2013 |
0.875 | % | 0.875 | % | ||||
7.125% Senior Notes due 2017 |
7.125 | % | 7.125 | % | ||||
Senior Floating Rate Notes |
6.3 | % | 7.6 | % | ||||
Silec credit facilities |
4.4 | % | 4.8 | % | ||||
PDIC credit facilities |
5.3 | % | 6.4 | % | ||||
Spanish Term Loan |
4.4 | % | 5.1 | % | ||||
Asset Based Loan |
— | % | 6.3 | % | ||||
Capital leases |
6.5 | % | 6.5 | % | ||||
Other |
5.8 | % | 4.6 | % |
1.00% Senior Convertible Notes
The Company’s 1.00% Senior Convertible Notes were issued in September 2007 in the amount of $475.0
million. The notes were sold to qualified institutional buyers in reliance on Rule 144A under the
Securities Act of 1933, as amended (the “Securities Act”). Subsequently, on April 16, 2008, the
notes and the common stock issuable upon conversion of the notes were registered on a Registration
Statement on Form S-3. The 1.00% Senior Convertible Notes bear interest at a fixed rate of 1.00%,
payable semi-annually in arrears, and mature in 2012. The 1.00% Senior Convertible Notes are
unconditionally guaranteed, jointly and severally, on a senior unsecured basis, by the Company’s
wholly-owned U.S. and Canadian subsidiaries. The estimated fair value of the 1.00% Senior
Convertible Notes was approximately $285.0 million at December 31, 2008.
The 1.00% Senior Convertible Notes are convertible at the option of the holder into the Company’s
common stock at an initial conversion price of $83.93 per share (approximating 11.9142 shares per
$1,000 principal amount of the 1.00% Senior Convertible Notes), upon the occurrence of certain
events, including (i) during any calendar quarter commencing after March 31, 2008 in which the
closing price of the Company’s common stock is greater than or equal to 130% of the conversion
price for at least 20 trading days during the period of 30 consecutive trading days ending on the
last trading day of the preceding calendar quarter (establishing a contingent conversion price of
$109.11); (ii) during any five business day period after any five consecutive trading day period in
which the trading price per $1,000 principal amount of 1.00% Senior Convertible Notes for each day
of that period is less than 98% of the product of the closing sale price of the Company’s common
stock and the applicable conversion rate; (iii) distributions to holders of the Company’s common
stock are made or upon specified corporate transactions including a consolidation or merger; and
(iv) at any time during the period beginning on September 15, 2012 and ending on the close of
business on the business day immediately preceding the stated maturity date. In addition, upon
events defined as a “fundamental change” under the 1.00% Senior Convertible Note indenture, holders
of the 1.00% Senior Convertible Notes may require the Company to repurchase the 1.00% Senior
Convertible Notes. If upon the occurrence of such events in which the holders of the 1.00% Senior
Convertible Notes exercise the conversion provisions, the Company would need to remit the principal
balance of the 1.00% Senior Convertible Notes to the holders in cash.
Therefore, in the event of “fundamental change’ or the aforementioned average pricing thresholds,
the Company would be required to classify the entire amount outstanding of the 1.00% Senior
Convertible Notes as a current liability. The
evaluation of the classification of amounts outstanding associated with the 1.00% Senior
Convertible Notes will occur every quarter.
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Upon conversion, a holder will receive, in lieu of common stock, an amount of cash equal to the
lesser of (i) the principal amount of 1.00% Senior Convertible Note, or (ii) the conversion value,
determined in the manner set forth in the indenture governing the 1.00% Senior Convertible Notes,
of a number of shares equal to the conversion rate. If the conversion value exceeds the principal
amount of the 1.00% Senior Convertible Note on the conversion date, the Company will also deliver,
at the Company’s election, cash or common stock or a combination of cash and common stock with
respect to the conversion value upon conversion. If conversion occurs in connection with a
“fundamental change” as defined in the 1.00% Senior Convertible Notes indenture, the Company may be
required to repurchase the 1.00% Senior Convertible Notes for cash at a price equal to the
principal amount plus accrued but unpaid interest. In addition, if conversion occurs in connection
with certain changes in control, the Company may be required to deliver additional shares of the
Company’s common stock (a “make whole” premium, not to exceed 15.1906 shares per $1,000 principal
amount) by increasing the conversion rate with respect to such notes, under this scenario the
maximum aggregate number of shares that the Company would be obligated to issue upon conversion of
the 1.00% Senior Convertible Notes is 7,215,535. Under almost all other conditions, the Company may
be obligated to issue additional shares up to a maximum of 5,659,245 upon conversion in full of the
1.00% Senior Convertible Notes.
Pursuant to Emerging Issues Task Force (“EITF”) 90-19, “Convertible Bonds with Issuer Option to
Settle for Cash upon Conversion,” EITF 00-19, “Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”), and EITF 01-6, “The
Meaning of Indexed to a Company’s Own Stock” (“EITF 01-6”), the 1.00% Senior Convertible Notes are
accounted for as convertible debt in the accompanying Consolidated Balance Sheet and the embedded
conversion option in the 1.00% Senior Convertible Notes has not been accounted for as a separate
derivative. For a discussion of the effects of the 1.00% Senior Convertible Notes on earnings per
share, see Note 15.
Proceeds from the 1.00% Senior Convertible Notes were used to partially fund the purchase price of
$707.6 million related to the PDIC acquisition and to pay approximately $12.3 million in debt
issuance costs that are being amortized to interest expense over the term of the 1.00 % Senior
Convertible Notes.
0.875% Convertible Notes
The Company’s 0.875% Convertible Notes were issued in November of 2006 in the amount of $355.0
million, pursuant to the Company’s effective Registration Statement on Form S-3. The 0.875%
Convertible Notes bear interest at a fixed rate of 0.875%, payable semi-annually in arrears, and
mature in 2013. The 0.875% Convertible Notes are unconditionally guaranteed, jointly and
severally, on a senior unsecured basis, by the Company’s wholly-owned U.S. subsidiaries. The
estimated fair value of the 0.875% Convertible Notes was approximately $184.6 million at December
31, 2008.
The 0.875% Convertible Notes are convertible at the option of the holder into the Company’s common
stock at an initial conversion price of $50.36 per share (approximating 19.856 shares per $1,000
principal amount of the 0.875% Convertible Notes), upon the occurrence of certain events, including
(i) during any calendar quarter commencing after March 31, 2007 in which the closing price of the
Company’s common stock is greater than or equal to 130% of the conversion price for at least 20
trading days during the period of 30 consecutive trading days ending on the last trading day of the
preceding calendar quarter (establishing a contingent conversion price of $65.47 per share); (ii)
during any five business day period after any five consecutive trading day period in which the
trading price per $1,000 principal amount of 0.875% Convertible Notes for each day of that period
is less than 98% of the product of the closing sale price of the Company’s common stock and the
applicable conversion rate; (iii) distributions to holders of the Company’s common stock are made
or upon specified corporate transactions including a consolidation or merger; and (iv) at any time
during the period beginning on October 15, 2013 and ending on the close of business on the business
day immediately preceding the stated maturity date. In addition, upon events defined as a
“fundamental change” under the 0.875% Convertible Note indenture, holders of the 0.875% Convertible
Notes may require the Company to repurchase the 0.875% Convertible Notes. If upon the occurrence
of such events in which the holders of the 0.875% Convertible Notes exercise the conversion
provisions, the Company would need to remit the principal balance of the 0.875% Convertible Notes
to the holders in cash.
Therefore, in the event of “fundamental change’ or the aforementioned average pricing thresholds,
the Company would be required to classify the entire amount outstanding of the 0.875% Convertible
Notes as a current liability. The evaluation of the classification of amounts outstanding
associated with the 0.875% Convertible Notes will occur every quarter. As a result the entire
$355.0 million has been classified as a current liability as of December 31, 2007 because the
average stock price has exceeded the conversion threshold of $65.47 for 20 trading days during the
period of 30 consecutive trading days ending on the last trading day of the previous calendar
quarter. However, as the average stock price did not exceed the conversion threshold for the 20
days during the 30 consecutive trading days ending the calendar year, the entire $355.0 million was
classified as a non-current liability as of December 31, 2008.
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Upon conversion, a holder will receive, in lieu of common stock, an amount of cash equal to the
lesser of (i) the principal amount of 0.875% Convertible Note, or (ii) the conversion value,
determined in the manner set forth in the indenture governing the 0.875% Convertible Notes, of a
number of shares equal to the conversion rate. If the conversion value exceeds the principal
amount of the 0.875% Convertible Note on the conversion date, the Company will also deliver, at the
Company’s election, cash or common stock or a combination of cash and common stock with respect to
the conversion value upon conversion. If conversion occurs in connection with a “fundamental
change” as defined in the 0.875% Convertible Notes indenture, the Company may be required to
repurchase the 0.875% Convertible Notes for cash at a price equal to the principal amount plus
accrued but unpaid interest. In addition, if conversion occurs in connection with certain changes
in control, the Company may be required to deliver additional shares of the Company’s common stock
(a “make whole” premium) by increasing the conversion rate with respect to such notes, under this
scenario the maximum aggregate number of shares that the Company would be obligated to issue upon
conversion of the 0.875% Convertible Notes is 8,987,322. Under almost all other conditions, the
Company may be obligated to issue additional shares up to a maximum of 7,048,880 upon conversion in
full of the 0.875% Convertible Notes.
Pursuant to Emerging Issues Task Force (“EITF”) 90-19, “Convertible Bonds with Issuer Option to
Settle for Cash upon Conversion,” EITF 00-19, “Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”), and EITF 01-6, “The
Meaning of Indexed to a Company’s Own Stock” (“EITF 01-6”), the 0.875% Convertible Notes are
accounted for as convertible debt in the accompanying Condensed Consolidated Balance Sheet and the
embedded conversion option in the 0.875% Convertible Notes has not been accounted for as a separate
derivative. For a discussion of the effects of the 0.875% Convertible Notes and the bond hedges
and warrants discussed below on earnings per share, see Note 15.
Concurrent with the sale of the 0.875% Convertible Notes, the Company purchased note hedges that
are designed to mitigate potential dilution from the conversion of the 0.875% Convertible Notes in
the event that the market value per share of the Company’s common stock at the time of exercise is
greater than approximately $50.36. Under the note hedges that cover approximately 7,048,880 shares
of the Company’s common stock, the counterparties are required to deliver to the Company either
shares of the Company’s common stock in the amount that the Company delivers to the holders of the
0.875% Convertible Notes with respect to a conversion, calculated exclusive of shares deliverable
by the Company by reason of any additional make whole premium relating to the 0.875% Convertible
Notes or by reason of any election by the Company to unilaterally increase the conversion rate as
permitted by the indenture governing the 0.875% Convertible Notes. The note hedges expire at the
close of trading on November 15, 2013, which is also the maturity date of the 0.875% Convertible
Notes, although the counterparties will have ongoing obligations with respect to 0.875% Convertible
Notes properly converted on or prior to that date as to which the counterparties have been timely
notified.
In addition, the Company issued warrants to counterparties that could require the Company to issue
up to approximately 7,048,880 shares of the Company’s common stock in equal installments on each of
the fifteen consecutive business days beginning on and including February 13, 2014. The strike
price is $76.00 per share, which represents a 92.4% premium over the closing price of the Company’s
shares of common stock on November 9, 2006. The warrants are expected to provide the Company with
some protection against increases in the common stock price over the conversion price per share.
The note hedges and warrants are separate and legally distinct instruments that bind the Company
and the counterparties and have no binding effect on the holders of the 0.875% Convertible Notes.
In addition, pursuant to EITF 00-19 and EITF 01-6, the note hedges and warrants are accounted for
as equity transactions. Therefore, the payment associated with the issuance of the note hedges and
the proceeds received from the issuance of the warrants were recorded as a charge and an increase,
respectively, in additional paid-in capital in shareholders’ equity as separate equity
transactions.
For income tax reporting purposes, the Company has elected to integrate the 0.875% Convertible
Notes and the note hedges. Integration of the note hedges with the 0.875% Convertible Notes
creates an original issue discount (“OID”) debt instrument for income tax reporting purposes.
Therefore, the cost of the note hedges will be accounted for as interest expense over the term of
the 0.875% Convertible Notes for income tax reporting purposes.
Proceeds from the offering were used to pay down $87.8 million outstanding, including accrued
interest, under the Company’s Amended Credit Facility, to pay $124.5 million for the cost of the
note hedges, and to pay approximately $9.4 million in debt issuance costs that are being amortized
to interest expense over the term of the 0.875% Convertible Notes. Additionally, the Company
received $80.4 million in proceeds from the issuance of the warrants. At the conclusion of these
transactions, the net effect of the receipt of the funds from the 0.875% Convertible Notes and the
payments and proceeds mentioned above was an increase in cash of approximately $213.7 million,
which is being used by the Company for general corporate purposes including acquisitions.
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7.125% Senior Notes and Senior Floating Rate Notes
On March 21, 2007, the Company completed the issuance and sale of $325.0 million in aggregate
principal amount of new senior unsecured notes, comprised of $125.0 million of Senior Floating Rate
Notes due 2015 (the “Senior Floating Rate Notes”) and $200.0 million of 7.125% Senior Fixed Rate
Notes due 2017 (the “7.125% Senior Notes” and together, the “Notes”). The Notes are jointly and
severally guaranteed by the Company’s U.S. subsidiaries. The Notes were offered and sold in
private transactions in accordance with Rule 144A and Regulation S under the Securities Act of
1933, as amended (the “Securities Act”). An exchange offer commenced on June 11, 2007 and was
completed on July 26, 2007 to replace the unregistered Notes with registered Notes with like terms
pursuant to an effective Registration Statement on Form S-4. The Notes are jointly and severally
guaranteed by the Company’s wholly-owned U.S. subsidiaries. The estimated fair value of the 7.125%
Senior Notes and Senior Floating Rate Notes was approximately $132.8 million and $59.2 million,
respectively, at December 31, 2008.
The Senior Floating Rate Notes bear interest at an annual rate equal to the 3-month LIBOR rate plus
2.375%, which combine for a rate of 6.3% at December 31, 2008. Interest on the Senior Floating
Rate Notes is payable quarterly in arrears in cash on January 1, April 1, July 1 and October 1 of
each year, commencing on July 1, 2007. The 7.125% Senior Notes bear interest at a rate of 7.125%
per year and are payable semi-annually in arrears in cash on April 1 and October 1 of each year,
commencing on October 1, 2007. The Senior Floating Rate Notes mature on April 1, 2015 and the
7.125% Senior Notes mature on April 1, 2017.
The Notes’ indenture contains covenants that limit the ability of the Company and certain of its
subsidiaries to (i) pay dividends on, redeem or repurchase the Company’s capital stock; (ii) incur
additional indebtedness; (iii) make investments; (iv) create liens; (v) sell assets; (vi) engage in
certain transactions with affiliates; (vii) create or designate unrestricted subsidiaries; and
(viii) consolidate, merge or transfer all or substantially all assets. However, these covenants
are subject to important exceptions and qualifications, one of which will permit the Company to
declare and pay dividends or distributions on the Series A preferred stock so long as there is no
default on the Notes and the Company meets certain financial conditions.
The Company may, at its option, redeem the Senior Floating Rate Notes and 7.125% Senior Notes on or
after the following dates and at the following percentages plus accrued and unpaid interest:
| Senior Floating Rate Notes | 7.125% Senior Notes | |||||||||||
| Beginning Date | Percentage | Beginning Date | Percentage | |||||||||
April 1, 2009 |
102.000 | % | April 1, 2012 | 103.563 | % | |||||||
April 1, 2010 |
101.000 | % | April 1, 2013 | 102.375 | % | |||||||
April 1, 2011 |
100.000 | % | April 1, 2014 | 101.188 | % | |||||||
| April 1, 2015 | 100.000 | % | ||||||||||
Proceeds from the Notes of $325.0 million, less approximately $7.9 million of cash payments for
fees and expenses that will be amortized over the life of the Notes, were used to pay approximately
$285.0 million for the 9.5% Senior Notes, $9.3 million for accrued interest on the 9.5% Senior
Notes and $20.5 million for tender fees and the inducement premium on the 9.5% Senior Notes,
leaving net cash proceeds of approximately $2.3 million that will be used for general corporate
purposes.
Silec credit facilities
As of December 31, 2008, Silec’s debt was the U.S. dollar equivalent of $84.9 million. The debt
consisted of approximately $41.5 million relating to an uncommitted accounts receivable facility of
up to $69.9 million and approximately $43.4 million of short-term financing agreements of up to
$50.4 million. The Company has approximately $28.4 million of excess availability under the
uncommitted accounts receivable facility and $7.0 million availability under the short-term
financing agreements. The weighted average interest rate for the uncommitted accounts receivable
facility and the short-term financing arrangements was 4.4%.
PDIC credit facilities
On October 31, 2007 the Company acquired PDIC and assumed the U.S. dollar equivalent of $64.3
million (at the prevailing exchange rate on that date) of mostly short-term PDIC debt as a part of
the acquisition. As of December 31, 2008, PDIC related debt was $71.5 million of which
approximately $71.0 million was short-term financing agreements at various interest rates. The
weighted average interest rate was 5.3% as of December 31, 2008. The Company has approximately
$338.0 million of excess availability, subject to certain conditions as defined, under these
various credit facilities.
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Spanish Term Loan and Spanish Credit Facility
The Spanish Term Loan of 50 million euros was issued in December 2005 and was available in up to
three tranches, with an interest rate of Euribor plus 0.8% to 1.5% depending on certain debt
ratios. Two of the tranches have expired. The
remaining tranche (maturing in 2012) was paid and terminated, in June 2008, with net payment of
approximately 27.2 million euros or $43.0 million. In February 2008, the Company entered into a
term loan in the amount of 20 million euros with an interest rate of Euribor plus 0.5%. The term
loan is payable in semi-annual installments, due in August and February, maturing in February 2013.
Simultaneously, the Company entered into a fixed interest rate swap to coincide with the terms and
conditions of the term loan starting in August 2008 and maturing in February 2013 that will
effectively hedge the variable interest rate with a fixed interest rate of 4.2%. In April 2008,
the Company entered into a term loan in the amount of 10 million euros with an interest rate of
Euribor plus 0.75%. The term loan is payable in semi-annual installments, due in April and October,
maturing in April 2013. Simultaneously, the Company entered into a fixed interest rate swap to
coincide with the terms and conditions of the term loan starting in October 2008 and maturing in
April 2013 that will effectively hedge the variable interest rate with a fixed interest rate of
4.58%. In June 2008, the Company entered into a term loan in the amount of 21 million euros with
an interest rate of Euribor plus 0.75%. The term loan is payable in quarterly installments, due in
March, June, September and December, maturing in June 2013. Simultaneously, the Company entered
into a fixed interest rate swap to coincide with the terms and conditions of the term loan starting
in September 2008 and maturing in June 2013 that will effectively hedge the variable interest rate
with a fixed interest rate of 4.48%. As of December 31, 2008, the U.S. dollar equivalent of $64.1
million was outstanding under these term loan facilities. The proceeds were was used to partially
fund the acquisition of Enica Biskra and for general working capital purposes. There is no
remaining availability under these Spanish Term Loans. The weighted average interest rate
including the effect of the interest rate swaps was 4.4% under these term loan facilities as of
December 31, 2008.
Three Spanish Credit Facilities totaling 45 million euros were established in 2008, and mature in
2010, 2011 and 2013 and carry an interest rate of Euribor plus 0.4% to 0.65% depending on certain
debt ratios. No funds are currently drawn under these facilities, leaving undrawn availability of
approximately the U.S. dollar equivalent of $62.8 million as of December 31, 2008. Commitment fees
ranging from 15 to 25 basis points per annum on any unused commitments under these credit
facilities are payable on a quarterly basis.
The Spanish Term Loan and Spanish Credit Facility are subject to certain financial ratios of the
Company’s European subsidiaries, which includes minimum net
equity and net debt to EBITDA (earnings
before interest, taxes, depreciation and amortization). At December 31, 2008, the Company was in
compliance with all covenants under these facilities. In addition, the indebtedness under the
combined facilities is guaranteed by the Company’s Portuguese subsidiary and by Silec Cable, S.A.
Senior Secured Revolving Credit Facility (“Amended Credit Facility”)
The Company’s current senior secured revolving credit facility (“Amended Credit Facility”), as
amended, is a five-year, $400.0 million asset based revolving credit agreement that includes an
approximate $50.0 million sublimit for the issuance of commercial and standby letters of credit and
a $20.0 million sublimit for swingline loans. Loans under the Amended Credit Facility bear
interest at the Company’s option, equal to either an alternate base rate (prime plus 0.00% to
0.625%) or an adjusted LIBOR rate plus an applicable margin percentage (LIBOR plus 1.125% to
1.875%). The applicable margin percentage is subject to adjustments based upon the excess
availability, as defined. At December 31, 2008, the Company had no outstanding borrowings and
undrawn availability of $301.3 million under the Amended Credit Facility. The Company had
outstanding letters of credit related to this Amended Credit Facility of $29.5 million at December
31, 2008.
Indebtedness under the Amended Credit Facility is guaranteed by the Company’s wholly-owned U.S.
subsidiaries and is secured by a first priority security interest in tangible and intangible
property and assets of the Company’s U.S. subsidiaries. The lenders have also received a pledge of
all of the capital stock of the Company’s existing domestic subsidiaries and any future domestic
subsidiaries.
The Amended Credit Facility requires that the Company comply with certain financial covenants, the
principal covenant of which is a quarterly minimum fixed charge coverage ratio test, which is only
applicable when excess availability, as defined, is below a certain threshold. At December 31,
2007, the Company was in compliance with all covenants under the Amended Credit Facility. In
addition, the Amended Credit Facility includes negative covenants, which restrict certain acts.
However, the Company will be permitted to declare and pay dividends or distributions on the Series
A preferred stock so long as there is no default under the Amended Credit Facility and the Company
meets certain financial conditions. The Credit Facility was originally established in November
2003 and has been periodically amended as illustrated at Exhibits 10.11.1 through 10.11.4, also
below is a summary of recent amendments which are also incorporated by reference at Exhibits
10.11.5 through 10.11.7.
During the first quarter of 2007, the Company further amended the Amended Credit Facility. The
amendment permitted the Company to issue senior notes of up to $350.0 million on an unsecured
basis, to enter into certain hedging agreements to exchange up to $100.0 million of any fixed rate
of interest on the senior notes for a floating rate and extend or replace existing hedging
agreements, to effect a cash tender offer to purchase at least a majority of the $285.0 million
outstanding
aggregate principal balance of the 9.5% Senior Notes, to pay fees and expenses related to the
tender offer, and to replenish a basket which would allow the Company to repurchase up to $125.0
million of its outstanding shares of common stock. This basket had previously been used to
purchase the note hedges discussed below.
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During the fourth quarter of 2007, the Company further amended the Amended Credit Facility, which
increased the borrowing limit on the Senior Revolving Credit Facility from $300 million to $400
million. Additionally, the amendment extended the maturity date by almost two years to July 2012,
and increased the existing interest rates across a pricing grid which is dependent upon excess
availability as defined. Additionally, the amendment eliminated or relaxed several provisions,
expanded permitted indebtedness to include acquired indebtedness of newly acquired foreign
subsidiaries, expanded permitted indebtedness to allow for the issuance of the Company’s $475.0
million 1.00% Senior Convertible Notes and increased the level of permitted loan-funded
acquisitions. The amendment permitted the Company to draw funds from its Amended Credit Facility
to partially fund the acquisition of Phelps Dodge International (PDIC) in conjunction with funds
raised through the abovementioned September 2007 1.00% Senior Convertible Notes offering and
available cash on the Company’s balance sheet.
The Company pays fees in connection with the issuance of letters of credit and commitment fees
equal to 25 basis points, per annum on any unused commitments under the Amended Credit Facility.
Both fees are payable quarterly. In connection with the original issuance and related subsequent
amendments to the Amended Credit Facility, the Company incurred fees and expenses aggregating $11.1
million, which are being amortized over the term of the Amended Credit Facility.
Other
As of December 31, 2008, ECN Cable’s debt was the U.S. dollar equivalent of $17.4 million. The debt
consisted of approximately $1.8 million relating to an uncommitted accounts receivable facility of
up to $23.9 million and approximately $15.6 million of credit facilities of up to $54.1 million.
The Company has approximately $60.6 million of excess availability under the uncommitted accounts
receivable facility and the credit facilities. The weighted average interest rate for the
uncommitted accounts receivable facility and the credit facilities was 5.8%.
At December 31, 2008, maturities of long-term debt during each of the years 2009 through 2013 are
$229.4 million, $15.7 million, $14.7 million, $489.7 million, $360.8 million, respectively, and
$334.0 million thereafter.
As of December 31, 2008 and 2007, the Company was in compliance with all debt covenants. In
certain cases, the Company credit facilities discussed above are limited based on transaction and
collateral level requirements, as defined in the respective credit facility contract(s).
Maturities of capital lease obligations during each of the years 2009 and 2010 through $1.1 million
and $1.2 million, respectively.
10. Financial Instruments
General Cable is exposed to various market risks, including changes in interest rates, foreign
currency and raw material (commodity) prices. To manage risks associated with the volatility of
these natural business exposures, General Cable enters into interest rate, commodity and foreign
currency derivative agreements, as it relates to both transactions and the Company’s net investment
in its European operations, as well as copper and aluminum forward pricing agreements. General
Cable does not purchase or sell derivative instruments for trading purposes. General Cable does
not engage in trading activities involving commodity contracts for which a lack of marketplace
quotations would necessitate the use of fair value estimation techniques. Depending on the extent
of an unrealized loss position on a derivative contract held by the Company, certain counterparties
may require a deposit to secure the derivative contract position. The
Company recorded $8.7
million in prepaid expenses and other assets line item on the consolidated balance sheet as of
December 31, 2008. No such deposit was required as of December 31, 2007.
Cash Flow Hedges
General Cable utilizes interest rate swaps to manage its interest expense exposure by fixing its
interest rate on a portion of the Company’s floating rate debt. Under the swap agreements, General
Cable typically pays a fixed rate while the counterparty pays to General Cable the difference
between the fixed rate and the floating rate. The Company has entered into interest rate swaps on
the Company’s Spanish Term Loans. The interest rate swaps were effective beginning in August,
September, and October of 2008 as discussed above in Note 9. As of December 31, 2008, in addition
to the above mentioned Spanish Term Loans related interest rate swaps, the Company has one
outstanding interest rate swap with a notional value of $9.0 million and provides for fixed a
interest rate of 4.49% which matures in October 2011. The Company does not provide or receive any
collateral specifically for this contract. The fair value of interest rate derivatives, which are
designated as and qualify as cash
flow hedges as defined in SFAS No. 133, are based on quoted market prices, which reflect the
present values of the difference between estimated future variable-rate receipts and future
fixed-rate payments. At December 31, 2008 and December 31, 2007, the net unrealized loss on the
interest rate derivative and the related carrying value was $0.7 million and $0.5 million,
respectively.
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Outside of North America, General Cable enters into commodity futures contracts, which are
designated as and qualify as cash flow hedges as defined in SFAS No. 133, for the purchase of
copper and aluminum for delivery in a future month to match certain sales transactions. At December
31, 2008 and 2007, General Cable had an unrealized loss of $84.7 million and $18.8 million,
respectively, on the commodity futures.
The Company enters into forward exchange contracts, which are designated as and qualify as cash
flow hedges as defined in SFAS No. 133, principally to hedge the currency fluctuations in certain
transactions denominated in foreign currencies, thereby limiting the Company’s risk that would
otherwise result from changes in exchange rates. Principal transactions hedged during the year were
firm sales and purchase commitments. The fair value of foreign currency contracts represents the
amount required to enter into offsetting contracts with similar remaining maturities based on
quoted market prices. At December 31, 2008 and 2007, the net unrealized gain on the net foreign
currency contracts was $0.4 million and $8.2 million, respectively.
Unrealized gains and losses on the Company’s derivative financial instruments are recorded in other
comprehensive income (loss) until the underlying transaction occurs and is recorded in the
statement of operations at which point such amounts included in other comprehensive income (loss)
are recognized in income, which generally will occur over periods less than one year. During the
years ended December 31, 2008, 2007 and 2006, a pre-tax $5.5 million loss, a pre-tax $0.9 million
loss and a pre-tax $20.9 million gain, respectively, were reclassified from accumulated other
comprehensive income to the statement of operations. A pre-tax loss of $62.5 million is expected
to be reclassified into earnings from other comprehensive income during 2009.
Fair Value of Designated Derivatives
The notional amounts and fair values of these designated cash flow financial instruments at
December 31, 2008 and 2007 are shown below (in millions). The carrying amount of the financial
instruments was a net liability of $85.0 million and a net liability of $11.1 million at December
31, 2008 and 2007, respectively.
| 2008 | 2007 | |||||||||||||||
| Notional | Fair | Notional | Fair | |||||||||||||
| Amount | Value | Amount | Value | |||||||||||||
Cash flow hedges: |
||||||||||||||||
Interest rate swap |
$ | 74.6 | $ | (0.7 | ) | $ | 9.0 | $ | (0.5 | ) | ||||||
Commodity futures |
198.1 | (84.7 | ) | 297.7 | (18.8 | ) | ||||||||||
Foreign currency forward exchange |
438.3 | 0.4 | 380.5 | 8.2 | ||||||||||||
| $ | (85.0 | ) | $ | (11.1 | ) | |||||||||||
Other Forward Pricing Agreements
In the normal course of business, General Cable enters into forward pricing agreements for the
purchase of copper and aluminum for delivery in a future month to match certain sales transactions.
The Company accounts for these forward pricing arrangements under the “normal purchases and normal
sales” scope exemption of SFAS No. 133 because these arrangements are for purchases of copper and
aluminum that will be delivered in quantities expected to be used by the Company over a reasonable
period of time in the normal course of business. For these arrangements, it is probable at the
inception and throughout the life of the arrangements that the arrangements will not settle net and
will result in physical delivery of the inventory. At December 31, 2008 and 2007, General Cable
had $90.5 million and $90.1 million, respectively, of future copper and aluminum purchases that
were under forward pricing agreements. At December 31, 2008 and 2007, General Cable had an
unrealized loss of $25.1 million and $4.0 million, respectively, related to these transactions. The
fair market value of the forward pricing agreements was $65.4 million and $86.1 million at December
31, 2008 and 2007, respectively. General Cable expects the unrealized losses under these
agreements to be offset as a result of firm sales price commitments with customers.
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11. Income Taxes
For financial reporting purposes, income before income taxes includes the following components:
| Year Ended December 31, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
United States |
$ | 111.1 | $ | 112.6 | $ | 72.1 | ||||||
Foreign |
227.3 | 195.2 | 128.1 | |||||||||
Total |
$ | 338.4 | $ | 307.8 | $ | 200.2 | ||||||
The provision (benefit) for income taxes attributable to continuing operations consisted of the
following (in millions):
| Year Ended December 31, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
Current tax expense: |
||||||||||||
Federal |
$ | 20.7 | $ | 24.4 | $ | 6.8 | ||||||
State |
2.0 | 3.8 | 0.3 | |||||||||
Foreign |
78.7 | 59.7 | 53.1 | |||||||||
Deferred tax expense (benefit): |
||||||||||||
Federal |
14.6 | 15.7 | 22.5 | |||||||||
State |
2.5 | (6.1 | ) | (5.8 | ) | |||||||
Foreign |
(5.8 | ) | 1.9 | (12.0 | ) | |||||||
Total |
$ | 112.7 | $ | 99.4 | $ | 64.9 | ||||||
The reconciliation of reported income tax expense (benefit) to the amount of income tax expense
that would result from applying domestic federal statutory tax rates to pretax income from
continuing operations is as follows (in millions):
| Year Ended December 31, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
Statutory federal income tax |
$ | 118.4 | $ | 107.6 | $ | 70.1 | ||||||
State and foreign income tax differential(1) |
(7.1 | ) | (5.8 | ) | (4.7 | ) | ||||||
Other, net |
1.4 | (2.4 | ) | (0.5 | ) | |||||||
Total |
$ | 112.7 | $ | 99.4 | $ | 64.9 | ||||||
| (1) | The 2008, 2007 and 2006 state and foreign income tax differential amount includes
$3.2 million, $12.2 million and $6.3 million of tax benefits, respectively, attributable to
the recognition of certain state and foreign deferred tax assets that were previously
subject to valuation allowances. |
The components of deferred tax assets and liabilities were as follows (in millions):
| December 31, | ||||||||
| 2008 | 2007 | |||||||
Deferred tax assets: |
||||||||
Net operating loss carryforwards |
$ | 20.8 | $ | 24.0 | ||||
Pension and retiree benefits accruals |
33.9 | 24.8 | ||||||
Inventory |
81.9 | 100.2 | ||||||
Depreciation and fixed assets |
7.9 | 6.5 | ||||||
Tax credit carryforwards |
4.7 | 8.1 | ||||||
Other liabilities |
80.5 | 49.1 | ||||||
Valuation allowance |
(11.7 | ) | (19.3 | ) | ||||
Total deferred tax assets |
218.0 | 193.4 | ||||||
Deferred tax liabilities: |
||||||||
Inventory |
11.6 | 5.9 | ||||||
Depreciation and fixed assets |
62.1 | 69.9 | ||||||
Intangibles |
62.1 | 74.7 | ||||||
Total deferred tax liabilities |
135.8 | 150.5 | ||||||
Net deferred tax assets |
$ | 82.2 | $ | 42.9 | ||||
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The valuation of the deferred tax asset is dependent on, among other things, the ability of the
Company to generate a sufficient level of future taxable income in relevant taxing jurisdictions.
In estimating future taxable income, the Company has considered both positive and negative evidence
and has considered the implementation of prudent and feasible tax planning strategies. The Company
has and will continue to review on a quarterly basis its assumptions and tax planning strategies
and, if the amount of the estimated realizable net deferred tax asset is less than the amount
currently on the balance sheet, the Company would reduce its deferred tax asset, recognizing a
non-cash charge against reported earnings.
As of December 31, 2008, the Company has recorded a valuation allowance for certain foreign net
operating loss carryforwards and temporary differences due to uncertainties regarding the ability
to obtain future tax benefits for these tax attributes. In 2008 and 2007, the Company determined
that improved business performance, expectations of future profitability, and other relevant
factors constituted sufficient positive evidence to recognize certain foreign and state deferred
tax assets. Accordingly, the Company adjusted the valuation allowances and recognized income tax
benefits of $3.2 million and $12.2 million in 2008 and 2007, respectively.
The Company has recognized deferred tax assets of approximately $10.5 million for net tax loss
carryforwards in various taxing jurisdictions as follows:
| Net Tax Loss | ||||||||
| Jurisdiction | Carryforward | Expiration | ||||||
Australia |
$ | 4.6 | Indefinite | |||||
Brazil |
18.6 | Indefinite | ||||||
France |
1.1 | Indefinite | ||||||
Mexico |
1.5 | Indefinite | ||||||
South Africa |
0.4 | Indefinite | ||||||
United States |
5.4 | 2009 | ||||||
Total |
$ | 31.6 | ||||||
The Company also has various foreign subsidiaries with approximately $35 million of tax loss
carryforwards in various jurisdictions that are subject to a valuation allowance due to statutory
limitations on utilization, uncertainty of future profitability, and other relevant factors.
The Company does not provide for deferred taxes on the excess of the financial reporting over the
tax basis in investments in foreign subsidiaries that are essentially permanent in duration. That
excess was approximately $575 million as of December 31, 2008. The determination of the additional
tax expense that would be incurred upon repatriation of assets or disposition of foreign
subsidiaries is not practical.
On January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 prescribes a recognition threshold
that a tax position is required to meet before being recognized in the financial statements and
provides guidance on derecognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition issues.
In connection with the January 1, 2007 adoption of FIN 48, the Company recognized an $18.8 million
decrease in opening retained earnings and had total unrecognized tax benefits of $45.6 million, of
which $37.2 million would have a favorable impact on the effective tax rate if recognized. The
following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the
year:
| In millions | 2008 | 2007 | ||||||
Unrecognized Tax Benefit – Beginning balance |
$ | 57.8 | $ | 45.6 | ||||
Gross Increases – Tax Positions in Prior Period |
0.9 | 1.9 | ||||||
Gross Decreases – Tax Positions in Prior Period |
(0.7 | ) | (0.4 | ) | ||||
Gross Increases – Tax Positions in Current Period |
3.2 | 6.0 | ||||||
Gross Increases – Business Combinations |
5.0 | 4.2 | ||||||
Settlements |
— | (0.2 | ) | |||||
Lapse of Statute of Limitations |
(1.1 | ) | (1.1 | ) | ||||
Foreign Currency Translation |
(3.4 | ) | 1.8 | |||||
Unrecognized Tax Benefit – Ending Balance |
$ | 61.7 | $ | 57.8 | ||||
Included in the balance of unrecognized tax benefits at December 31, 2008 and 2007, are $54.6
million and $45.5 million of tax benefits that, if recognized, would affect the effective tax rate.
Also included in the balance of unrecognized tax benefits at December 31, 2008 and 2007, are $7.1
million and $9.8 million of tax benefits that, if recognized, would result in
adjustments to deferred taxes. At December 31, 2007, there were $2.5 million of unrecognized tax
benefits that, if recognized, would result in a decrease to goodwill recorded in purchase business
combination.
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The Company recognizes interest and penalties related to unrecognized tax benefits as income tax
expense. Related to the unrecognized tax benefits noted above, the Company accrued penalties of
$1.5 million and interest of $5.0 million during 2008 and in total, as of December 31, 2008, has
recognized a liability for penalties of $2.6 million and interest of $9.5 million. During 2007,
the Company accrued penalties of $(0.5) million and interest of $2.3 million and in total, as of
December 31, 2007, had recognized a liability for penalties of $1.1 million and interest of $4.6
million.
In addition, the Company believes that it is reasonably possible that approximately $2.3 million
related to various state and foreign unrecognized tax positions could change within the next twelve
months due to the expiration of the statute of limitations or tax audit settlements.
The Company files income tax returns in the United States and numerous foreign, state, and local
tax jurisdictions. Tax years that are open for examination and assessment by the Internal Revenue
Service are 2005 – 2008. With limited exceptions, tax years prior to 2004 are no longer open in
major foreign, state or local tax jurisdictions.
12. Employee Benefit Plans
General Cable provides retirement benefits through contributory and noncontributory qualified and
non-qualified defined benefit pension plans covering eligible domestic and international employees
as well as through defined contribution plans and other postretirement benefits.
Defined Benefit Pension Plans
Benefits under General Cable’s qualified U.S. defined benefit pension plan generally are based on
years of service multiplied by a specific fixed dollar amount, and benefits under the Company’s
qualified non-U.S. defined benefit pension plans generally are based on years of service and a
variety of other factors that can include a specific fixed dollar amount or a percentage of either
current salary or average salary over a specific period of time. The amounts funded for any plan
year for the qualified U.S. defined benefit pension plan are neither less than the minimum required
under federal law or more than the maximum amount deductible for federal income tax purposes.
General Cable’s non-qualified unfunded U.S. defined benefit pension plans include a plan that
provides defined benefits to select senior management employees beyond those benefits provided by
other programs. The Company’s non-qualified unfunded non-U.S. defined benefit pension plans
include plans that provide retirement indemnities and other post-retirement payments to employees
within the Company’s European and ROW segments. The Company’s pension obligation increased $40.1
million due to the NSW acquisition on April 30, 2007, see Note 3. Pension obligations for the
majority of non-qualified unfunded defined benefit pension plans are provided for by book reserves
and are based on local practices and regulations of the respective countries. General Cable makes
cash contributions for the costs of the non-qualified unfunded defined benefit pension plans as the
benefits are paid.
On June 27, 2007, the Board of Directors of the Company approved amendments to the General Cable
Supplemental Executive Retirement Plan (“SERP”) and the General Cable Corporation Deferred
Compensation Plan (“DCP”) and the merger of the SERP into the DCP. The Company received written
acknowledgement and acceptance of the SERP amendments and merger from each participant in the SERP.
The amendments and merger were made in order to simplify, limit and better align these specific
compensation plans with the Company’s compensation policies. The amendments and merger
(i) provided to each active SERP participant an enhanced benefit which reflected an additional
period of credited service through December 31, 2008, and each participant’s estimated 2007 and
2008 base and bonus compensation, (ii) froze the accrual of benefits under the SERP following the
addition of the enhanced benefit, (iii) converted the SERP from a non-account balance plan into an
account balance plan by replacing the accrued benefit of a participant with a benefit based on the
value of an account balance, being credited initially by the present value of the participant’s
unvested enhanced benefit in the SERP, (iv) required the participants to make an election with
regard to time and form of payment of the amounts credited to the account balance which became
effective as of June 27, 2007, and (v) transferred all account balances and all account liabilities
under the amended SERP to the DCP to be governed by the provisions of the DCP, including, but not
limited to, those relating to the time and form of benefit payment, investment recommendations and
vesting. The Company funded each participant’s account balance with contributions to the Company’s
Rabbi Trust as part of the DCP, as amended. As a result of the amendments and merger and based on
the guidance provided in SFAS No. 88, Employer’s Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits, a curtailment loss of approximately
$3.2 million and a settlement gain of approximately $4.3 million were recognized, resulting in a
net gain of approximately $1.1 million.
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The changes in the benefit obligation and plan assets, the funded status of the plans and the
amounts recognized in the Consolidated Balance Sheets were as follows (in millions):
| U.S. Plans | Non-U.S. Plans | |||||||||||||||
| December 31 | December 31 | |||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
Changes in Benefit Obligation: |
||||||||||||||||
Beginning benefit obligation |
$ | 140.1 | $ | 150.7 | $ | 92.4 | $ | 37.4 | ||||||||
Impact of foreign currency exchange rate change |
— | — | (12.1 | ) | 7.2 | |||||||||||
Acquisitions |
— | — | 8.5 | 50.5 | ||||||||||||
Service cost |
1.4 | 1.6 | 2.7 | 1.7 | ||||||||||||
Interest cost |
8.2 | 8.4 | 4.9 | 3.6 | ||||||||||||
Curtailment loss |
— | (1.6 | ) | — | — | |||||||||||
Benefits paid |
(10.4 | ) | (18.4 | ) | (3.6 | ) | (2.6 | ) | ||||||||
Employee contributions |
— | — | 0.1 | 0.1 | ||||||||||||
Amendments / Change in assumptions |
0.2 | 0.3 | 0.2 | — | ||||||||||||
Actuarial (gain) loss |
7.0 | (0.9 | ) | (4.9 | ) | (5.5 | ) | |||||||||
Ending benefit obligation |
$ | 146.5 | $ | 140.1 | $ | 88.2 | $ | 92.4 | ||||||||
Changes in Plan Assets: |
||||||||||||||||
Beginning fair value of plan assets |
$ | 129.4 | $ | 126.5 | $ | 30.6 | $ | 25.9 | ||||||||
Impact of foreign currency exchange rate change |
— | — | (6.4 | ) | 3.0 | |||||||||||
Acquisitions |
— | — | 0.5 | — | ||||||||||||
Actual return on plan assets |
(32.9 | ) | 9.0 | (4.0 | ) | 0.2 | ||||||||||
Company contributions |
4.4 | 12.3 | 4.9 | 4.1 | ||||||||||||
Benefits paid |
(10.4 | ) | (18.4 | ) | (3.6 | ) | (2.6 | ) | ||||||||
Ending fair value of plan assets |
$ | 90.5 | $ | 129.4 | $ | 22.0 | $ | 30.6 | ||||||||
Funded status at end of year |
$ | (56.0 | ) | $ | (10.7 | ) | $ | (66.2 | ) | $ | (61.8 | ) | ||||
Amounts Recognized in Consolidated Balance Sheet: |
||||||||||||||||
Other Assets |
$ | — | $ | — | $ | 0.3 | $ | — | ||||||||
Accrued liabilities |
$ | (0.5 | ) | $ | (0.4 | ) | $ | (3.0 | ) | $ | (2.0 | ) | ||||
Other liabilities |
$ | (55.5 | ) | $ | (10.3 | ) | $ | (63.5 | ) | $ | (59.8 | ) | ||||
Recognized in Accumulated Other Comprehensive Income: |
||||||||||||||||
Net actuarial loss |
$ | 84.5 | $ | 36.2 | $ | 2.6 | $ | 4.1 | ||||||||
Prior service cost |
1.0 | 1.4 | 0.9 | 1.0 | ||||||||||||
Transition obligation |
— | — | 0.3 | 0.4 | ||||||||||||
| $ | 85.5 | $ | 37.6 | $ | 3.8 | $ | 5.5 | |||||||||
Accumulated benefit obligation (1) |
$ | 145.8 | $ | 139.4 | $ | 73.8 | $ | 84.6 | ||||||||
| (1) | Denotes accumulated benefit obligation in excess of plan assets. |
The accumulated benefit obligation for all of the Company’s defined benefit pension plans was
$225.3 million and $224.0 million at December 31, 2008 and 2007, respectively.
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Pension expense included the following components (in millions):
| U.S. Plans | Non-U.S. Plans | |||||||||||||||||||||||
| Year ended December 31 | Year ended December 31 | |||||||||||||||||||||||
| 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||
Pension expense: |
||||||||||||||||||||||||
Service cost |
$ | 1.4 | $ | 1.6 | $ | 1.8 | $ | 2.7 | $ | 1.7 | $ | 0.9 | ||||||||||||
Interest cost |
8.2 | 8.4 | 8.6 | 4.9 | 3.6 | 1.7 | ||||||||||||||||||
Expected return on plan assets |
(10.8 | ) | (10.5 | ) | (9.8 | ) | (1.7 | ) | (2.0 | ) | (1.5 | ) | ||||||||||||
Amortization of prior service cost |
0.7 | 0.8 | 1.3 | 0.1 | 0.1 | 0.1 | ||||||||||||||||||
Amortization of net loss |
2.3 | 2.1 | 2.8 | 0.3 | 0.5 | 0.3 | ||||||||||||||||||
Amortization of transition obligation |
— | — | — | 0.1 | 0.1 | 0.1 | ||||||||||||||||||
Curtailment loss |
— | 3.2 | — | — | — | — | ||||||||||||||||||
Settlement gain |
— | (4.3 | ) | — | — | — | — | |||||||||||||||||
Net pension expense |
$ | 1.8 | $ | 1.3 | $ | 4.7 | $ | 6.4 | $ | 4.0 | $ | 1.6 | ||||||||||||
The estimated net loss and prior service cost for the defined benefit pension plans that will be
amortized from accumulated other comprehensive income into net pension expense over the next fiscal
year are $7.5 million and $0.6 million, respectively.
General Cable evaluates its actuarial assumptions at least annually, and adjusts them as necessary.
The Company uses a measurement date of December 31 for all of its defined benefit pension plans.
The weighted average assumptions used in determining benefit obligations were:
| U.S. Plans | Non-U.S. Plans | |||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
Discount rate |
5.75 | % | 6.00 | % | 5.91 | % | 5.62 | % | ||||||||
Expected rate of increase in
future compensation levels |
2.50 | % | 2.50 | % | 4.05 | % | 3.66 | % | ||||||||
The weighted average assumptions used to determine net pension expense were:
| U.S. Plans | Non-U.S. Plans | |||||||||||||||||||||||
| 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||
Discount rate |
6.00 | % | 6.00 | % | 5.75 | % | 5.76 | % | 4.99 | % | 4.72 | % | ||||||||||||
Expected rate of increase in future
compensation levels |
2.25 | % | 4.00 | % | 4.00 | % | 4.33 | % | 3.35 | % | 2.72 | % | ||||||||||||
Long-term expected rate of return on plan
assets |
8.50 | % | 8.50 | % | 8.50 | % | 6.70 | % | 6.74 | % | 6.90 | % | ||||||||||||
Pension expense for the defined benefit pension plans sponsored by General Cable is determined
based principally upon certain actuarial assumptions, including the discount rate and the expected
long-term rate of return on assets. The discount rates for the U.S. defined benefit pension plans
were determined based on a review of long-term bonds that receive one of the two highest ratings
given by a recognized rating agency which are expected to be available during the period to
maturity of the projected pension benefit obligations and based on information received from
actuaries. Non-U.S. defined benefit pension plans followed a similar evaluation process based on
financial markets in those countries where General Cable provides a defined benefit pension plan.
The weighted-average long-term expected rate of return on assets is based on input from actuaries,
including their review of historical 10-year, 20-year, and 25-year rates of inflation and real
rates of return on various broad equity and bond indices in conjunction with the diversification of
the asset portfolio. The expected long-term rate of return on assets for the qualified U.S.
defined benefit pension plan is based on an asset allocation assumption of 65% allocated to equity
investments, with an expected real rate of return of 8%, and 35% to fixed-income investments, with
an expected real rate of return of 2%, and an assumed long-term rate of inflation of 3%. The
actual asset allocations were 56% of equity investments and 44% of fixed-income investments at
December 31, 2008 and 60% of equity investments and 40% of fixed-income investments at December 31,
2007. Approximately 36% and 34% of plan assets were concentrated in
two mutual funds as of December 31, 2008 and 2007, respectively.
The expected long-term rate of return on assets for qualified non-U.S. defined benefit plans
is based on a weighted-average asset allocation assumption of 52% allocated to equity investments,
44% to fixed-income investments and 4% to other investments. The actual weighted-average asset
allocations were 49% of equity investments, 47% of fixed-income investments and 4% of other
investments at December 31, 2008 and 52% of equity investments, 43% of fixed-income investments and
5% of other investments at December 31, 2007. Management believes that long-term asset allocations
on
average and by location will approximate the Company’s assumptions and that the long-term rate of
return used by each country that is included in the weighted-average long-term expected rate of
return on assets is a reasonable assumption.
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The determination of pension expense for the qualified defined benefit pension plans is based on
the fair market value of assets as of the measurement date. Investment gains and losses are
recognized in the measurement of assets immediately. Such gains and losses will be amortized and
recognized as part of the annual benefit cost to the extent that unrecognized net gains and losses
from all sources exceed 10% of the greater of the projected benefit obligation or the market value
of assets.
General Cable’s expense under both U.S. and non-U.S. defined benefit pension plans is determined
using the discount rate as of the beginning of the fiscal year, so 2009 expense for the pension
plans will be based on the weighted-average discount rate of 5.75% for U.S. defined benefit pension
plans and 5.91% for non-U.S. defined benefit pension plans.
The Company expects to contribute, at a minimum, $9.3 million to its defined benefit pension plans
for 2009. The estimated future benefit payments expected to be paid for the Company’s defined
benefit pension plans are $13.8 million in 2009, $13.9 million in 2010, $14.8 million in 2011,
$15.8 million in 2012, $15.6 million in 2013 and $79.9 million in the five years thereafter.
Postretirement Benefits Other Than Pensions
General Cable has postretirement benefit plans that provide medical and life insurance for certain
retirees and eligible dependents. General Cable funds the plans as claims or insurance premiums are
incurred.
The changes in accrued postretirement benefits were as follows (in millions):
| December 31 | ||||||||
| 2008 | 2007 | |||||||
Changes in Benefit Obligation: |
||||||||
Beginning benefit obligation |
$ | 11.4 | $ | 11.8 | ||||
Service cost |
0.1 | 0.1 | ||||||
Interest cost |
0.5 | 0.6 | ||||||
Actuarial loss |
(1.4 | ) | 0.6 | |||||
Benefits paid |
(1.4 | ) | (1.7 | ) | ||||
Foreign currency impact |
(0.1 | ) | — | |||||
Ending benefit obligation |
$ | 9.1 | $ | 11.4 | ||||
Funded status at end of year |
$ | (9.1 | ) | $ | (11.4 | ) | ||
Amounts Recognized in Consolidated Balance Sheet: |
||||||||
Accrued liabilities |
$ | (1.3 | ) | $ | (1.6 | ) | ||
Other liabilities |
$ | (7.8 | ) | $ | (9.8 | ) | ||
Recognized in Accumulated Other Comprehensive
Income: |
||||||||
Net actuarial loss |
$ | 2.5 | $ | 4.0 | ||||
Prior service cost |
(0.5 | ) | (0.5 | ) | ||||
| $ | 2.0 | $ | 3.5 | |||||
Net postretirement benefit expense included the following components (in millions):
| Year ended December 31 | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
Postretirement benefit expense: |
||||||||||||
Service cost |
$ | 0.1 | $ | 0.1 | $ | 0.1 | ||||||
Interest cost |
0.5 | 0.6 | 0.7 | |||||||||
Amortization of prior service cost |
(0.1 | ) | (0.1 | ) | (0.1 | ) | ||||||
Amortization of net loss |
0.2 | 0.3 | 0.3 | |||||||||
Net postretirement benefit expense |
$ | 0.7 | $ | 0.9 | $ | 1.0 | ||||||
The estimated net loss and prior service cost for the postretirement benefit plans that will be
amortized from accumulated other comprehensive income into net pension expense over the next fiscal
year are $0.2 million and $(0.1) million, respectively.
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The discount rate used in determining the accumulated postretirement benefit obligation was 5.50%
for the year ended December 31, 2008, 5.50% for the year ended December 31, 2007 and 5.75% for the
year ended December 31, 2006. The discount rate used in determining the net postretirement benefit
expense was 5.5% for the year ended December 31, 2008, 5.8% for the year ended December 31, 2007
and 5.5% for the years ended December 31, 2006. The assumed health-care cost trend rate used in
measuring the accumulated postretirement benefit obligation in 2008 was 9.0% decreasing gradually
to 4.50% in year 2014 and thereafter, in 2007 was 9.00%, decreasing gradually to 4.50% in year 2013
and thereafter and in 2006 was 8.00% decreasing gradually to 4.50% in year 2012 and thereafter.
Increasing the assumed health-care cost trend rate by 1% would result in an increase in the
accumulated postretirement benefit obligation of $0.5 million for 2008. The effect of this change
would increase net postretirement benefit expense by less than $0.1million. Decreasing the assumed
health-care cost trend rate by 1% would result in a decrease in the accumulated postretirement
benefit obligation of $0.4 million for 2008. The effect of this change would decrease net
postretirement benefit expense by less than $0.1 million.
The estimated future benefit payments expected to be paid for the Company’s postretirement benefits
other than pensions are $1.4 million in 2009, $1.4 million in 2010, $1.3 million in 2011, $1.1
million in 2012, $1.0 million in 2013 and $3.7 million in the five years thereafter.
Defined Contribution Plans
Expense under both U.S. and non-U.S. defined contribution plans generally equals up to six percent
of each eligible employee’s covered compensation based on the location and status of the employee.
The net defined contribution plan expense recognized was $9.3 million, $8.5 million and $8.0
million, respectively, for the years ended December 31, 2008, 2007 and 2006.
13. Shareholders’ Equity
General Cable is authorized to issue 200 million shares of common stock and 25 million shares of
preferred stock.
The Company issued 2,070,000 shares of General Cable 5.75% Series A Redeemable Convertible
Preferred Stock (“Series A preferred stock”) on November 24, 2003 and subsequent to the November 9,
2005 inducement offer, 76,233 shares and 101,940 shares are outstanding under the original terms of
the Series A preferred stock issuance as of December 31, 2008 and 2007, respectively. The Company
paid fees and expenses of $4.2 million related to this transaction, which included an underwriting
discount of $3.4 million. The Series A preferred stock was offered only to qualified institutional
buyers in reliance on Rule 144A under the Securities Act.
The preferred stock has a liquidation preference of $50.00 per share. Dividends accrue on the
convertible preferred stock at the rate of 5.75% per annum and are payable quarterly in arrears.
Dividends are payable in cash, shares of General Cable common stock or a combination thereof.
Holders of the convertible preferred stock are entitled to convert any or all of their shares of
convertible preferred stock into shares of General Cable common stock, at an initial conversion
price of $10.004 per share. The conversion price is subject to adjustments under certain
circumstances. General Cable is obligated to redeem all outstanding shares of convertible preferred
stock on November 24, 2013 at par. The Company may, at its option, elect to pay the redemption
price in cash or in shares of General Cable common stock with an equivalent fair value, or any
combination thereof. The Company has the option to redeem some or all of the outstanding shares of
convertible preferred stock in cash beginning on the fifth anniversary of the issue date. The
redemption premium will initially equal one-half the dividend rate on the convertible preferred
stock and decline ratably to par on the date of mandatory redemption. In the event of a change in
control, the Company has the right to either redeem the preferred stock for cash or to convert the
preferred stock to common stock.
The Company maintains a deferred compensation plan (“Deferred Compensation Plan”). This plan is
available to directors and certain officers and managers of the Company. On June 27, 2007, the
Board of Directors of the Company approved amendments to the General Cable Supplemental Executive
Retirement Plan (“SERP”) and the General Cable Corporation Deferred Compensation Plan (“DCP”) in
order to merge the SERP into the DCP. The plan allows participants to defer all or a portion of
their directors’ fees and/or salary and annual bonuses, as applicable, and it permits participants
to elect to contribute and defer all or any portion of their nonvested stock, restricted stock and
stock awards. All deferrals to the participants’ accounts vest immediately; Company contributions
vest according to the vesting schedules in the qualified plan and nonvested stock and restricted
stock vests according to the schedule designated by the award. The Company makes matching and
retirement contributions (currently equal to 6%) of compensation paid over the maximum allowed for
qualified pension benefits, whether or not the employee elects to defer any compensation. The
Deferred Compensation Plan does not have dollar limits on tax-deferred contributions. The assets
of the Deferred Compensation Plan are held in a Rabbi Trust (“Trust”) and, therefore, are available
to satisfy the claims of the Company’s creditors in the event of bankruptcy or insolvency of the
Company. Participants have the right to request that their account balance be determined by
reference to
specified investment alternatives (with the exception of the portion of the account which consists
of deferred nonvested and subsequently vested stock and restricted stock). With certain
exceptions, these investment alternatives are the same alternatives offered to participants in the
General Cable Retirement and Savings Plan for Salaried Associates. In addition, participants have
the right to request that the Plan Administrator re-allocate the deferral among available
investment alternatives; provided, however that the Plan Administrator is not required to honor
such requests. Distributions from the plan are generally made upon the participants’ termination
as a director and/or employee, as applicable, of the Company. Participants receive payments from
the plan in cash, either as a lump sum payment or through equal annual installments from between
one and ten years, except for the nonvested and subsequently vested stock and restricted stock,
which the participants receive in shares of General Cable stock. The Company accounts for the
Deferred Compensation Plan in accordance with EITF 97-14, “Accounting for Deferred Compensation
Arrangements Where Amounts Earned are Held in a Rabbi Trust and Invested.”
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Assets of the Trust, other than the nonvested and subsequently vested stock and restricted stock of
the Company, are invested in funds covering a variety of securities and investment strategies,
approximately 90% are invested in mutual funds and the remaining 10% are invested in a General
Cable stock fund. Mutual funds available to participants are publicly quoted and reported at
market value. The Company accounts for these investments as available-for-sale securities in
accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.”
The Trust also holds nonvested and subsequently vested stock and restricted stock shares of the
Company. The Company’s nonvested and subsequently vested and restricted stock that is held by the
Trust has been accounted for in additional paid-in capital since the adoption of SFAS 123(R) on
January 1, 2006, and prior to that date, had been accounted for in other shareholders’ equity in
the consolidated balance sheet, and the market value of this nonvested and subsequently vested
stock, restricted stock and stock awards was $23.5 million as of December 31, 2008 and $45.8
million as of December 31, 2007. The market value of the assets held by the Trust, exclusive of
the market value of the shares of the Company’s nonvested and subsequently vested stock, restricted
stock and stock awards, at December 31, 2008 and December 31, 2007 was $11.4 million and $18.2
million, respectively, and is classified as “other non-current assets” in the consolidated balance
sheet. Amounts payable to the plan participants at December 31, 2008 and December 31, 2007,
excluding the market value of the shares of the Company’s nonvested and subsequently vested stock
and restricted stock, was $12.6 million and $21.1 million, respectively, and is classified as
“other liabilities” in the consolidated balance sheet. The total aggregate net gain/loss in
accumulated other comprehensive income was $1.4 million and $7.2 million as of December 31, 2008
and 2007, respectively. Additionally, the gross realized gain/loss included in the consolidated
statement of operations was $6.8 million and $0.9 million for 2008 and 2007, respectively. The net
unrealized holding gain/loss on available for sale securities included in accumulated other
comprehensive income was $5.8 million and $0.8 million as of December 31, 2008 and 2007,
respectively. The Company uses the specific identification method to determine the cost of the
securities sold or reclassified out of accumulated other comprehensive income and into earnings.
In accordance with EITF 97-14, all market value fluctuations of the Trust assets, exclusive of the
shares of nonvested and subsequently vested stock and restricted stock of the Company, have been
reflected in other comprehensive income (loss). Increases or decreases in the market value of the
deferred compensation liability, excluding the shares of nonvested and subsequently vested stock
and restricted stock of the Company held by the Trust, are included as compensation expense in the
consolidated statements of operations. Based on the changes in the total market value of the
Trust’s assets, exclusive of the nonvested and subsequently vested stock and restricted stock, the
Company recorded a net gain of $6.8 million in 2008 and net compensation expense of $0.6 million in
2007 and $2.9 million in 2006. See Note 14 for compensation costs recorded on nonvested and
subsequently vested stock shares and restricted stock.
The components of accumulated other comprehensive income (loss) consisted of the following (in
millions):
| December 31 | ||||||||
| 2008 | 2007 | |||||||
Foreign currency translation adjustment |
$ | (26.7 | ) | $ | 96.1 | |||
Defined benefit plan adjustments, net of tax |
(51.7 | ) | (22.2 | ) | ||||
Change in fair value of derivatives, net of tax |
(73.5 | ) | (39.2 | ) | ||||
Unrealized investment gains, net of tax |
1.4 | 7.2 | ||||||
Adoption of SFAS 158, net of tax |
(7.0 | ) | (7.0 | ) | ||||
Other |
0.3 | 0.3 | ||||||
Total |
$ | (157.2 | ) | $ | 35.2 | |||
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14. Share-Based Compensation
General Cable has various plans which provide for granting options and common stock to certain
employees and independent directors of the Company and its subsidiaries. The Company recognizes
compensation expense for share-based payments based on the fair value of the awards at the grant
date in accordance with Statement of Financial Accounting Standards No. 123 (Revised 2004),
“Share-Based Payment” (“SFAS 123(R)”). The table below summarizes compensation expense for the
Company’s non-qualified stock options, nonvested stock awards and performance-based nonvested stock
awards based on the fair value method as estimated using the Black-Scholes valuation model for the
years ended December 31, 2008, 2007 and 2006. The Company records compensation expense related to
non-vested stock awards as a component of selling, general and administrative expense.
| Year Ended December 31 | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
Non-qualified stock option expense |
$ | 4.8 | $ | 2.0 | $ | 1.1 | ||||||
Non-vested stock awards expense |
4.2 | 3.5 | 2.5 | |||||||||
Stock unit awards |
1.6 | 0.5 | — | |||||||||
Performance-based non-vested stock awards expense |
— | 0.3 | 1.3 | |||||||||
Total pre-tax share-based compensation expense |
$ | 10.6 | $ | 6.3 | $ | 4.9 | ||||||
Excess tax benefit on share-based compensation (1) |
$ | 6.1 | $ | 11.1 | $ | 19.0 | ||||||
| (1) | Cash inflows recognized as financing activities in the Company’s consolidated statement of cash flows. |
During the years ended December 31, 2008, 2007 and 2006, cash received from stock option exercises
was $2.2 million, $5.0 million and $22.7 million, respectively. The total tax benefit to be
realized for tax deductions from these option exercises was $4.6 million, $7.4 million and $17.7
million, respectively. The $18.1 million and $32.5 million tax deductions for all share-based
compensation for the years ended December 31, 2008 and 2007, respectively, includes $6.1 million
and $11.1 million of excess tax benefits that are classified as a financing cash flow and would
have been classified as an operating cash inflow prior to the adoption of SFAS 123(R). The Company
has elected the alternative method, as discussed in SFAS 123(R)-3, to calculate the pool of excess
tax benefits available to absorb tax deficiencies recognized subsequent to the adoption of SFAS
123(R).
General Cable currently has share-based compensation awards outstanding under three plans. These
plans allow the Company to fulfill its incentive award obligations generally by granting
nonqualified stock options and nonvested stock awards. New shares are issued when nonqualified
stock options are exercised and when non-vested stock awards are granted. There has been no
material modifications made to these plans during the year ended December 31, 2008 or 2007. On May
10, 2005, the General Cable Corporation 2005 Stock Incentive Plan (“2005 Plan”) was approved and
replaced the two previous equity compensation plans, the 1997 Stock Incentive Plan and the 2000
Stock Option Plan. The Compensation Committee of the Board of Directors will no longer grant any
awards under the previous plans but will continue to administer awards which were previously
granted under the 1997 and 2000 plans. The 2005 Plan authorized a maximum of 1,800 thousand shares
to be granted. Shares reserved for future grants, including options, under the 2005 Plan,
approximated 801 thousand at December 31, 2008.
The 2005 Stock Incentive Plan authorizes the following types of awards to be granted: (i) Stock
Options (both Incentive Stock Options and Nonqualified Stock Options); (ii) Stock Appreciation
Rights; (iii) Nonvested and Restricted Stock Awards; (iv) Performance Awards; and (v) Stock Units,
as more fully described in the 2005 Plan. Each award is subject to such terms and conditions
consistent with the 2005 Plan as determined by the Compensation Committee and as set forth in an
award agreement and awards under the 2005 Plan were granted at not less than the closing market
price on the date of grant.
The 2000 Stock Option Plan (“2000 Plan”), as amended, authorized a maximum of 1,500 thousand
non-qualified options to be granted. No other forms of award were authorized under this plan. Stock
options were granted to employees selected by the Compensation Committee of the Board or the Chief
Executive Officer at prices which were not less than the closing market price on the date of grant.
The Compensation Committee (or Chief Executive Officer) had authority to set all the terms of each
grant.
The 1997 Stock Incentive Plan (“1997 Plan”) authorized a maximum of 4,725 thousand nonvested
shares, options or units of common stock to be granted. Stock options were granted to employees
selected by the Compensation Committee of the Board or the Chief Executive Officer at prices which
were not less than the closing market price on the date of grant. The Compensation Committee (or
Chief Executive Officer) had authority to set all the terms of each grant.
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Stock Options
All options awarded under the 2005 Plan have a term of 10 years from the grant date. The majority
of the options vest three years from grant date. The majority of the options granted under the
2000 Plan expire in 10 years and become fully exercisable ratably over three years of continued
employment or become fully exercisable after three years of continued employment. The majority of
the options granted under the 1997 Plan expire in 10 years and become fully exercisable ratably
over three years of continued employment or become fully exercisable after three years of continued
employment.
A summary of stock option activity for the year ended December 31, 2008, is as follows (options in
thousands and aggregate intrinsic value in millions):
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Options | Exercise | Contractual | Intrinsic | |||||||||||||
| Outstanding | Price | Term | Value | |||||||||||||
Outstanding at December 31, 2007 |
888 | $ | 23.88 | |||||||||||||
Granted |
190 | 62.28 | ||||||||||||||
Exercised |
(232 | ) | 9.92 | |||||||||||||
Forfeited or Expired |
(40 | ) | 55.02 | |||||||||||||
Outstanding at December 31, 2008 |
806 | 35.40 | 6.6 years | $ | 2.6 | |||||||||||
Exercisable at December 31, 2008 |
388 | 16.55 | 4.5 years | $ | 2.6 | |||||||||||
Options expected to vest in the next twelve months |
180 | 44.64 | 8.1 years | $ | — | |||||||||||
During the years ended December 31, 2008, 2007 and 2006, the weighted average grant date fair value
of options granted was $22.98, $24.76 and $12.75, respectively, the total intrinsic value of
options exercised was $12.8 million, $19.4 million, and $50.9 million, respectively, and the total
fair value of options vested during the periods was $1.8 million, $0.3 million, and $2.7 million,
respectively. At December 31, 2008 and 2007, the total compensation cost related to nonvested
options not yet recognized was $3.6 million and $4.4 million with a weighted average expense
recognition period of 1.8 and 2.5 years, respectively.
The fair value of each option award is estimated on the date of grant using the Black-Scholes
valuation model using the following weighted-average assumptions:
| Year Ended December 31 | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
Risk-free interest rate(1) |
2.4 | % | 3.8 | % | 4.7 | % | ||||||
Expected dividend yield(2) |
N/A | N/A | N/A | |||||||||
Expected option life(3) |
3.8 years | 3.9 years | 4.6 years | |||||||||
Expected stock price volatility(4) |
45.0 | % | 47.5 | % | 62.6 | % | ||||||
Weighted average fair value of options granted |
$ | 22.98 | $ | 24.76 | $ | 12.75 | ||||||
| (1) | Risk-free interest rate – This is the U.S. Treasury rate at the end of the
period in which the option was granted having a term approximately equal to the expected
life of the option. An increase in the risk-free interest rate will increase compensation
expense. |
|
| (2) | Expected dividend yield – The Company has not made any dividend payments on
common stock since 2002 and it does not have plans to pay dividends on common stock in the
foreseeable future. Any dividends paid in the future will decrease compensation expense. |
|
| (3) | Expected option life – This is the period of time over which the options
granted are expected to remain outstanding and is based on historical experience. Options
granted have a maximum term of ten years. An increase in expected life will increase
compensation expense. |
|
| (4) | Expected stock price volatility – This is a measure of the amount by which a
price has fluctuated or is expected to fluctuate. The Company uses actual historical
changes in the market value of the Company’s stock to calculate the volatility assumption
as it is management’s belief that this is the best indicator of future volatility. An
increase in the expected volatility will increase compensation expense. |
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Additional information regarding options outstanding as of December 31, 2008 is as follows (options
in thousands):
| Weighted | Weighted | Weighted | |||||||||||||||||||
| Average | Average | Average | |||||||||||||||||||
| Range of | Options | Exercise | Remaining | Options | Exercise | ||||||||||||||||
| Option Prices | Outstanding | Price | Contractual Life | Exercisable | Price | ||||||||||||||||
| $0 – $14 | 335.4 | $ | 10.04 | 4.4 | 335.4 | $ | 10.04 | ||||||||||||||
| $14 – $28 | 99.1 | $ | 22.57 | 6.2 | 12.3 | $ | 19.77 | ||||||||||||||
| $28 – $42 | 0.7 | $ | 31.98 | 7.3 | 0.3 | $ | 31.98 | ||||||||||||||
| $42 – $56 | 84.5 | $ | 50.98 | 8.1 | — | — | |||||||||||||||
| $56 – $70 | 287.2 | $ | 64.87 | 8.8 | 40.6 | $ | 69.29 | ||||||||||||||
Nonvested Stock
The majority of the nonvested stock and stock unit awards issued under the 2005 Plan are restricted
as to transferability and salability with these restrictions being removed in equal annual
installments over the five-year period following the grant date. The majority of the nonvested
stock awards issued under the 1997 Plan are restricted as to transferability and salability with
these restrictions expiring ratably over a three-year or five-year period, expiring after six years
from the date of grant or expiring ratably from the second anniversary to the sixth anniversary of
the date of grant. A minimal amount of immediately vesting restricted stock held by certain
members of the Company’s Board of Directors in the Deferred Compensation Plan is included in this
presentation as nonvested stock.
During the first quarter of 2001 and 2004, approximately 356 thousand and 341 thousand,
respectively, nonvested common stock shares with performance accelerated vesting features were
awarded to certain senior executives and key employees under the Company’s 1997 Stock Incentive
Plan, as amended. The nonvested shares vest either six years from the date of grant or ratably
from the second anniversary of the date of grant to the sixth anniversary unless certain
performance criteria are met. The performance measure used to determine vesting is either the
Company’s stock price or earnings per share. As of December 31, 2008, all shares issued with
performance accelerated vesting features had fully vested and all related compensation costs had
been recognized.
A summary of all nonvested stock and restricted stock units activity for the year ended December
31, 2008, is as follows (shares in thousands):
| Shares | Weighted Average Grant | |||||||
| Outstanding | Date Fair Value | |||||||
Balance At December 31, 2007 |
617 | $ | 32.88 | |||||
Granted |
93 | 48.61 | ||||||
Vested |
(201 | ) | 20.39 | |||||
Forfeited |
(39 | ) | 46.76 | |||||
Balance At December 31, 2008 |
470 | $ | 40.36 | |||||
The weighted-average grant date fair value of all nonvested shares granted, the total fair value
(in millions) of all nonvested shares granted, and the fair value (in millions) of all shares that
have vested during each of the past three years is as follows:
| Year Ended December 31 | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
Weighted-average grant date fair value |
$ | 48.61 | $ | 62.69 | $ | 25.95 | ||||||
Fair value of nonvested shares granted |
$ | 4.5 | $ | 13.1 | $ | 7.2 | ||||||
Fair value of shares vested |
$ | 4.1 | $ | 13.4 | $ | 7.7 | ||||||
As of December 31, 2008, there was $13.1 million of total unrecognized compensation cost related to
all nonvested stock. The cost is expected to be recognized over a weighted average period of 3.3
years. There are 136 thousand nonvested stock and restricted stock units with a weighted average
grant price of $31.42 and a fair value of $4.3 million expected to vest in 2009.
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15. Earnings Per Common Share
A reconciliation of the numerator and denominator of earnings per common share of continuing
operations-basic to earnings per common share of continuing operations-assuming dilution is as
follows (in millions, except per share data):
| Year Ended December 31 | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
Earnings per share — basic: |
||||||||||||
Net income |
$ | 217.2 | $ | 208.6 | $ | 135.3 | ||||||
Less: Preferred stock dividends on convertible stock |
(0.3 | ) | (0.3 | ) | (0.3 | ) | ||||||
Net income for basic EPS computation(1) |
$ | 216.9 | $ | 208.3 | $ | 135.0 | ||||||
Weighted average shares outstanding for basic EPS computation(2) |
52.2 | 51.2 | 50.0 | |||||||||
Earnings per common share — basic |
$ | 4.16 | $ | 4.07 | $ | 2.70 | ||||||
Earnings per share — assuming dilution: |
||||||||||||
Net income for diluted EPS computation(1) |
$ | 217.2 | $ | 208.6 | $ | 135.3 | ||||||
Weighted average shares outstanding including nonvested shares |
52.6 | 52.2 | 51.0 | |||||||||
Dilutive effect of convertible bonds |
— | 1.5 | — | |||||||||
Dilutive effect of stock options and restricted stock units |
0.4 | 0.4 | 0.5 | |||||||||
Dilutive effect of assumed conversion of preferred stock |
0.4 | 0.5 | 0.5 | |||||||||
Weighted average shares outstanding for diluted EPS
computation(2) |
53.4 | 54.6 | 52.0 | |||||||||
Earnings per common share — assuming dilution |
$ | 4.07 | $ | 3.82 | $ | 2.60 | ||||||
| (1) | Numerator |
|
| (2) | Denominator |
The Company was authorized by its Board of Directors on October 29, 2008 to institute a stock
repurchase program for up to $100 million of common stock (incorporated by reference herein to
Exhibit 10.55). The Company has repurchased 1.0 million common shares under terms of this program
during the fourth quarter of 2008. Due to the timing of the repurchase, the above weighted average
shares outstanding for basic EPS computation of 52.2 million reflects a reduction of weighted
average shares outstanding of 125.0 thousand. In 2007 and 2006, the Company did not have a stock
repurchase program and as a result did not repurchase any of its common stock.
As of January 1, 2006, 129,916 shares, or 6.28%, of the Series A preferred stock remained
outstanding under the original terms of the Series A preferred stock issuance, and all shares of
Series A preferred stock surrendered for conversion in the inducement offer were canceled and
retired. See Note 13 above for additional discussion of the inducement offer. As of December
31, 2008, 76,233 shares of the Series A preferred stock remained outstanding under the original
terms of the Series A preferred stock issuance.
The earnings per common share — assuming dilution computation also excludes the impact of an
insignificant amount of stock options and restricted stock units in 2007 and 2006 because their
impact was anti-dilutive. As of December 31, 2008, there were
approximately 371 thousand stock options and restricted stock
units excluded from the earnings per common share — assuming
dilution computation because their impact was anti-dilutive.
Certain effects on diluted net income per common share may result in future periods as a result of
the Company’s issuance of (i) $355.0 million in 0.875% Convertible Notes and the Company’s entry
into note hedge and warrant agreements during the fourth quarter of 2006 and (ii) $475.0 million in
1.00% Senior Convertible Notes during the fourth quarter of 2007. See Note 9 for a description of
the key terms of these transactions.
Under EITF 04-8, “The Effect of Contingently Convertible Instruments on Diluted Earnings Per
Share”, and EITF 90-19, and because of the Company’s obligation to settle the par value of the
0.875% Convertible Notes and 1.00% Senior Convertible Notes in cash, the Company is not required to
include any shares underlying the 0.875% Convertible Notes and 1.00% Senior Convertible Notes in
its weighted average shares outstanding — assuming dilution until the average stock price per share
for the quarter exceeds the $50.36 and $83.93 conversion price of the 0.875% Convertible Notes and
1.00% Senior Convertible Notes, respectively, and only to the extent of the additional shares that
the Company may be required to issue in the event that the Company’s conversion obligation exceeds
the principal amount of the 0.875% Convertible Notes and the 1.00% Senior Convertible Notes.
Regarding the 0.875% Convertible Notes, the average stock price threshold conditions had not been
met as of December 31, 2008. At any such time in the future the threshold conditions are met, only
the number of shares issuable under the “treasury” method of accounting for the share dilution
would be included in the Company’s earning per share — assuming dilution calculation, which is
based upon the amount by which the average stock price exceeds the conversion price. In addition,
shares underlying the warrants will be included in the weighted average shares outstanding -
assuming dilution
when the average stock price per share for a quarter exceeds the $76.00 strike price of the
warrants, and shares underlying the note hedges, per the guidance in SFAS 128, Earnings per Share,
will not be included in the weighted average shares outstanding — assuming dilution because the
impact of the shares will always be anti-dilutive.
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The following tables provides examples of how changes in the Company’s stock price would require
the inclusion of additional shares in the denominator of the weighted average shares outstanding —
assuming dilution calculation for the 0.875% Convertible Notes. The table also reflects the impact
on the number of shares that the Company would expect to issue upon concurrent settlement of the
0.875% Convertible Notes and the note hedges and warrants.
| Total Treasury | Incremental Shares | |||||||||||||||||||||
| Shares Underlying | Method | Shares Due to the | Issued by the | |||||||||||||||||||
| 0.875% Convertible | Warrant | Incremental | Company under | Company upon | ||||||||||||||||||
| Share Price | Notes | Shares | Shares(1) | Note Hedges | Conversion(2) | |||||||||||||||||
| $ | 50.36 | — | — | — | — | — | ||||||||||||||||
| $ | 60.36 | 1,167,502 | — | 1,167,502 | (1,167,502 | ) | — | |||||||||||||||
| $ | 70.36 | 2,003,400 | — | 2,003,400 | (2,003,400 | ) | — | |||||||||||||||
| $ | 80.36 | 2,631,259 | 382,618 | 3,013,877 | (2,631,259 | ) | 382,618 | |||||||||||||||
| $ | 90.36 | 3,120,150 | 1,120,363 | 4,240,513 | (3,120,150 | ) | 1,120,363 | |||||||||||||||
| $ | 100.36 | 3,511,614 | 1,711,088 | 5,222,702 | (3,511,614 | ) | 1,711,088 | |||||||||||||||
| (1) | Represents the number of incremental shares that must be included in the
calculation of fully diluted shares under U.S. GAAP. |
|
| (2) | Represents the number of incremental shares to be issued by the Company upon
conversion of the 0.875% Convertible Notes, assuming concurrent settlement of the note hedges and
warrants. |
Regarding the 1.00% Senior Convertible Notes, the average stock price threshold conditions had not
been met as of December 31, 2008. At any such time in the future the threshold conditions are met,
only the number of shares issuable under the “treasury” method of accounting for the share dilution
would be included in the Company’s earning per share — assuming dilution calculation, which is
based upon the amount by which the average stock price exceeds the conversion price.
The following tables provides examples of how changes in the Company’s stock price would require
the inclusion of additional shares in the denominator of the weighted average shares outstanding —
assuming dilution calculation for the 1.00% Senior Convertible Notes.
| Shares Underlying | Total Treasury | |||||||||
| 1.00% Senior | Method Incremental | |||||||||
| Share Price | Convertible Notes | Shares(1) | ||||||||
| $ | 83.93 | — | — | |||||||
| $ | 93.93 | 602,288 | 602,288 | |||||||
| $ | 103.93 | 1,088,861 | 1,088,861 | |||||||
| $ | 113.93 | 1,490,018 | 1,490,018 | |||||||
| $ | 123.93 | 1,826,436 | 1,826,436 | |||||||
| $ | 133.93 | 2,112,616 | 2,112,616 | |||||||
| (1) | Represents the number of incremental shares that must be included in the
calculation of fully diluted shares
under U.S. GAAP. |
16. Segment Information
During the fourth quarter of 2007, General Cable announced a change in the management reporting
structure that resulted in a change in the Company’s reportable segments. The Company now conducts
its operations through three geographic operating segments — North America, Europe and North
Africa, and ROW, which consists of operations in Latin America, Sub-Saharan Africa, Middle East and
Asia Pacific. The Company’s operating segments align with the structure of the Company’s internal
management organization. All three segments engage in the development, design, manufacturing,
marketing and distribution of copper, aluminum, and fiber optic communication, electric utility and
electrical infrastructure wire and cable products. In addition to the above products, the ROW
segment and the Europe and North Africa segment develops, designs, manufactures, markets and
distributes construction products and the ROW segment develops, designs, manufactures, markets and
distributes rod mill wire and cable products.
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General Cable has reclassified prior year segment disclosures to conform to the new segment
presentation. The change represents only reclassifications between segments and does not change
the Company’s consolidated net sales, operating income, identifiable assets, capital expenditures
and depreciation expense as reported in previous quarterly and annual filings. The effects of the
segment change on previously reported historical results are included in this footnote.
Net revenues as shown below represent sales to external customers for each segment. Intercompany
revenues have been eliminated. The Company evaluates segment performance and allocates resources
based on segment operating income. Segment operating income represents income from continuing
operations before interest income, interest expense, other income (expense), other financial costs
or income tax.
Corporate assets include cash, deferred income taxes, certain property, including property held for
sale and prepaid expenses and other certain current and non-current assets. The property held for
sale consists of real property remaining from the Company’s closure of certain manufacturing
operations in the amount of $2.4 million as of December 31, 2006. The amount of property held for
sale as of December 31, 2008 and 2007 was immaterial.
| Year Ended December 31 | ||||||||||||
| (in millions) | 2008 | 2007 | 2006 | |||||||||
Net sales: |
||||||||||||
North America |
$ | 2,178.7 | $ | 2,243.7 | $ | 2,058.6 | ||||||
Europe and North Africa |
2,175.3 | 1,939.7 | 1,446.8 | |||||||||
ROW |
1,876.1 | 431.4 | 159.7 | |||||||||
Total |
$ | 6,230.1 | $ | 4,614.8 | $ | 3,665.1 | ||||||
Operating Income: |
||||||||||||
North America |
$ | 122.5 | $ | 179.4 | $ | 128.9 | ||||||
Europe and North Africa |
162.2 | 162.4 | 101.9 | |||||||||
ROW |
136.7 | 24.3 | 5.1 | |||||||||
Total |
$ | 421.4 | $ | 366.1 | $ | 235.9 | ||||||
Total Assets: |
||||||||||||
North America |
$ | 760.1 | $ | 784.9 | $ | 728.7 | ||||||
Europe and North Africa |
1,493.3 | 1,379.5 | 985.1 | |||||||||
ROW |
1,414.6 | 1,380.8 | 94.8 | |||||||||
Corporate |
172.4 | 252.8 | 410.1 | |||||||||
Total |
$ | 3,840.4 | $ | 3,798.0 | $ | 2,218.7 | ||||||
Capital Expenditures: |
||||||||||||
North America |
$ | 52.3 | $ | 41.9 | $ | 23.5 | ||||||
Europe and North Africa |
106.0 | 97.7 | 44.6 | |||||||||
ROW |
59.5 | 14.0 | 3.0 | |||||||||
Total |
$ | 217.8 | $ | 153.6 | $ | 71.1 | ||||||
Depreciation Expense: |
||||||||||||
North America |
$ | 29.7 | $ | 29.0 | $ | 28.6 | ||||||
Europe and North Africa |
29.7 | 22.0 | 14.5 | |||||||||
ROW |
16.1 | 4.8 | 2.4 | |||||||||
Corporate |
— | — | — | |||||||||
Total |
$ | 75.5 | $ | 55.8 | $ | 45.5 | ||||||
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Revenues by Major Product Lines Revenues to external customers are attributable to sales of
electric utility, electrical infrastructure, construction, communications and rod mill wire product
lines.
| Year Ended December 31 | ||||||||||||
| (in millions) | 2008 | 2007 | 2006 | |||||||||
Electric Utility |
$ | 2,120.9 | $ | 1,665.2 | $ | 1,366.9 | ||||||
Electrical Infrastructure |
1,626.6 | 1,234.1 | 907.1 | |||||||||
Construction |
1,439.5 | 872.5 | 662.9 | |||||||||
Communications |
827.5 | 807.0 | 728.2 | |||||||||
Rod Mill Products |
215.6 | 36.0 | — | |||||||||
Total |
$ | 6,230.1 | $ | 4,614.8 | $ | 3,665.1 | ||||||
Geographic Information The following table presents net sales to unaffiliated customers by country
of destination for the last three years and long-lived assets by country as of December 31:
| Net Sales | Long-lived Assets | |||||||||||||||||||||||
| Year Ended December 31 | Year Ended December 31 | |||||||||||||||||||||||
| (in millions) | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | ||||||||||||||||||
United States |
$ | 1,938.4 | $ | 1,933.5 | $ | 1,778.7 | $ | 250.7 | $ | 235.1 | $ | 216.7 | ||||||||||||
Spain |
772.5 | 820.9 | 681.2 | 192.9 | 187.7 | 143.5 | ||||||||||||||||||
France |
535.5 | 546.5 | 400.8 | 97.8 | 65.0 | 29.5 | ||||||||||||||||||
Others |
2,983.7 | 1,313.9 | 804.4 | 821.4 | 732.6 | 94.6 | ||||||||||||||||||
Total |
$ | 6,230.1 | $ | 4,614.8 | $ | 3,665.1 | $ | 1,362.8 | $ | 1,220.4 | $ | 484.3 | ||||||||||||
The following summary of net sales, operating profit and identifiable assets by year for North
America, Europe and North Africa and ROW, Europe and North Africa and ROW illustrates the segment
contribution by quarter as it relates to the change in reportable segments (in millions).
2008
| Net Sales | Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Total | ||||||||||||||||
North America |
$ | 540.7 | $ | 628.6 | $ | 578.2 | $ | 431.2 | $ | 2,178.7 | |||||||||||
Europe and North Africa |
553.3 | 600.3 | 537.0 | 484.7 | 2,175.3 | ||||||||||||||||
ROW |
474.4 | 513.9 | 510.8 | 377.0 | 1,876.1 | ||||||||||||||||
Operating Profit |
Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Total | ||||||||||||||||
North America |
$ | 31.2 | $ | 32.5 | $ | 33.9 | $ | 24.9 | $ | 122.5 | |||||||||||
Europe and North Africa |
49.1 | 49.1 | 36.6 | 27.4 | 162.2 | ||||||||||||||||
ROW |
35.0 | 49.0 | 43.3 | 9.4 | 136.7 | ||||||||||||||||
Identifiable Assets |
Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | |||||||||||||||||
North America |
$ | 883.8 | $ | 920.5 | $ | 888.6 | $ | 760.1 | |||||||||||||
Europe and North Africa |
1,543.0 | 1,838.2 | 1,658.6 | 1,493.3 | |||||||||||||||||
ROW |
1,512.0 | 1,586.8 | 1,586.9 | 1,414.6 | |||||||||||||||||
Corporate |
226.9 | 223.0 | 170.8 | 172.4 | |||||||||||||||||
2007
| Net Sales | Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Total | |||||||||||||||
North America |
$ | 545.1 | $ | 615.2 | $ | 583.4 | $ | 500.0 | $ | 2,243.7 | ||||||||||
Europe and North Africa |
426.0 | 506.7 | 493.9 | 513.1 | 1,939.7 | |||||||||||||||
ROW |
38.1 | 50.6 | 58.0 | 284.7 | 431.4 | |||||||||||||||
Operating Profit |
Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Total | |||||||||||||||
North America |
$ | 46.8 | $ | 56.7 | $ | 51.0 | $ | 24.9 | $ | 179.4 | ||||||||||
Europe and North Africa |
39.3 | 42.3 | 36.8 | 44.0 | 162.4 | |||||||||||||||
ROW |
5.0 | 4.0 | 4.5 | 10.8 | 24.3 | |||||||||||||||
Identifiable Assets |
Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | ||||||||||||||||
North America |
$ | 829.9 | $ | 880.5 | $ | 863.4 | $ | 784.9 | ||||||||||||
Europe and North Africa |
1,028.1 | 1,273.3 | 1,363.9 | 1,380.0 | ||||||||||||||||
ROW |
104.9 | 123.3 | 125.8 | 1,386.1 | ||||||||||||||||
Corporate |
368.4 | 402.6 | 451.1 | 247.0 | ||||||||||||||||
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2006
| Net Sales | Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Total | |||||||||||||||
North America |
$ | 464.2 | $ | 579.5 | $ | 535.7 | $ | 479.2 | $ | 2,058.6 | ||||||||||
Europe and North Africa |
307.4 | 368.8 | 368.5 | 402.1 | 1,446.8 | |||||||||||||||
ROW |
32.7 | 38.8 | 44.2 | 44.0 | 159.7 | |||||||||||||||
Operating Profit |
Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Total | |||||||||||||||
North America |
$ | 20.2 | $ | 41.9 | $ | 36.4 | $ | 30.4 | $ | 128.9 | ||||||||||
Europe and North Africa |
22.3 | 27.7 | 27.4 | 24.5 | 101.9 | |||||||||||||||
ROW |
(0.3 | ) | 0.8 | 2.0 | 2.6 | 5.1 | ||||||||||||||
Identifiable Assets |
Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | ||||||||||||||||
North America |
$ | 711.2 | $ | 772.9 | $ | 770.6 | $ | 728.7 | ||||||||||||
Europe and North Africa |
694.8 | 814.8 | 944.8 | 985.1 | ||||||||||||||||
ROW |
66.0 | 75.9 | 81.8 | 94.8 | ||||||||||||||||
Corporate |
158.0 | 160.5 | 162.6 | 410.1 | ||||||||||||||||
17. Commitments and Contingencies
Environmental Matters
The Company is subject to a variety of federal, state, local and foreign laws and regulations
covering the storage, handling, emission and discharge of materials into the environment, including
CERCLA, the Clean Water Act, the Clean Air Act (including the 1990 amendments) and the Resource
Conservation and Recovery Act.
The Company’s subsidiaries in the United States have been identified as potentially responsible
parties with respect to several sites designated for cleanup under CERCLA or similar state laws,
which impose liability for cleanup of certain waste sites and for related natural resource damages
without regard to fault or the legality of waste generation or disposal. Persons liable for such
costs and damages generally include the site owner or operator and persons that disposed or
arranged for the disposal of hazardous substances found at those sites. Although CERCLA imposes
joint and several liability on all potentially responsible parties, in application, the potentially
responsible parties typically allocate the investigation and cleanup costs based upon, among other
things, the volume of waste contributed by each potentially responsible party.
Settlements can often be achieved through negotiations with the appropriate environmental agency or
the other potentially responsible parties. Potentially responsible parties that contributed small
amounts of waste (typically less than 1% of the waste) are often given the opportunity to settle as
“de minimus” parties, resolving their liability for a particular site. The Company does not own or
operate any of the waste sites with respect to which it has been named as a potentially responsible
party by the government. Based on the Company’s review and other factors, it believes that costs to
the Company relating to environmental clean-up at these sites will not have a material adverse
effect on its results of operations, cash flows or financial position.
In the transaction with Wassall PLC in 1994, American Premier Underwriters, Inc. agreed to
indemnify the Company against liabilities (including all environmental liabilities) arising out of
the Company’s or the Company’s predecessors’ ownership or operation of the Indiana Steel & Wire
Company and Marathon Manufacturing Holdings, Inc. businesses (which were divested by the
predecessor prior to the 1994 Wassall transaction), without limitation as to time or amount.
American Premier also agreed to indemnify the Company against 662/3% of all other environmental
liabilities arising out of the Company’s or the Company’s predecessors’ ownership or operation of
other properties and assets in excess of $10 million but not in excess of $33 million, which were
identified during the seven-year period ended June 2001. Indemnifiable environmental liabilities
through June 2001 were substantially below that threshold. In addition, the Company also has claims
against third parties with respect to some of these liabilities.
At December 31, 2008 and 2007, General Cable had an accrued liability of approximately $1.1 million
and $1.8 million, respectively, for various environmental-related liabilities of which General
Cable is aware. American Premier Underwriters Inc., a former parent of General Cable, agreed to
indemnify General Cable against all environmental-related liabilities arising out of General
Cable’s or its predecessors’ ownership or operation of the Indiana Steel & Wire Company and
Marathon Manufacturing Holdings, Inc. businesses (which were divested by General Cable), without
limitation as to time or amount. While it is difficult to estimate future environmental-related
liabilities accurately, General Cable does not currently anticipate any material adverse impact on
its results of operations, financial position or cash flows as a result of compliance with federal,
state, local or foreign environmental laws or regulations or cleanup costs of the sites discussed
above.
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During 1999, the Company acquired the worldwide energy cable and cable systems business of Balfour
Beatty plc, previously known as BICC plc. As part of this acquisition, the seller agreed to
indemnify the Company against environmental liabilities existing at the date of the closing of the
purchase of the business. The indemnity was for an eight-year period that
ended in 2007, while the Company operates the businesses, subject to certain sharing of losses
(with BICC plc covering 95% of losses in the first three years, 80% in years four and five and 60%
in the remaining three years). The indemnity is also subject to the overall indemnity limit of
$150 million, which applies to all warranty and indemnity claims in the transaction. In addition,
BICC plc assumed responsibility for cleanup of certain specific conditions at various sites
operated by the Company and cleanup is mostly complete at these sites. In the sale of the
businesses to Pirelli in August 2000, the Company generally indemnified Pirelli against any
environmental liabilities on the same basis as BICC plc indemnified it in the earlier acquisition.
However, the indemnity the Company received from BICC plc relating to the European businesses sold
to Pirelli terminated upon the sale of those businesses to Pirelli. In addition, the Company
generally indemnified Pirelli against other claims relating to the prior operation of the business.
Pirelli has asserted claims under this indemnification. The Company is continuing to investigate
and defend against these claims and believes that the reserves currently included in the Company’s
balance sheet are adequate to cover any obligations it may have.
In connection with the sale of certain business to Southwire Company in 2001, the Company has
agreed to indemnify Southwire Company against certain environmental liabilities arising out of the
operation of the business it sold to Southwire. The indemnity is for a ten-year period from the
closing of the sale, which ends in the fourth quarter of 2011, and is subject to an overall limit
of $20 million. At this time, there are no claims outstanding under this indemnity.
As part of the acquisition of Silec, SAFRAN SA agreed to indemnify General Cable against
environmental losses arising from breach of representations and warranties on environmental law
compliance and against losses arising from costs General Cable could incur to remediate property
acquired based on a directive of the French authorities to rehabilitate property in regard to soil,
water and other underground contamination arising before the closing date of the purchase. These
indemnities are for a six-year period ending in 2011 while General Cable operates the businesses
subject to sharing of certain losses (with SAFRAN covering 100% of losses in year one, 75% in years
two and three, 50% in year four, and 25% in years five and six). The indemnities are subject to an
overall limit of 4.0 million euros. As of December 31, 2008, there were no claims outstanding
under this indemnity.
In addition, Company subsidiaries have been named as defendants in lawsuits alleging exposure to
asbestos in products manufactured by the Company. As of December 31, 2008, General Cable was a
defendant in approximately 34,730 cases brought in various jurisdictions throughout the United
States. With regards to the approximately 1,241 remaining cases, General Cable has aggressively
defended these cases based upon either lack of product identification as to General Cable
manufactured asbestos-containing product and/or lack of exposure to asbestos dust from the use of
General Cable product. In the last 20 years, General Cable has had no cases proceed to verdict. In
many of the cases, General Cable was dismissed as a defendant before trial for lack of product
identification.
For cases outside the Multidistrict Litigation (“MDL”) as of December 31, 2008, Plaintiffs have
asserted monetary damages in 300 cases. In 153 of these cases, plaintiffs allege only damages in
excess of some dollar amount (about $217.0 thousand per plaintiff); in these cases there are no
claims for specific dollar amounts requested as to any defendant. In 142 other cases pending in
state and federal district courts (outside the MDL), plaintiffs seek approximately $349.0 million
in damages from as many as 110 defendants. In five cases, plaintiffs have asserted damages related
to General Cable in the amount of $2.1 million. In addition, in relation to these 300 cases, there
are claims of $168.0 million in punitive damages from all of the defendants. However, many of the
plaintiffs in these cases allege non-malignant injuries. At December 31, 2008 and 2007, General
Cable had accrued, on a gross basis, approximately $5.0 million and $5.2 million, respectively, and
had recorded approximately $0.5 million, respectively, of insurance recoveries for these lawsuits.
The net amount of $4.5 million and $4.7 million, as of December 31, 2008 and 2007, respectively,
represents the Company’s best estimate in order to cover resolution of future asbestos-related
claims.
In January 1994, General Cable entered into a settlement agreement with certain principal primary
insurers concerning liability for the costs of defense, judgments and settlements, if any, in all
of the asbestos litigation described above. Subject to the terms and conditions of the settlement
agreement, the insurers are responsible for a substantial portion of the costs and expenses
incurred in the defense or resolution of this litigation. In recent years one of the insurers
participating in the settlement that was responsible for a significant portion of the contribution
under the settlement agreement entered into insurance liquidation proceedings. As a result, the
contribution of the insurers has been reduced and the Company has had to bear a larger portion of
the costs relating to these lawsuits. Moreover, certain of the other insurers may be financially
unstable, and if one or more of these insurers enter into insurance liquidation proceedings,
General Cable will be required to pay a larger portion of the costs incurred in connection with
these cases. In 2006, the Company reached an approximate $3.0 million settlement in cash for the
resolution of one of these insurers’ obligations that effectively exhausted the limits of the
insurance company’s policies that were included in the 1994 settlement agreement.
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In 2007, the Company acquired the worldwide wire and cable business of Freeport-McMoRan Copper and
Gold Inc., which operates as PDIC. As part of this acquisition, the seller agreed to indemnify the
Company for certain environmental liabilities existing at the date of the closing of the
acquisition. The seller’s obligation to indemnify the Company for these
particular liabilities generally survives four years from the date the parties executed the
definitive purchase agreement unless the Company has properly notified the seller before the expiry
of the four year period. The seller also made certain representations and warranties related to
environmental matters and the acquired business and agreed to indemnify the Company for breaches of
those representation and warranties for a period of four years from the closing date.
Indemnification claims for breach of representations and warranties are subject to an overall
indemnity limit of approximately $105 million with a deductible of $5.0 million, which generally
applies to all warranty and indemnity claims for the transaction.
The Company does not believe that the outcome of the litigation will have a material adverse effect
on its consolidated results of operations, financial position or cash flows.
Other Matters
General Cable is also involved in various routine legal proceedings and administrative actions.
Such proceedings and actions should not, individually or in the aggregate, have a material adverse
effect on its result of operations, cash flows or financial position.
The General Cable Executive Severance Benefit Plan (“Severance Plan”), effective January 1, 2008,
applicable to the Company’s executive officers includes a change in control provision such that the
executives may receive payments or benefits in accordance with the Severance Plan to the extent
that both a change of control and a triggering event, each as defined in the Severance Plan, occur.
Unless there are circumstances of ineligibility, as defined, the Company must provide payments and
benefits upon both a change in control and a triggering event. The information is included in the
definitive Proxy Statement which General Cable intends to file with the Securities and Exchange
Commission within 120 days after December 31, 2008, and is incorporated herein by reference, as
discussed in Item 13: Certain Relationships and Related Transactions.
General Cable has entered into various leases related principally to certain administrative,
manufacturing and distribution facilities and transportation equipment. Future minimum rental
payments required under non-cancelable lease agreements at December 31, 2008 were as follows: 2009
- $16.4 million, 2010 — $9.5 million, 2011 — $6.0 million, 2012 — $3.1 million, 2013 — $1.8 million
and thereafter $5.0 million. Rental expense recorded in income from continuing operations was
$19.1 million, $14.4 million and $11.3 million for the years ended December 31, 2008, 2007 and
2006, respectively.
As of December 31, 2008, the Company had $152.6 million in letters of credit, $151.3 million in
various performance bonds and $462.0 million in other guarantees. These letters of credit,
performance bonds and guarantees are periodically renewed and are generally related to risk
associated with self insurance claims, defined benefit plan obligations, contract performance and
quality and other various bank financing guarantees.
18. Unconsolidated Affiliated Companies
Unconsolidated affiliated companies are those in which the Company generally owns less than 50
percent of the outstanding voting shares. The Company does not control these companies and accounts
for its investments in them on the equity basis. The unconsolidated affiliated companies primarily
manufacture or market wire and cable products in our ROW segment. As of December 31, 2008 and
2007, the Company has recorded on its consolidated balance sheets an investment in unconsolidated
affiliated companies of $7.5 million and $29.5 million, respectively. The Company’s share of the
income of these companies is reported in the consolidated statements of operations under “Equity in
net earnings of affiliated companies.” In 2008 and 2007, equity in net earnings of affiliated
companies was $4.6 million and $0.4 million, respectively. Equity in earnings of affiliated
companies in 2006 was immaterial. As of December 31, 2008, the Company’s ownership percentage were
as follows: PTDL Trading Company Ltd. 49%, Colada Continua Chilean, S.A. 41%, Keystone Electric
Wire & Cable Co., Ltd. 20% and Thai Copper Rod Company Ltd. 18%.
19. Fair Value Disclosure
Effective January 1, 2008, the Company adopted SFAS 157 (See Note 2 above for FSP No. 157-2
discussion), which provides a framework for measuring fair value. SFAS 157 defines fair value as
the exchange price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. SFAS 157 also eliminated the
deferral of gains and losses at inception of certain derivative contracts whose fair value was not
evidenced by market observable data. SFAS 157 requires that the impact of this change in accounting
for derivative contracts be recorded as an adjustment to beginning retained earnings in the period
of adoption. There was no impact on the beginning balance of retained earnings as a result of
adopting SFAS 157 because the Company held no financial instruments in which a gain or loss at
inception was deferred. The Company also adopted SFAS 159 on January 1, 2008. SFAS 159 allows an
entity the irrevocable option to elect fair value for the initial and subsequent measurement for
certain financial assets and liabilities. There was no impact on the
Company’s financial statement as a result of adopting SFAS 159 because the Company did not elect to
apply the fair value option to any eligible financial assets or financial liabilities at that time.
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The Company determined the fair market values of its financial instruments based on the fair value
hierarchy established in SFAS 157 which requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value. The standard describes three
levels of inputs that may be used to measure fair values which are provided in Note 2. The Company
carries available-for-sale (AFS) marketable equity securities held in rabbi trust as part of the
Company’s deferred compensation plan and derivative assets and liabilities at fair value.
AFS marketable equity securities are recorded at fair value, which are based on quoted market
prices. The fair values of derivative assets and liabilities traded in the over-the-counter market
are determined using quantitative models that require the use of multiple market inputs including
interest rates, prices and indices to generate pricing and volatility factors, which are used to
value the position. The predominance of market inputs are actively quoted and can be validated
through external sources, including brokers, market transactions and third-party pricing services.
Estimation risk is greater for derivative asset and liability positions that are either
option-based or have longer maturity dates where observable market inputs are less readily
available or are unobservable, in which case interest rate, price or index scenarios are
extrapolated in order to determine the fair value. The fair values of derivative assets and
liabilities include adjustments for market liquidity, counterparty credit quality, Company’s own
credit standing and other specific factors, where appropriate. To ensure the prudent application of
estimates and management judgment in determining the fair value of derivative assets and
liabilities, various processes and controls have been adopted, which include: model validation that
requires a review and approval for pricing, financial statement fair value determination and risk
quantification; periodic review and substantiation of profit and loss reporting for all derivative
instruments. Financial assets and liabilities measured at fair value on a recurring basis are
summarized below:
| December 31, 2008 | ||||||||||||||||
| Fair Value Measurement Using | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||
Assets: |
||||||||||||||||
Derivative assets |
$ | — | $ | 1.7 | $ | — | $ | 1.7 | ||||||||
Available-for-sale securities(1) |
11.4 | — | — | 11.4 | ||||||||||||
Total Assets |
$ | 11.4 | $ | 1.7 | $ | — | $ | 13.1 | ||||||||
Liabilities |
||||||||||||||||
Derivative liabilities |
$ | — | $ | 86.7 | $ | — | $ | 86.7 | ||||||||
Total liabilities |
$ | — | $ | 86.7 | $ | — | $ | 86.7 | ||||||||
| (1) | Available-for-sale securities are held in rabbi trust as part of the Company’s deferred
compensation plan and are accounted for in accordance with EITF 97-14, see Note 10 to the condensed
consolidated financial statements. |
At the time of the adoption of SFAS 157, there were no financial assets or financial liabilities
measured at fair value on a recurring basis using significant unobservable inputs (Level 3).
Similarly, as a result of FSP No. 157-2, there were no nonfinancial assets or nonfinancial
liabilities measured at fair value on a non-recurring basis.
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20. Quarterly Operating Results (Unaudited)
The interim financial information is unaudited. In the opinion of management, the interim financial
information reflects all adjustments necessary for a fair presentation of quarterly financial
information. Quarterly results have been influenced by seasonal factors inherent in General Cable’s
businesses. The sum of the quarters’ earnings per share amounts may not add to full year earnings
per share because each quarter is calculated independently, and the sum of the quarters’ other
figures may not add to the full year because of rounding. Summarized historical quarterly financial
data for 2008 and 2007 are set forth below (in millions, except per share data):
| First | Second | Third | Fourth | |||||||||||||
| Quarter | Quarter | Quarter | Quarter | |||||||||||||
2008 |
||||||||||||||||
Net sales |
$ | 1,568.4 | $ | 1,742.8 | $ | 1,626.0 | $ | 1,292.9 | ||||||||
Gross profit |
212.7 | 227.3 | 209.8 | 152.6 | ||||||||||||
Net income |
65.9 | 75.7 | 57.7 | 17.9 | ||||||||||||
Net income applicable to common shareholders |
65.8 | 75.6 | 57.6 | 17.8 | ||||||||||||
Earnings per common share — basic |
$ | 1.28 | $ | 1.47 | $ | 1.11 | $ | 0.34 | ||||||||
Earnings per common share — assuming dilution |
$ | 1.21 | $ | 1.37 | $ | 1.07 | $ | 0.34 | ||||||||
2007 |
||||||||||||||||
Net sales |
$ | 1,009.2 | $ | 1,172.5 | $ | 1,135.3 | $ | 1,297.8 | ||||||||
Gross profit |
159.8 | 173.1 | 163.5 | 166.3 | ||||||||||||
Net income |
37.9 | 62.9 | 61.2 | 46.7 | ||||||||||||
Net income applicable to common shareholders |
37.8 | 62.8 | 61.1 | 46.6 | ||||||||||||
Earnings per common share — basic |
$ | 0.74 | $ | 1.23 | $ | 1.19 | $ | 0.91 | ||||||||
Earnings per common share — assuming dilution |
$ | 0.71 | $ | 1.15 | $ | 1.11 | $ | 0.84 | ||||||||
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21. Supplemental Guarantor and Parent Company Condensed Financial Information
General Cable Corporation and its U.S. wholly-owned subsidiaries fully and unconditionally
guarantee the $475 million of 1.00% Senior Convertible Notes, the $355.0 million of 0.875%
Convertible Notes and the $325 million of 7.125% Senior Notes due in 2017 and Senior Floating Rate
Notes of General Cable Corporation (the Parent) on a joint and several basis. The following
presents financial information about the Parent, guarantor subsidiaries and non-guarantor
subsidiaries in millions. All of the Company’s subsidiaries are “restricted subsidiaries” for
purposes of the 1.00% Senior Convertible Notes and 0.875% Convertible Notes. Intercompany
transactions are eliminated.
Condensed Statements of Operations
Year Ended December 31, 2008
Year Ended December 31, 2008
| Guarantor | Non-Guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
Net sales: |
||||||||||||||||||||
Customers |
$ | — | $ | 2,142.1 | $ | 4,088.0 | $ | — | $ | 6,230.1 | ||||||||||
Intercompany |
59.4 | 2.4 | 49.1 | (110.9 | ) | — | ||||||||||||||
| 59.4 | 2,144.5 | 4,137.1 | (110.9 | ) | 6,230.1 | |||||||||||||||
Cost of sales |
— | 1,884.2 | 3,592.6 | (49.1 | ) | 5,427.7 | ||||||||||||||
Gross profit |
59.4 | 260.3 | 544.5 | (61.8 | ) | 802.4 | ||||||||||||||
Selling, general and administrative expenses |
48.6 | 145.6 | 248.6 | (61.8 | ) | 381.0 | ||||||||||||||
Operating income |
10.8 | 114.7 | 295.9 | — | 421.4 | |||||||||||||||
Other income (expense) |
0.5 | (0.6 | ) | (27.1 | ) | — | (27.2 | ) | ||||||||||||
Interest income (expense): |
||||||||||||||||||||
Interest expense |
(34.2 | ) | (77.1 | ) | (52.1 | ) | 95.3 | (68.1 | ) | |||||||||||
Interest income |
72.3 | 23.6 | 11.7 | (95.3 | ) | 12.3 | ||||||||||||||
| 38.1 | (53.5 | ) | (40.4 | ) | — | (55.8 | ) | |||||||||||||
Income before income taxes |
49.4 | 60.6 | 228.4 | — | 338.4 | |||||||||||||||
Income tax provision |
(18.5 | ) | (34.1 | ) | (60.1 | ) | — | (112.7 | ) | |||||||||||
Minority interest |
— | — | (13.1 | ) | — | (13.1 | ) | |||||||||||||
Equity in net earnings of affiliated companies |
186.3 | 159.8 | 0.4 | (341.9 | ) | 4.6 | ||||||||||||||
Net income (loss) |
217.2 | 186.3 | 155.6 | (341.9 | ) | 217.2 | ||||||||||||||
Less: preferred stock dividends |
(0.3 | ) | — | — | — | (0.3 | ) | |||||||||||||
Net income (loss) applicable to common
shareholders |
$ | 216.9 | $ | 186.3 | $ | 155.6 | $ | (341.9 | ) | $ | 216.9 | |||||||||
101
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Condensed Statements of Operations
Year Ended December 31, 2007
Year Ended December 31, 2007
| Guarantor | Non-Guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
Net sales: |
||||||||||||||||||||
Customers |
$ | — | $ | 2,208.5 | $ | 2,406.3 | $ | — | $ | 4,614.8 | ||||||||||
Intercompany |
48.7 | — | — | (48.7 | ) | — | ||||||||||||||
| 48.7 | 2,208.5 | 2,406.3 | (48.7 | ) | 4,614.8 | |||||||||||||||
Cost of sales |
— | 1,887.7 | 2,064.4 | — | 3,952.1 | |||||||||||||||
Gross profit |
48.7 | 320.8 | 341.9 | (48.7 | ) | 662.7 | ||||||||||||||
Selling, general and administrative expenses |
44.5 | 144.1 | 156.7 | (48.7 | ) | 296.6 | ||||||||||||||
Operating income |
4.2 | 176.7 | 185.2 | — | 366.1 | |||||||||||||||
Other income (expense) |
1.2 | 0.2 | (4.8 | ) | — | (3.4 | ) | |||||||||||||
Interest income (expense): |
||||||||||||||||||||
Interest expense |
(33.3 | ) | (68.0 | ) | (17.9 | ) | 70.8 | (48.4 | ) | |||||||||||
Interest income |
74.7 | 5.5 | 9.4 | (70.8 | ) | 18.8 | ||||||||||||||
Loss on extinguishment of debt |
(25.3 | ) | — | — | — | (25.3 | ) | |||||||||||||
| 16.1 | (62.5 | ) | (8.5 | ) | — | (54.9 | ) | |||||||||||||
Income before income taxes |
21.5 | 114.4 | 171.9 | — | 307.8 | |||||||||||||||
Income tax provision |
(7.8 | ) | (41.0 | ) | (50.6 | ) | — | (99.4 | ) | |||||||||||
Minority interest |
— | — | (0.2 | ) | — | (0.2 | ) | |||||||||||||
Equity in net earnings of affiliated companies |
194.9 | 121.5 | 0.4 | (316.4 | ) | 0.4 | ||||||||||||||
Net income (loss) |
208.6 | 194.9 | 121.5 | (316.4 | ) | 208.6 | ||||||||||||||
Less: preferred stock dividends |
(0.3 | ) | — | — | — | (0.3 | ) | |||||||||||||
Net income (loss) applicable to common
shareholders |
$ | 208.3 | $ | 194.9 | $ | 121.5 | $ | (316.4 | ) | $ | 208.3 | |||||||||
Condensed Statements of Operations
Year Ended December 31, 2006
Year Ended December 31, 2006
| Guarantor | Non-Guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
Net sales: |
||||||||||||||||||||
Customers |
$ | — | $ | 2,028.1 | $ | 1,637.0 | $ | — | $ | 3,665.1 | ||||||||||
Intercompany |
50.1 | — | — | (50.1 | ) | — | ||||||||||||||
| 50.1 | 2,028.1 | 1,637.0 | (50.1 | ) | 3,665.1 | |||||||||||||||
Cost of sales |
— | 1,774.6 | 1,419.5 | — | 3,194.1 | |||||||||||||||
Gross profit |
50.1 | 253.5 | 217.5 | (50.1 | ) | 471.0 | ||||||||||||||
Selling, general and administrative expenses |
46.1 | 133.3 | 105.8 | (50.1 | ) | 235.1 | ||||||||||||||
Operating income |
4.0 | 120.2 | 111.7 | — | 235.9 | |||||||||||||||
Other expense |
— | (0.3 | ) | 0.2 | — | (0.1 | ) | |||||||||||||
Interest income (expense): |
||||||||||||||||||||
Interest expense |
(27.8 | ) | (61.6 | ) | (8.6 | ) | 58.0 | (40.0 | ) | |||||||||||
Interest income |
55.9 | 1.3 | 5.2 | (58.0 | ) | 4.4 | ||||||||||||||
| 28.1 | (60.3 | ) | (3.4 | ) | — | (35.6 | ) | |||||||||||||
Income (loss) before income taxes |
32.1 | 59.6 | 108.5 | — | 200.2 | |||||||||||||||
Income tax (provision) benefit |
(11.7 | ) | (20.1 | ) | (33.1 | ) | — | (64.9 | ) | |||||||||||
Equity in net earnings of affiliated companies |
114.9 | 75.4 | — | (190.3 | ) | — | ||||||||||||||
Net income (loss) |
135.3 | 114.9 | 75.4 | (190.3 | ) | 135.3 | ||||||||||||||
Less: preferred stock dividends |
(0.3 | ) | — | — | — | (0.3 | ) | |||||||||||||
Net income (loss) applicable to common
shareholders |
$ | 135.0 | $ | 114.9 | $ | 75.4 | $ | (190.3 | ) | $ | 135.0 | |||||||||
102
Table of Contents
Condensed Balance Sheets
December 31, 2008
December 31, 2008
| Guarantor | Non-Guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
Assets |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash |
$ | 2.3 | $ | 28.1 | $ | 252.2 | $ | — | $ | 282.6 | ||||||||||
Receivables, net of allowances |
— | 211.9 | 820.1 | — | 1,032.0 | |||||||||||||||
Inventories |
— | 269.0 | 684.2 | — | 953.2 | |||||||||||||||
Deferred income taxes |
7.0 | 90.8 | 34.5 | — | 132.3 | |||||||||||||||
Prepaid expenses and other |
4.7 | 21.4 | 51.5 | — | 77.6 | |||||||||||||||
Total current assets |
14.0 | 621.2 | 1,842.5 | — | 2,477.7 | |||||||||||||||
Property, plant and equipment, net |
0.6 | 203.4 | 676.9 | — | 880.9 | |||||||||||||||
Deferred income taxes |
24.3 | (1.5 | ) | 31.1 | — | 53.9 | ||||||||||||||
Intercompany accounts |
1,037.3 | 413.1 | 21.3 | (1,471.7 | ) | — | ||||||||||||||
Investment in subsidiaries |
762.8 | 971.0 | — | (1,733.8 | ) | — | ||||||||||||||
Goodwill |
— | 0.9 | 171.0 | — | 171.9 | |||||||||||||||
Intangible assets, net |
— | 0.7 | 201.1 | — | 201.8 | |||||||||||||||
Unconsolidated affiliated companies |
— | 1.9 | 5.6 | — | 7.5 | |||||||||||||||
Other non-current assets |
17.3 | 20.0 | 9.4 | — | 46.7 | |||||||||||||||
Total assets |
$ | 1,856.3 | $ | 2,230.7 | $ | 2,958.9 | $ | (3,205.5 | ) | $ | 3,840.4 | |||||||||
Liabilities and Shareholders’ Equity |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable |
$ | — | $ | 119.9 | $ | 637.3 | $ | — | $ | 757.2 | ||||||||||
Accrued liabilities |
(19.4 | ) | 125.3 | 317.4 | — | 423.3 | ||||||||||||||
Current portion of long-term debt |
— | 1.0 | 229.5 | — | 230.5 | |||||||||||||||
Total current liabilities |
(19.4 | ) | 246.2 | 1,184.2 | — | 1,411.0 | ||||||||||||||
Long-term debt |
1,155.0 | 10.2 | 50.9 | — | 1,216.1 | |||||||||||||||
Deferred income taxes |
— | (3.7 | ) | 100.1 | — | 96.4 | ||||||||||||||
Intercompany accounts |
— | 1,058.6 | 413.1 | (1,471.7 | ) | — | ||||||||||||||
Other liabilities |
12.3 | 160.8 | 103.1 | — | 276.2 | |||||||||||||||
Total liabilities |
1,147.9 | 1,472.1 | 1,851.4 | (1,471.7 | ) | 2,999.7 | ||||||||||||||
Minority interests in consolidated
subsidiaries |
— | — | 132.3 | — | 132.3 | |||||||||||||||
Total shareholders’ equity (deficit) |
708.4 | 758.6 | 975.2 | (1,733.8 | ) | 708.4 | ||||||||||||||
Total liabilities and shareholders’ equity |
$ | 1,856.3 | $ | 2,230.7 | $ | 2,958.9 | $ | (3,205.5 | ) | $ | 3,840.4 | |||||||||
103
Table of Contents
Condensed Balance Sheets
December 31, 2007
December 31, 2007
| Guarantor | Non-Guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
Assets |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash |
$ | 7.2 | $ | 13.2 | $ | 305.3 | $ | — | $ | 325.7 | ||||||||||
Receivables, net of allowances |
— | 241.1 | 880.3 | — | 1,121.4 | |||||||||||||||
Inventories |
— | 301.4 | 627.4 | — | 928.8 | |||||||||||||||
Deferred income taxes |
4.5 | 88.0 | 31.1 | — | 123.6 | |||||||||||||||
Prepaid expenses and other |
8.1 | 33.4 | 32.2 | — | 73.7 | |||||||||||||||
Total current assets |
19.8 | 677.1 | 1,876.3 | — | 2,573.2 | |||||||||||||||
Property, plant and equipment, net |
0.7 | 185.4 | 552.7 | — | 738.8 | |||||||||||||||
Deferred income taxes |
— | 21.1 | 21.5 | — | 42.6 | |||||||||||||||
Intercompany accounts |
944.2 | 487.7 | 305.1 | (1,737.0 | ) | — | ||||||||||||||
Investment in subsidiaries |
841.4 | 914.8 | — | (1,756.2 | ) | — | ||||||||||||||
Goodwill |
— | — | 116.1 | — | 116.1 | |||||||||||||||
Intangible assets, net |
— | 0.7 | 236.0 | — | 236.7 | |||||||||||||||
Unconsolidated affiliated companies |
— | — | 29.5 | — | 29.5 | |||||||||||||||
Other non-current assets |
23.4 | 25.3 | 8.0 | — | 56.7 | |||||||||||||||
Total assets |
$ | 1,829.5 | $ | 2,312.1 | $ | 3,145.2 | $ | (3,493.2 | ) | $ | 3,793.6 | |||||||||
Liabilities and Shareholders’ Equity |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable |
$ | — | $ | 133.3 | $ | 804.0 | $ | — | $ | 937.3 | ||||||||||
Accrued liabilities |
(15.1 | ) | 121.9 | 290.5 | — | 397.3 | ||||||||||||||
Current portion of long-term debt |
355.0 | 1.0 | 144.9 | — | 500.9 | |||||||||||||||
Total current liabilities |
339.9 | 256.2 | 1,239.4 | — | 1,835.5 | |||||||||||||||
Long-term debt |
800.0 | 71.4 | 26.5 | — | 897.9 | |||||||||||||||
Deferred income taxes |
— | — | 118.5 | — | 118.5 | |||||||||||||||
Intercompany accounts |
0.5 | 1,042.3 | 694.2 | (1,737.0 | ) | — | ||||||||||||||
Other liabilities |
12.2 | 100.8 | 77.0 | — | 190.0 | |||||||||||||||
Total liabilities |
1,152.6 | 1,470.7 | 2,155.6 | (1,737.0 | ) | 3,041.9 | ||||||||||||||
Minority interests in consolidated
subsidiaries |
— | — | 74.8 | — | 74.8 | |||||||||||||||
Total shareholders’ equity (deficit) |
676.9 | 841.4 | 914.8 | (1,756.2 | ) | 676.9 | ||||||||||||||
Total liabilities and shareholders’ equity |
$ | 1,829.5 | $ | 2,312.1 | $ | 3,145.2 | $ | (3,493.2 | ) | $ | 3,793.6 | |||||||||
104
Table of Contents
Condensed Statements of Cash Flows
Year Ended December 31, 2008
Year Ended December 31, 2008
| Guarantor | Non-Guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
Net cash flows of operating activities |
$ | 30.4 | $ | 123.2 | $ | 75.8 | $ | — | $ | 229.4 | ||||||||||
Cash flows of investing activities: |
||||||||||||||||||||
Capital expenditures |
— | (51.5 | ) | (166.3 | ) | — | (217.8 | ) | ||||||||||||
Acquisitions, net of cash acquired |
— | (19.0 | ) | (31.3 | ) | — | (50.3 | ) | ||||||||||||
Proceeds from properties sold |
— | 2.7 | 3.5 | — | 6.2 | |||||||||||||||
Intercompany accounts |
(33.1 | ) | — | — | 33.1 | — | ||||||||||||||
Other, net |
— | (1.4 | ) | — | — | (1.4 | ) | |||||||||||||
Net cash flows of investing activities |
(33.1 | ) | (69.2 | ) | (194.1 | ) | 33.1 | (263.3 | ) | |||||||||||
Cash flows of financing activities: |
||||||||||||||||||||
Dividends paid |
1.2 | — | (1.5 | ) | — | (0.3 | ) | |||||||||||||
Excess tax benefits from stock-based compensation |
6.0 | — | — | — | 6.0 | |||||||||||||||
Intercompany accounts |
— | 22.4 | 10.7 | (33.1 | ) | — | ||||||||||||||
Proceeds from revolving credit borrowings |
— | 124.7 | — | — | 124.7 | |||||||||||||||
Repayments of revolving credit borrowings |
— | (184.7 | ) | — | — | (184.7 | ) | |||||||||||||
Proceeds (repayments) of other debt |
— | (1.1 | ) | 94.4 | — | 93.3 | ||||||||||||||
Purchase of treasury shares |
(11.7 | ) | — | — | — | (11.7 | ) | |||||||||||||
Proceeds from exercise of stock options |
2.3 | — | — | — | 2.3 | |||||||||||||||
Net cash flows of financing activities |
(2.2 | ) | (38.7 | ) | 103.6 | (33.1 | ) | 29.6 | ||||||||||||
Effect of exchange rate changes on cash and cash
equivalents |
— | (0.4 | ) | (38.4 | ) | — | (38.8 | ) | ||||||||||||
Increase in cash and cash equivalents |
(4.9 | ) | 14.9 | (53.1 | ) | — | (43.1 | ) | ||||||||||||
Cash and cash equivalents – beginning of period |
7.2 | 13.2 | 305.3 | — | 325.7 | |||||||||||||||
Cash and cash equivalents – end of period |
$ | 2.3 | $ | 28.1 | $ | 252.2 | $ | — | $ | 282.6 | ||||||||||
105
Table of Contents
Condensed Statements of Cash Flows
Year Ended December 31, 2007
Year Ended December 31, 2007
| Guarantor | Non-Guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
Net cash flows of operating activities |
$ | (1.9 | ) | $ | 127.3 | $ | 106.3 | $ | — | $ | 231.7 | |||||||||
Cash flows of investing activities: |
||||||||||||||||||||
Capital expenditures |
(0.2 | ) | (40.8 | ) | (112.6 | ) | — | (153.6 | ) | |||||||||||
Acquisitions, net of cash acquired |
— | — | (634.8 | ) | — | (634.8 | ) | |||||||||||||
Proceeds from acquisitions including cash acquired |
— | — | 28.0 | — | 28.0 | |||||||||||||||
Proceeds from properties sold |
— | 0.4 | 0.7 | — | 1.1 | |||||||||||||||
Intercompany accounts |
(647.5 | ) | — | — | 647.5 | — | ||||||||||||||
Other, net |
(1.7 | ) | 1.2 | — | — | (0.5 | ) | |||||||||||||
Net cash flows of investing activities |
(649.4 | ) | (39.2 | ) | (718.7 | ) | 647.5 | (759.8 | ) | |||||||||||
Cash flows of financing activities: |
||||||||||||||||||||
Dividends paid |
(0.3 | ) | — | — | — | (0.3 | ) | |||||||||||||
Settlement net investment swap |
(30.5 | ) | — | — | — | (30.5 | ) | |||||||||||||
Excess tax benefits from stock-based compensation |
11.1 | — | — | — | 11.1 | |||||||||||||||
Intercompany accounts |
— | (145.5 | ) | 793.0 | (647.5 | ) | — | |||||||||||||
Proceeds from revolving credit borrowings |
— | 100.0 | — | — | 100.0 | |||||||||||||||
Repayments of revolving credit borrowings |
— | (40.0 | ) | — | — | (40.0 | ) | |||||||||||||
Issuance of long-term debt, net of fees & expenses |
800.0 | — | — | — | 800.0 | |||||||||||||||
Payment of deferred financing fees |
(19.0 | ) | — | — | — | (19.0 | ) | |||||||||||||
Repayments of long-term debt, including fees &
expenses |
(305.5 | ) | — | — | — | (305.5 | ) | |||||||||||||
Proceeds (repayments) of other debt |
— | (0.8 | ) | 8.1 | — | 7.3 | ||||||||||||||
Proceeds from exercise of stock options |
5.0 | — | — | — | 5.0 | |||||||||||||||
Net cash flows of financing activities |
460.8 | (86.3 | ) | 801.1 | (647.5 | ) | 528.1 | |||||||||||||
Effect of exchange rate changes on cash and cash
equivalents |
— | 0.5 | 14.7 | — | 15.2 | |||||||||||||||
Increase in cash and cash equivalents |
(190.5 | ) | 2.3 | 203.4 | — | 15.2 | ||||||||||||||
Cash and cash equivalents – beginning of period |
197.7 | 10.9 | 101.9 | — | 310.5 | |||||||||||||||
Cash and cash equivalents – end of period |
$ | 7.2 | $ | 13.2 | $ | 305.3 | $ | — | $ | 325.7 | ||||||||||
106
Table of Contents
Condensed Statements of Cash Flows
Year Ended December 31, 2006
Year Ended December 31, 2006
| Guarantor | Non-Guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
Net cash flows of operating activities |
$ | 54.1 | $ | (39.9 | ) | $ | 79.8 | $ | — | $ | 94.0 | |||||||||
Cash flows of investing activities: |
||||||||||||||||||||
Capital expenditures |
(0.6 | ) | (21.9 | ) | (48.6 | ) | — | (71.1 | ) | |||||||||||
Acquisitions, net of cash acquired |
— | — | (26.9 | ) | — | (26.9 | ) | |||||||||||||
Proceeds from properties sold |
— | 0.1 | 0.7 | — | 0.8 | |||||||||||||||
Intercompany accounts |
(198.7 | ) | — | — | 198.7 | — | ||||||||||||||
Other, net |
— | 1.4 | — | — | 1.4 | |||||||||||||||
Net cash flows of investing activities |
(199.3 | ) | (20.4 | ) | (74.8 | ) | 198.7 | (95.8 | ) | |||||||||||
Cash flows of financing activities: |
||||||||||||||||||||
Dividends paid |
(0.3 | ) | — | — | — | (0.3 | ) | |||||||||||||
Excess tax benefits from stock-based compensation |
19.0 | — | — | — | 19.0 | |||||||||||||||
Intercompany accounts |
— | 173.7 | 25.0 | (198.7 | ) | — | ||||||||||||||
Proceeds from revolving credit borrowings |
— | 264.1 | — | — | 264.1 | |||||||||||||||
Repayments of revolving credit borrowings |
— | (379.2 | ) | — | — | (379.2 | ) | |||||||||||||
Proceeds of other debt |
— | 1.8 | 5.1 | — | 6.9 | |||||||||||||||
Issuance of long-term debt, net of fees & expenses |
355.0 | — | — | — | 355.0 | |||||||||||||||
Payment of deferred financing fees |
(9.4 | ) | — | — | — | (9.4 | ) | |||||||||||||
Purchase of note hedges |
(124.5 | ) | — | — | — | (124.5 | ) | |||||||||||||
Proceeds from issuance of warrants |
80.4 | — | — | — | 80.4 | |||||||||||||||
Proceeds from exercise of stock options |
22.7 | — | — | — | 22.7 | |||||||||||||||
Net cash flows of financing activities |
342.9 | 60.4 | 30.1 | (198.7 | ) | 234.7 | ||||||||||||||
Effect of exchange rate changes on cash and cash
equivalents |
— | (0.3 | ) | 5.7 | — | 5.4 | ||||||||||||||
Increase in cash and cash equivalents |
197.7 | (0.2 | ) | 40.8 | — | 238.3 | ||||||||||||||
Cash and cash equivalents – beginning of period |
— | 11.1 | 61.1 | — | 72.2 | |||||||||||||||
Cash and cash equivalents – end of period |
$ | 197.7 | $ | 10.9 | $ | 101.9 | $ | — | $ | 310.5 | ||||||||||
107
Table of Contents
Notes to Parent Company Condensed Financial Information
Basis of Presentation
In accordance with the requirements of Regulation S-X of the Securities and Exchange Commission,
restricted net assets of the Company’s subsidiaries and the Company’s equity in the undistributed
earnings of 50 percent or less owned entities exceeded 25% of the Company’s total consolidated net
assets as of December 31, 2008. As a result, Parent Company Condensed Financial Information is
required to be disclosed. This financial information is condensed and omits many disclosures
presented in the Consolidated Financial Statements and Notes thereto.
Parent Company Long-Term Debt
At December 31, 2008, the Parent Company was party to various long-term financing arrangements, as
summarized below:
Long-term debt consisted of the following (in millions):
| December 31 | ||||||||
| 2008 | 2007 | |||||||
1.00% Senior Convertible Notes due 2012 |
$ | 475.0 | $ | 475.0 | ||||
0.875% Convertible Notes due 2013 |
355.0 | 355.0 | ||||||
7.125% Senior Notes due 2017 |
200.0 | 200.0 | ||||||
Senior Floating Rate Notes |
125.0 | 125.0 | ||||||
Total Parent Company debt |
1,155.0 | 1,155.0 | ||||||
Less current maturities |
— | 355.0 | ||||||
Parent Company Long-term debt |
$ | 1,155.0 | $ | 800.0 | ||||
| (in millions) | 2009 | 2010 | 2011 | 2012 | 2013 | |||||||||||||||
Debt maturities |
$ | — | $ | — | $ | — | $ | 475.0 | $ | 355.0 | ||||||||||
Long-term debt related to the Parent Company is discussed in Note 9 of the Notes to the
Consolidated Financial Statements.
Commitments and Contingencies
For contingencies and guarantees related to the Parent Company, refer to Note 9 and Note 17 of the
Notes to the Consolidated Financial Statements.
Dividends
Cash dividends paid to the Parent Company by its consolidated subsidiaries was $34.8 million in
2008. There were no cash dividend payments in 2007 or 2006.
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Schedule II
GENERAL CABLE CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
(in millions)
(in millions)
| For the Year | ||||||||||||
| Ended December 31, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
Accounts Receivable Allowances: |
||||||||||||
Beginning balance |
$ | 17.9 | $ | 10.0 | $ | 8.6 | ||||||
Impact of foreign currency exchange rate
changes |
(0.8 | ) | 0.6 | 0.7 | ||||||||
Provision |
4.3 | 9.7 | 2.2 | |||||||||
Write-offs |
(2.1 | ) | (2.4 | ) | (1.5 | ) | ||||||
Ending balance |
$ | 19.3 | $ | 17.9 | $ | 10.0 | ||||||
Deferred Tax Valuation Allowance: |
||||||||||||
Beginning balance |
$ | 19.3 | $ | 21.3 | $ | 18.5 | ||||||
Additions charged to expense |
1.0 | 2.6 | 2.3 | |||||||||
Additions attributable to acquisitions and
dispositions |
(1.7 | ) | 6.2 | 9.0 | ||||||||
Impact of foreign currency exchange rate
changes |
(1.7 | ) | 1.4 | 0.8 | ||||||||
Reductions from utilization and reassessments |
(5.2 | ) | (12.2 | ) | (9.3 | ) | ||||||
Ending balance |
$ | 11.7 | $ | 19.3 | $ | 21.3 | ||||||
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Exhibit Index
| 12.1 | Computation of Ratio of Earnings to Fixed Charges. |
|||
| 21.1 | List of Subsidiaries of General Cable. |
|||
| 23.1 | Consent of Deloitte & Touche LLP. |
|||
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15(d) — 14. |
|||
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15(d) — 14. |
|||
| 32.1 | Certification pursuant to 18 U.S.C. §1350, as adopted under Section 906 of the Sarbanes-Oxley Act of 2002. |
110