Form 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2009
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
000-51043
(Commission File Number)
International Wire Group, Inc.
(Exact name of Registrant as specified in its charter)
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Delaware
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43-1705942 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.) |
12 Masonic Ave.
Camden, NY 13316
(315) 245-3800
(Address, including zip code, and telephone number, including
area code, of Registrants principal executive offices)
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 whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. YES þ NO o
Indicate the number of shares outstanding of each of the issuers classes of common stock. As of
July 31, 2009, there were 9,986,202 shares, par value $.01 per share, outstanding.
INTERNATIONAL WIRE GROUP, INC.
INDEX
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PART I. FINANCIAL INFORMATION
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ITEM 1. |
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FINANCIAL STATEMENTS |
INTERNATIONAL WIRE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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June 30, |
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December 31, |
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2009 |
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2008 |
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(In thousands, except share data) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
6,432 |
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$ |
7,372 |
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Accounts receivable, less allowances of $3,527 and $2,979 |
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63,031 |
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66,404 |
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Refundable income taxes |
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1,377 |
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6,632 |
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Inventories |
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48,610 |
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62,602 |
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Prepaid expenses and other |
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8,208 |
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7,526 |
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Deferred income taxes |
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11,258 |
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11,258 |
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Total current assets |
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138,916 |
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161,794 |
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Property, plant and equipment, net |
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107,798 |
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112,950 |
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Goodwill |
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62,133 |
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62,133 |
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Identifiable intangibles, net |
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24,232 |
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26,168 |
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Deferred financing costs, net |
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1,433 |
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1,768 |
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Restricted cash |
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1,366 |
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1,387 |
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Other assets |
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4,100 |
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3,899 |
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Total assets |
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$ |
339,978 |
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$ |
370,099 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Current maturities of long-term debt |
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$ |
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$ |
595 |
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Accounts payable |
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16,630 |
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22,254 |
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Accrued and other liabilities |
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9,213 |
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10,971 |
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Accrued workers compensation costs |
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7,256 |
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7,596 |
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Accrued payroll and payroll related items |
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6,530 |
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7,472 |
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Customers deposits |
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12,118 |
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13,348 |
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Accrued interest |
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1,648 |
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1,723 |
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Dividend payable |
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12,010 |
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Total current liabilities |
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53,395 |
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75,969 |
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Long-term debt, less current maturities |
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79,394 |
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87,792 |
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Other long-term liabilities |
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8,624 |
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8,452 |
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Deferred income taxes |
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16,145 |
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16,282 |
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Total liabilities |
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157,558 |
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188,495 |
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Stockholders equity: |
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Common stock, $.01 par value, 20,000,000 shares authorized, 10,130,202 issued |
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102 |
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102 |
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Contributed capital |
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187,441 |
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187,061 |
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Accumulated deficit |
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(4,419 |
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(4,515 |
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Treasury stock at cost, 144,000 shares |
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(3,036 |
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(3,036 |
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Accumulated other comprehensive income |
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2,332 |
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1,992 |
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Total stockholders equity |
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182,420 |
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181,604 |
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Total liabilities and stockholders equity |
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$ |
339,978 |
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$ |
370,099 |
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See accompanying notes to the condensed consolidated financial statements.
1
INTERNATIONAL WIRE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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For the Three Months Ended |
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For the Six Months Ended |
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June 30, |
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June 30, |
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June 30, |
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June 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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(In thousands, except share data) |
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Net sales |
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$ |
102,007 |
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$ |
199,863 |
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$ |
203,271 |
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$ |
406,369 |
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Operating expenses: |
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Cost of goods sold, exclusive of depreciation and
amortization expense shown below |
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86,976 |
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172,976 |
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170,534 |
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350,123 |
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Selling, general and administrative expenses |
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8,778 |
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11,497 |
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17,941 |
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23,085 |
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Depreciation |
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4,197 |
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3,773 |
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8,267 |
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7,492 |
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Amortization |
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730 |
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749 |
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1,526 |
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1,340 |
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(Gain)/loss on sale of property, plant and equipment |
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(25 |
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12 |
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Operating income |
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1,326 |
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10,893 |
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5,003 |
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24,317 |
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Other income/(expense): |
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Interest expense |
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(2,263 |
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(2,504 |
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(4,456 |
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(4,857 |
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Amortization of deferred financing costs |
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(166 |
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(159 |
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(335 |
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(318 |
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Other, net |
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5 |
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(13 |
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22 |
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(76 |
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Income/(loss) from continuing operations before income
tax (benefit)/provision |
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(1,098 |
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8,217 |
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234 |
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19,066 |
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Income tax (benefit)/provision from continuing operations |
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(224 |
) |
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2,666 |
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138 |
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6,400 |
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Income/(loss) from continuing operations |
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(874 |
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5,551 |
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96 |
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12,666 |
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Income from discontinued operations, net of income tax
provision of $0, $0, $0 and $63 |
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6 |
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125 |
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Net income/(loss) |
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$ |
(874 |
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$ |
5,557 |
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$ |
96 |
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$ |
12,791 |
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Basic net income/(loss) per share: |
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Income/(loss) from continuing operations |
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$ |
(0.09 |
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$ |
0.56 |
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$ |
0.01 |
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$ |
1.28 |
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Income from discontinued operations |
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0.00 |
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0.01 |
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Net income/(loss) |
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$ |
(0.09 |
) |
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$ |
0.56 |
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$ |
0.01 |
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$ |
1.29 |
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Diluted net
income/(loss) per share: |
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Income/(loss) from continuing operations |
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$ |
(0.09 |
) |
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$ |
0.54 |
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$ |
0.01 |
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$ |
1.24 |
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Income from discontinued operations |
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0.00 |
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0.01 |
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Net income/(loss) |
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$ |
(0.09 |
) |
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$ |
0.54 |
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$ |
0.01 |
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$ |
1.25 |
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Weighted average basic shares outstanding |
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9,986,202 |
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9,937,972 |
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9,986,202 |
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9,929,620 |
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Weighted average diluted shares outstanding |
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9,986,202 |
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10,238,162 |
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9,986,202 |
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10,227,846 |
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See accompanying notes to the condensed consolidated financial statements.
2
INTERNATIONAL WIRE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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For the Six Months Ended |
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June 30, 2009 |
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June 30, 2008 |
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(In thousands) |
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Cash flows provided by operating activities: |
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Net income |
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$ |
96 |
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$ |
12,791 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation |
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8,267 |
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7,492 |
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Amortization |
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1,526 |
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1,340 |
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Amortization of deferred financing costs |
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335 |
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318 |
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Accounts receivable allowances provision |
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561 |
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91 |
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Stock-based compensation expense |
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380 |
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|
436 |
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Loss on sale of property, plant and equipment |
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12 |
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Deferred income taxes |
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(137 |
) |
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35 |
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Change in operating assets and liabilities, net of acquisitions: |
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Accounts receivable |
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2,657 |
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(22,900 |
) |
Inventories |
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13,936 |
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(12,236 |
) |
Prepaid expenses and other assets |
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(639 |
) |
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(2,054 |
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Accounts payable |
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(4,564 |
) |
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28,783 |
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Accrued and other liabilities and workers compensation costs |
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(2,074 |
) |
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4,322 |
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Accrued payroll and payroll related items |
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(984 |
) |
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(2,116 |
) |
Customers deposits |
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(1,230 |
) |
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(366 |
) |
Accrued interest |
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(75 |
) |
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(90 |
) |
Accrued/refundable income taxes |
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5,248 |
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|
3,777 |
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Other long-term liabilities |
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159 |
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171 |
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Net cash provided by operating activities |
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23,462 |
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19,806 |
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Cash flows used in investing activities: |
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Capital expenditures |
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(3,001 |
) |
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(5,647 |
) |
Proceeds from sale of property, plant and equipment |
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|
58 |
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Restricted cash |
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21 |
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99 |
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Investment in short-term securities |
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(729 |
) |
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Acquisition of Hamilton Products, net of $293 cash received |
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(9,117 |
) |
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Net cash used in investing activities |
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(3,709 |
) |
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(14,607 |
) |
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Cash flows used in financing activities: |
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Borrowings of long-term obligations |
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61,814 |
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|
139,079 |
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Repayment of
long-term obligations |
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(70,787 |
) |
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(144,029 |
) |
Proceeds from the issuance of common stock |
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|
902 |
|
Dividend payment |
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(12,010 |
) |
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Net cash used in financing activities |
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(20,983 |
) |
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|
(4,048 |
) |
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Effects of exchange rate changes on cash and cash equivalents |
|
|
290 |
|
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|
232 |
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Net change in cash and cash equivalents |
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|
(940 |
) |
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|
1,383 |
|
Cash and cash equivalents at beginning of the period |
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|
7,372 |
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|
3,991 |
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Cash and cash equivalents at end of the period |
|
$ |
6,432 |
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$ |
5,374 |
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Supplemental disclosure of cash flow information: |
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Interest paid |
|
$ |
4,531 |
|
|
$ |
4,947 |
|
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Income taxes (refunded)/paid |
|
$ |
(5,110 |
) |
|
$ |
2,520 |
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|
Amount included in accounts payable for acquisition and capital expenditures |
|
$ |
194 |
|
|
$ |
415 |
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|
See accompanying notes to the condensed consolidated financial statements.
3
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
1. |
|
Business Organization and Basis of Presentation |
Unaudited Interim Consolidated Financial Statements
The unaudited interim consolidated financial statements reflect all adjustments, consisting only
of normal recurring adjustments that are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and cash flows of International
Wire Group, Inc. (the Company, we or our). The results for the three and six months ended
June 30, 2009 and 2008 are not necessarily indicative of the results that may be expected for
the full fiscal year. These financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Companys Annual Report on
Form 10-K filed with the Securities and Exchange Commission for the year ended December 31,
2008.
On January 2, 2008, the Company acquired the assets and operations of Hamilton Products, Inc.
and the related real estate owned by JPS Holdings, LLC (collectively Hamilton Products).
Hamilton Products was formed in 1994 and is a manufacturer and marketer of braided wire products
serving the aerospace and industrial markets. The acquisition of Hamilton Products complements
our existing braiding operations in both the United States and Europe and expands our aerospace
business. Under the asset purchase agreement, the Company purchased the assets, operations and
certain liabilities. The acquisition price, including expenses, was $9,137, which is net of
acquired cash totaling $293. This acquisition has been accounted for as a purchase on January
2, 2008 and the results of operations of Hamilton Products have been included in the
accompanying condensed consolidated statements of operations since the date of acquisition.
Hamilton Products manufacturing facility is located in Sherburne, New York.
On July 1, 2008, the Company completed the acquisition of the U.S. assets and operations of
Global Wire Inc. and its subsidiaries (Global Wire) and certain equipment owned by an
affiliated company. The acquired Global Wire operations involve the manufacture and marketing of
both bare wire and high temperature silver and nickel plated products for the aerospace,
electronics and data communications and industrial markets. The acquisition of Global Wire
expands and complements our existing operations in the United States, especially in high
temperature products for the aerospace market. Under the terms of the asset purchase agreement,
the Company acquired the assets and operations of Global Wires plants located in Littleton, New
Hampshire and Jewett City, Connecticut. The Littleton, New Hampshire plant was purchased
outright, and the Jewett City, Connecticut plant is leased, with an option to purchase at a
later date for $750, subject to adjustment. In addition, certain equipment purchased has been
moved from Israel to the U.S. plants. The Company paid a purchase price of $32,000 in cash,
subject to a working capital adjustment ($1,176). The Company funded the acquisition with
borrowings under its Revolving Credit Facility.
This acquisition has been accounted for as a purchase on July 1, 2008 and results of operations
of Global Wire have been included in the Bare Wire segment and in the High Performance
Conductors segment in the accompanying condensed consolidated statements of operations since the
date of acquisition based upon the operations as integrated into the business segments.
The total purchase price of the Global Wire acquisition was $32,127 and the payment of related
purchase price, fees and costs is summarized as follows:
|
|
|
|
|
Purchase of assets and operations |
|
$ |
32,000 |
|
Working capital adjustment |
|
|
(1,176 |
) |
Fees and costs |
|
|
1,303 |
|
|
|
|
|
|
|
$ |
32,127 |
|
|
|
|
|
The total acquisition costs have been allocated to the acquired net assets at fair value as
follows:
|
|
|
|
|
Current assets |
|
$ |
23,719 |
|
Property, plant and equipment |
|
|
7,988 |
|
Identifiable intangibles |
|
|
6,290 |
|
Current liabilities |
|
|
(5,870 |
) |
|
|
|
|
|
|
$ |
32,127 |
|
|
|
|
|
4
The allocation of total acquisition cost was based on fair values as required under Statement of
Financial Accounting Standards (SFAS) No. 141, Business Combinations, including inventory,
property, plant and equipment, identifiable intangibles and certain liabilities.
Based upon the final allocation of the fair value of assets acquired and liabilities assumed
compared to the total purchase price, there was an excess of fair value of net assets acquired
over purchase price, or negative goodwill, of $11,045. Pursuant to the provisions of SFAS No.
141, the excess was allocated on a pro rata basis to the acquired property, plant and equipment
and identifiable intangible assets.
Identifiable intangibles represent the fair market value of the customer relationships, trade
names and a favorable lease related to the Jewett City, Connecticut facility. The customer
relationships are being amortized over 15 years, the trade names are being amortized over 3
years and the favorable lease is being amortized over 18 months.
The following table shows summary unaudited pro forma results of operations as if the Company
and Global Wire had been combined as of the beginning of the periods presented. The unaudited pro
forma results of operations are based on estimates and assumptions and have been made solely for
purposes of developing such pro forma information. The pro forma information for the three and
six months ended June 30, 2008 reflects adjustments for depreciation, amortization, interest
expense and income taxes. The pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial position that would have
occurred if the acquisition had been consummated at the beginning of
the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Pro Forma |
|
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
|
|
June 30, 2008 |
|
|
June 30, 2008 |
|
Net sales |
|
$ |
227,872 |
|
|
$ |
463,403 |
|
Income from continuing operations |
|
|
5,940 |
|
|
|
13,571 |
|
Net income |
|
|
5,934 |
|
|
|
13,696 |
|
Basic net income per share |
|
|
0.60 |
|
|
|
1.38 |
|
Diluted net income per share |
|
|
0.58 |
|
|
|
1.34 |
|
3. |
|
Recently Issued Accounting Standards |
In February 2008, the Financial Accounting Standards Board (FASB) issued FSP No. 157-2, which
delays the effective date of SFAS No. 157, Fair Value Measurements, for all non-financial assets
and non-financial liabilities, except those that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually). FSP No. 157-2 partially
defers the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and
interim periods within those fiscal years for items within the scope of the statement. Effective
January 1, 2008, the Company adopted SFAS No. 157 except as it applies to those non-financial
assets and non-financial liabilities as noted in FSP No. 157-2, which has been adopted effective
January 1, 2009. The adoption of FSP No. 157-2 and SFAS No. 157 did not have a material impact
on the Companys consolidated financial statements.
In June 2008, the FASB issued FSP EITF 03-6-1 Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities, which addresses whether unvested
instruments granted in share-based payment transactions that contain nonforfeitable rights to
dividends or dividend equivalents are participating securities subject to the two-class method
of computing earnings per share under SFAS No. 128, Earnings Per Share. FSP EITF 03-6-1 is
effective for financial statements issued for fiscal years beginning after December 15, 2008 and
interim periods within those years. The Companys adoption of FSP EITF 03-6-1 did not result in
a change in the Companys earnings per share.
In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments. FSP No. FAS 107-1 and APB 28-1 amends SFAS No. 107, Disclosures
about Fair Value of Financial Instruments, to require disclosures about fair value of financial
instruments in interim as well as in annual financial statements. This FSP also amends
Accounting Principles Board (APB) Opinion No. 28, Interim Financial Reporting, to require
those disclosures in all interim financial statements. FSP No. FAS 107-1
and APB 28-1 is effective for interim reporting periods ending after June 15, 2009. The adoption
of FSP No. FAS 107-1 and APB 28-1 did not have a material effect on the Companys consolidated
financial statements. See Note 9.
5
In May 2009, the FASB issued SFAS No. 165 (SFAS 165), Subsequent Events, which provides
guidance to establish general standards of accounting for and disclosures of events that occur
after the balance sheet date but before financial statements are issued or are available to be
issued. It also requires the disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date, that is, whether that date represents the date
the financial statements were issued or were available to be issued. This disclosure should
alert all users of financial statements that an entity has not evaluated subsequent events after
that date in the set of financial statements being presented. SFAS 165 is effective for interim
and annual periods ending after June 15, 2009. The Company implemented SFAS 165 during the
three months ended June 30, 2009. The Company evaluated for
subsequent events through August 7,
2009, the issuance date of the Companys financial statements. No subsequent events requiring
disclosure were noted.
In June 2009, the FASB issued SFAS No. 168 (SFAS 168), The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles a replacement of
FASB Statement No. 162. SFAS 168 replaces SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles, and identifies the sources of authoritative accounting principles and the
framework for selecting the principles used in the preparation of financial statements that are
presented in conformity with generally accepted accounting principles in the U.S. The Company is
required to adopt the provisions of SFAS 168 for its interim period ending September 30, 2009
and the adoption will impact the Companys financial statement disclosures as all future references to
authoritative accounting literature will be referenced in accordance with SFAS 168. There will
be no changes to the content of the Companys financial statements or disclosures as a result of
implementing SFAS 168.
The composition of inventories is as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Raw materials |
|
$ |
7,651 |
|
|
$ |
22,034 |
|
Work-in-process |
|
|
13,633 |
|
|
|
13,402 |
|
Finished goods |
|
|
27,326 |
|
|
|
27,166 |
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
48,610 |
|
|
$ |
62,602 |
|
|
|
|
|
|
|
|
Inventories are valued at the lower of cost or current estimated market value. Cost is
determined using the last-in, first-out (LIFO) method for the Bare Wire and High Performance
Conductors segments and the first-in, first-out (FIFO) method for the Engineered Wire Products
Europe segment. The primary components of inventory costs include raw materials used in the
production process (copper, tin, nickel, silver, alloys and other) and production related labor
and overhead costs net of scrap sales. Had all inventories been valued at the FIFO cost method,
inventories would have been $18,449 and $16,618 higher as of June 30, 2009 and December 31,
2008, respectively.
5. |
|
Goodwill and Intangible Assets |
|
|
|
The carrying amounts of goodwill are as follows: |
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Balance, beginning of period |
|
$ |
62,133 |
|
|
$ |
61,560 |
|
Reduction of deferred income tax valuation allowance |
|
|
|
|
|
|
(211 |
) |
Purchase of Hamilton Products |
|
|
|
|
|
|
784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
62,133 |
|
|
$ |
62,133 |
|
|
|
|
|
|
|
|
At June 30, 2009 and December 31, 2008, all goodwill is included in the Bare Wire segment.
The Company completed its annual impairment test at December 31, 2008 and concluded that
goodwill was not impaired.
6
The components of identifiable intangibles are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
December 31, 2008 |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Accumulated |
|
|
|
Cost |
|
|
Amortization |
|
|
Cost |
|
|
Amortization |
|
Customer contracts and relationships |
|
$ |
19,597 |
|
|
$ |
3,792 |
|
|
$ |
20,510 |
|
|
$ |
3,171 |
|
Trade names and trademarks |
|
|
10,858 |
|
|
|
2,552 |
|
|
|
10,908 |
|
|
|
2,249 |
|
Leases |
|
|
137 |
|
|
|
92 |
|
|
|
137 |
|
|
|
46 |
|
Alloys |
|
|
92 |
|
|
|
16 |
|
|
|
92 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable intangibles |
|
$ |
30,684 |
|
|
$ |
6,452 |
|
|
$ |
31,647 |
|
|
$ |
5,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the six months ended June 30, 2009 and June 30, 2008 was $973 and
$721, respectively. Amortization expense for identifiable intangibles for the next five fiscal
years and thereafter is as follows:
|
|
|
|
|
|
|
Amount |
|
2009 (remaining six months) |
|
$ |
1,015 |
|
2010 |
|
|
1,937 |
|
2011 |
|
|
1,888 |
|
2012 |
|
|
1,840 |
|
2013 |
|
|
1,840 |
|
Thereafter |
|
|
15,712 |
|
6. |
|
Stock Option Plans and Compensation Expense |
The Company measures compensation cost for all stock awards at fair value on the date of grant
and the recognition of compensation cost is spread over the service periods for awards expected
to vest. Stock-based compensation expense is included in selling, general and administrative
expenses in the accompanying condensed consolidated statements of operations.
The Company uses the Black-Scholes option model to estimate fair value of share-based awards
with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended |
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
Stock Options and Awards: |
|
|
|
|
|
|
|
|
Expected life employees |
|
6 years |
|
6 years |
Expected life non-employee directors |
|
5.5 years |
|
5.5 years |
Expected volatility |
|
50.0% |
|
50.0% |
Dividend yield |
|
0% |
|
0% |
Risk-free interest rate |
|
2.9% |
|
3.5% |
The Company calculates expected volatility for stock options using historical volatility of a
group of companies in the wire and cable industry. The risk-free interest rate is estimated
based on the Federal Reserves historical data for the maturity of nominal treasury investments
that corresponds to the expected term of the option. The expected life was determined using the
simplified method as these awards meet the definition of plain-vanilla options under the rules
prescribed by Staff Accounting Bulletin No. 110.
Stock option activity for the six months ended June 30, 2009 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
Aggregate |
|
|
|
Options |
|
|
Exercise |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
Outstanding |
|
|
Price |
|
|
Term in Years |
|
|
Value (1) |
|
Outstanding at January 1, 2009 |
|
|
1,072,300 |
|
|
$ |
15.71 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2009 |
|
|
1,072,300 |
|
|
$ |
15.71 |
|
|
|
7.4 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at June 30, 2009 |
|
|
1,018,685 |
|
|
$ |
15.71 |
|
|
|
7.4 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2009 |
|
|
1,005,200 |
|
|
$ |
15.35 |
|
|
|
7.1 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The aggregate intrinsic value was calculated using the difference between the market
price of the Companys common stock at June 30 and the grant price for only those awards that
have a grant price less than the market price of the Companys common stock at June 30. |
7
The Company recorded stock-based compensation expense of $380 and $436 for the six months ended
June 30, 2009 and 2008, respectively. As of June 30, 2009, the Company had total unrecognized
compensation costs of $281 which will be recognized as compensation expense over a weighted
average period of 0.8 years. The Company estimates a 5% forfeiture rate in recording stock-based
compensation expense. As of June 30, 2009, 105,200 stock option awards have been exercised under
the 2006 Management Stock Option Plan, no stock option awards have been exercised under the 2006
Stock Option Plan for Non-Employee Directors, and 25,000 stock option awards have been exercised
under the grant to Lane Pennington. The stock options are non-qualified which results in the
creation of a deferred tax asset until the time the option is exercised.
Comprehensive income is comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three |
|
|
For the Six |
|
|
|
Months Ended |
|
|
Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net income/(loss) |
|
$ |
(874 |
) |
|
$ |
5,557 |
|
|
$ |
96 |
|
|
$ |
12,791 |
|
Foreign currency translation adjustment |
|
|
1,843 |
|
|
|
(288 |
) |
|
|
340 |
|
|
|
2,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
969 |
|
|
$ |
5,269 |
|
|
$ |
436 |
|
|
$ |
14,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. |
|
Net Income /(Loss) Per Share |
|
|
Net income/(loss) per share is calculated using the weighted average number of common shares
outstanding during the period. For purposes of computing weighted average dilutive shares
outstanding, the Company uses the treasury stock method as required by SFAS No. 128, Earnings
Per Share (as amended). The following table provides a reconciliation of the number of shares
outstanding for basic and dilutive earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three |
|
|
For the Six |
|
|
|
Months Ended |
|
|
Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Weighted average shares
outstanding-basic |
|
|
9,986,202 |
|
|
|
9,937,972 |
|
|
|
9,986,202 |
|
|
|
9,929,620 |
|
Dilutive effect of stock options |
|
|
|
|
|
|
300,190 |
|
|
|
|
|
|
|
298,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding-dilutive |
|
|
9,986,202 |
|
|
|
10,238,162 |
|
|
|
9,986,202 |
|
|
|
10,227,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for the three and six month periods ended June 30, 2009 and 2008 exclude 1,072,300 and 113,300 options, because they are antidilutive under the
treasury stock method.
The composition of long-term debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Senior Revolving Credit Facility |
|
$ |
4,394 |
|
|
$ |
12,792 |
|
10% Secured Senior Subordinated Notes |
|
|
75,000 |
|
|
|
75,000 |
|
Other |
|
|
|
|
|
|
595 |
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
79,394 |
|
|
|
88,387 |
|
Less current maturities |
|
|
|
|
|
|
595 |
|
|
|
|
|
|
|
|
Long-term portion of long-term debt |
|
$ |
79,394 |
|
|
$ |
87,792 |
|
|
|
|
|
|
|
|
8
Senior
Revolving Credit Facility
The Company and its domestic subsidiaries are parties to a credit agreement (the Revolving
Credit Facility) with Wachovia Capital Financial Corporation (Central), formerly known as
Congress Financial Corporation (Central), as administrative agent, and several banks and
financial institutions parties, and other parties. The Revolving Credit Facility is a senior
revolving credit facility in the amount of up to $200,000 subject to borrowing availability
(including, as a sub-facility of the Revolving Credit Facility, a $25,000 letter of credit
facility).
Borrowings under the Revolving Credit Facility are tied to a borrowing base, which is calculated
by reference to, among other things, eligible accounts receivable, eligible inventory and
eligible real property and equipment. As of June 30, 2009, letters of credit in the amount of
$10,268 were outstanding and $4,394 was drawn under the Revolving Credit Facility. Availability
under the Revolving Credit Facility was $66,911 as of June 30, 2009.
The Company may choose to pay interest on advances under the Revolving Credit Facility at either
a Eurodollar rate or a base rate plus the following applicable margin: (1) for base rate
Revolving Credit Facility advances, 0.00 percent (2) for Eurodollar rate advances, 1.25 percent
to 1.75 percent per annum, subject to adjustment in accordance with a pricing grid based on
excess availability and (3) for letters of credit, 1.50 percent per annum. The default rate is
2.00 percent above the rate otherwise applicable. The Company also has an annual commitment fee
of 0.25 percent on the unused balance of its Revolving Credit Facility and an issuance letter of
credit fee equal to 2.00 percent.
The Company and its domestic subsidiaries are the primary parties to the Revolving Credit
Facility. The collateral for the Revolving Credit Facility includes all or substantially all of
the Companys and its domestic subsidiaries assets, including 65 percent of the capital stock
of or other equity interests in, the Companys foreign subsidiaries.
The Companys Revolving Credit Facility requires the Company to observe conditions, affirmative
covenants and negative covenants (including financial covenants). These covenants include
limitations on the Companys ability to pay dividends, make acquisitions, dispose of assets,
incur additional indebtedness, incur guarantee obligations, create liens, make investments,
engage in mergers, pledge assets as collateral, repurchase, redeem or acquire its common stock
subject to a $20,000 limit, change the nature of its business or engage in certain transactions
with affiliates. The Company must also comply with a fixed charge coverage ratio when either
(1) the minimum availability under the credit facility falls below $30,000 or (2) there is a
default or event of default.
The Companys Revolving Credit Facility commitment expires on August 22, 2011.
The Company may prepay the loans or reduce the commitments under its credit facility in a
minimum amount of $5,000 and additional integral amounts in multiples of $1,000 in respect of
the Revolving Credit Facility. The commitments under the Revolving Credit Facility may not be
reduced by more than $10,000 in any twelve-month period.
The Company must prepay the loans under the Revolving Credit Facility by the following amounts
(subject to certain exceptions):
|
|
|
An amount equal to 100 percent of the net proceeds of any incurrence of indebtedness by
the Company or any of its subsidiaries; and |
|
|
|
|
An amount equal to 100 percent of the net proceeds of any non-ordinary course sale or
other disposition by the Company or any of its subsidiaries of any assets, except for
certain exceptions. |
9
Secured Senior Subordinated Notes
The 10% Secured Senior Subordinated Notes due 2011 (Notes) are: senior subordinated
obligations of the Company; senior in right of payment to any of future subordinated
obligations; guaranteed by the Companys domestic subsidiaries; and secured by a second-priority
lien on all or substantially all of the Companys and its domestic subsidiaries assets,
including 65 percent of the capital stock of, or other equity interests in, the Companys
foreign subsidiaries.
The Company issued the Notes in aggregate principal amount of $75,000. The Notes will mature on
October 15, 2011. Interest on the Notes accrues at the rate of 10 percent per annum and is
payable semiannually in arrears on October 15 and April 15. Interest on overdue principal
accrues at 2 percent per annum in excess of the above rate and pay interest on overdue
installments of interest at such higher rate to the extent lawful.
The fair value of the Secured Senior Subordinated Notes was
approximately $67,500 at both June 30, 2009 and
December 31, 2008. The carrying value of the borrowings under
the Revolving Credit Facility approximates fair value due to its
variable interest rate.
The indenture governing the Notes contains restrictive covenants which, among other things,
limit the Companys ability and some of its subsidiaries to (subject to exceptions): incur
additional debt; pay dividends or distributions on, or redeem or repurchase, capital stock;
restrict dividends or other payments; transfer or sell assets; engage in transactions with
affiliates; create certain liens; engage in sale/leaseback transactions; impair the collateral
for the Notes; make investments; guarantee debt; consolidate, merge or transfer all or
substantially all of its assets and the assets of the Companys subsidiaries; and engage in
unrelated businesses.
The Companys liability for unrecognized tax benefits totaled $4,974 and $4,870 as of June 30,
2009 and December 31, 2008, respectively, which includes interest and penalties. The total
unrecognized tax benefits balance at June 30, 2009 and December 31, 2008 was comprised of tax
benefits that, if recognized, would affect the effective rate. The Company recognizes interest
and penalties accrued related to unrecognized tax benefits in income tax expense.
The Company is subject to taxation in the United States and various state and foreign
jurisdictions. The Companys tax years from 2001 to 2008 are subject to examination by the
taxing authorities due to the Companys net operating loss carryforwards.
11. |
|
Business Segment and Geographic Information |
The Companys three reportable segments are Bare Wire, Engineered Wire ProductsEurope, and High
Performance Conductors. These segments are strategic business units organized around three
product categories that follow managements internal organization structure. The Company
evaluates segment performance based on segment operating income.
The Bare Wire segment manufactures bare and tin-plated copper wire products (or conductors) used
to transmit digital, video and audio signals or conduct electricity and sells to insulated wire
manufacturers and various industrial original equipment manufacturers (OEMs) for use in
electronics and data communications products, general industrial, energy, appliances,
automobiles, and other applications. The Bare Wire segment is in the primary business of copper
fabrication. The Company may provide such copper to its customers or use their copper in the
fabrication process. While the Company bills its customers for copper it provides, it does not
distinguish in its records these customer types and it is therefore not practical to provide
such disclosure.
The Engineered Wire ProductsEurope segment manufactures and engineers connections and bare
copper wire products (or conductors) to conduct electricity either for power or for grounding
purposes and are sold to a diverse customer base of various OEMs for use in electrical
appliances, power supply, aircraft, railway, and automotive products.
The High Performance Conductors segment, manufactures specialty high performance conductors
which include tin, nickel and silver-plated copper and copper alloy
conductors including standard and customized high
and low temperature conductors as well as specialty film insulated
conductors and miniature tubing products. These products are used by
a variety of customers in the commercial and military aerospace and
defense, electronics and data communication, industrial, automotive
and medical electronics and device markets.
10
Summarized financial information for the Companys reportable segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wire |
|
|
High |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products- |
|
|
Performance |
|
|
|
|
|
|
|
|
|
|
|
|
Bare Wire |
|
|
Europe |
|
|
Conductors |
|
|
Corporate |
|
|
Eliminations |
|
|
Total |
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended June 30,
2009 |
|
$ |
69,982 |
|
|
$ |
10,179 |
|
|
$ |
22,041 |
|
|
$ |
|
|
|
$ |
(195 |
) |
|
$ |
102,007 |
|
Three months
ended June 30,
2008 |
|
|
145,524 |
|
|
|
20,844 |
|
|
|
34,036 |
|
|
|
|
|
|
|
(541 |
) |
|
|
199,863 |
|
Six months ended
June 30, 2009 |
|
|
135,866 |
|
|
|
21,519 |
|
|
|
46,437 |
|
|
|
|
|
|
|
(551 |
) |
|
|
203,271 |
|
Six months ended
June 30, 2008 |
|
|
295,501 |
|
|
|
41,500 |
|
|
|
70,306 |
|
|
|
|
|
|
|
(938 |
) |
|
|
406,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended June 30,
2009 |
|
|
2,575 |
|
|
|
(195 |
) |
|
|
(830 |
) |
|
|
(224 |
) |
|
|
|
|
|
|
1,326 |
|
Three months
ended June 30,
2008 |
|
|
5,513 |
|
|
|
1,814 |
|
|
|
3,784 |
|
|
|
(218 |
) |
|
|
|
|
|
|
10,893 |
|
Six months ended
June 30, 2009 |
|
|
4,809 |
|
|
|
(279 |
) |
|
|
969 |
|
|
|
(496 |
) |
|
|
|
|
|
|
5,003 |
|
Six months ended
June 30, 2008 |
|
|
12,923 |
|
|
|
3,629 |
|
|
|
8,201 |
|
|
|
(436 |
) |
|
|
|
|
|
|
24,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
62,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,133 |
|
December 31, 2008 |
|
|
62,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
223,159 |
|
|
|
34,128 |
|
|
|
65,315 |
|
|
|
25,736 |
|
|
|
(8,360 |
) |
|
|
339,978 |
|
December 31, 2008 |
|
|
235,688 |
|
|
|
41,463 |
|
|
|
70,861 |
|
|
|
25,509 |
|
|
|
(3,422 |
) |
|
|
370,099 |
|
The following table presents sales by period and by geographic region based on the country
in which the legal subsidiary is domiciled:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three |
|
|
For the Six |
|
|
|
Months Ended |
|
|
Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
United States |
|
$ |
90,660 |
|
|
$ |
177,151 |
|
|
$ |
179,124 |
|
|
$ |
359,767 |
|
Europe |
|
|
11,347 |
|
|
|
22,712 |
|
|
|
24,147 |
|
|
|
46,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
102,007 |
|
|
$ |
199,863 |
|
|
$ |
203,271 |
|
|
$ |
406,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents property, plant and equipment, net, by geographic region based
on the location of the asset:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
United States |
|
$ |
98,452 |
|
|
$ |
103,623 |
|
Europe |
|
|
9,346 |
|
|
|
9,327 |
|
|
|
|
|
|
|
|
Total |
|
$ |
107,798 |
|
|
$ |
112,950 |
|
|
|
|
|
|
|
|
12. |
|
Related Party Transactions |
|
|
The Company sells a portion of its production scrap to Prime Materials Recovery, Inc. (Prime)
and Prime also performs certain scrap processing services for the Company. Prime is a closely
held company and its major shareholder, chairman and director is the Chief Executive Officer of
the Company. In addition, the Vice President of Finance of the Company holds a minority
ownership interest and is a director. The Company had sales to Prime of $2,855 and $5,953 for
the three months ended June 30, 2009 and 2008, respectively, and $4,954 and $13,451 for the six
months ended June 30, 2009 and 2008, respectively. The outstanding trade receivables were
$1,879 and $765 at June 30, 2009 and December 31, 2008, respectively. The Company incurred scrap
conversion costs from Prime of $13 and $45 for the three months ended June 30, 2009 and 2008,
respectively, and $49 and $81 for the six months ended June 30, 2009 and 2008, respectively. The
outstanding payables were $0 at both June 30, 2009 and December 31, 2008. |
|
|
The Company is subject to legal proceedings and claims that arise in the normal course of
business. In the opinion of management, the ultimate liabilities with respect to these actions
will not have a material adverse effect on the Companys financial condition, results of
operations or cash flows. |
11
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read in conjunction with the unaudited consolidated financial
statements and the notes thereto included in this Form 10-Q.
We make forward-looking statements in this Form 10-Q that are based on managements beliefs and
assumptions and on information currently available to management. Forward-looking statements
include the information concerning our possible or assumed future results of operations,
business strategies, financing plans, competitive position, potential growth opportunities, the
effects of competition, outlook, objectives, plans, intentions and goals. For those statements,
we claim the protection of the safe harbor for forward-looking statements provided for by
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements
include all statements that are not historical facts and can be identified by the use of
forward-looking terminology such as the words believes, expects, may, will, should,
seeks, pro forma, anticipates, intends, plans, estimates, or the negative of
any thereof or other variations thereof or comparable terminology, or by discussions of strategy
or intentions.
Forward-looking statements involve risks, uncertainties and assumptions. Actual results may
differ materially from those expressed in these forward-looking statements. Undue reliance
should not be placed on any forward-looking statements. We do not have any intention or
obligation to update forward-looking statements after the filing of this Form 10-Q.
Many important factors could cause our results to differ materially from those expressed in
forward-looking statements. These factors include, but are not limited to, fluctuations in our
operating results and customer orders, unexpected decreases in demand or increases in inventory
levels, changes in the price of copper, tin, nickel and silver, copper premiums and alloys, the
failure of our acquisitions and expansion plans to perform as expected, the competitive
environment, our reliance on our significant customers, lack of long-term contracts, substantial
dependence on business outside of the U.S. and risks associated with our international
operations, limitations due to our indebtedness, loss of key employees or the deterioration in
our relationship with employees, litigation, claims, liability from environmental laws and
regulations and other factors. For additional information regarding risk factors, see our
discussion in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31,
2008.
Overview
We, together with our subsidiaries, manufacture and market wire products, including bare and
tin-plated copper wire, engineered wire products and high performance conductors for other wire
suppliers and original equipment manufacturers or OEMs. Our products include a broad
spectrum of copper wire configurations and gauges with a variety of electrical and conductive
characteristics and are utilized by a wide variety of customers primarily in the aerospace,
appliance, automotive, electronics/data communications, general industrial/energy and medical
device industries. As of June 30, 2009, we manufacture and distribute our products currently at
17 facilities located in the United States, Belgium, France and Italy. For the period ended
June 30, 2009, we operated our business in the following three segments:
|
|
|
Bare Wire. Our bare and tin-plated copper wire products (or conductors) are used to
transmit digital, video and audio signals or conduct electricity and are sold to a
diverse customer base of over 1,000 insulated wire manufacturers and various industrial
OEMs for use in electronics and data communications, general
industrial, energy, appliances, and automotive markets. |
12
|
|
|
Engineered Wire Products Europe. Our bare copper wire products are engineered and
used to conduct electricity either for power or for grounding purposes and are sold to
a diverse customer base of various OEMs for use in electrical appliances, power supply,
aircraft, railway and automotive markets. |
|
|
|
|
High Performance Conductors. Our High Performance Conductors segment manufactures
specialty high performance conductors which include tin, nickel and silver-plated
copper and copper alloy conductors including standard and
customized high and low temperature conductors as well as specialty film insulated conductors and miniature
tubing products. These products are used by a variety of customers in
the commercial and military aerospace and defense, electronics and
data communication, industrial, automotive and medical electronics and
device markets. |
Demand for our products is directly related to two primary factors:
|
|
|
Demand for the end products in which our products are incorporated. |
|
|
|
|
Our abilities to compete with other suppliers in the industry served. |
Important indicators of demand for all of our products include a number of general economic
factors such as gross domestic product, interest rates and consumer confidence. In specific
industries, management also monitors the following factors:
|
|
|
Electronics/data communications and industrial/energy while the end user
applications are very diverse, some of the contributing factors of demand in the
markets include technology spending and major industrial and/or infrastructure
projects, including build-out of computer networks, mining development, oil exploration
and production projects, mass transit and general commercial and industrial real estate
development. |
|
|
|
|
Automobiles For the first
six months of 2009, North American automotive industry production volumes decreased 49.3% compared to
the same period for 2008 (based on data from Automotive News). In addition, the impact of the financial restructuring and
emergence from bankruptcy of certain domestic OEMs on the supplier base can result in
changes in demand for component parts that differ from customer demand for vehicles. |
|
|
|
|
Additional factors relevant to the High Performance Conductors segment include
commercial aircraft deliveries and spending levels in the military defense and
electronics market as well as demand in the electro-medical equipment, medical device,
consumer electronics and industrial/energy markets. Demand for high performance wire
across all segments was negatively impacted by the weak global economy and high
customer inventory levels in the first six months of 2009. Deliveries of commercial
aircraft by Boeing tracked to forecast during the second quarter however demand for
wire was impacted by higher than anticipated inventories in the supply chain and the
continued announcements of delays in the production of the 787 Dreamliner. Incoming
order demand for aerospace products began to improve somewhat late in the second
quarter. Demand for medical device components remained strong due to the continuing
trend in acceptance and products available for minimally invasive procedures and
increased product development. |
We compete with other suppliers of wire products on the basis of price, quality, delivery and
the ability to provide a sufficient array of products to meet most of our customers needs. We
believe our state-of-the-art production equipment permits us to provide a high quality product
while also permitting us to efficiently manufacture our products, which assists in our ability
to provide competitively priced products. Also, we invest in engineering so that we can
continue to provide our customers with the array of products and features they demand. Finally,
we have located our production facilities near many of our customers manufacturing facilities,
which allows us to meet our customers delivery demands, including assisting with inventory
management for just-in-time production techniques.
A portion of our revenue is derived from processing customer-owned (tolled) copper. The value
of tolled copper is excluded from both our sales and costs of sales, as title to these materials
and the related risks of ownership do not pass to us at any time. The remainder of our sales
include non-customer owned copper (owned copper). Accordingly, for these sales, copper is
included in both net sales and cost of sales. The main factor that causes fluctuations in the
proportion of tolled copper from one period to the next is the decision
by our customers on a sales order by sales order basis whether to use their copper or purchase
our owned copper. We have some customers who only use their own tolled copper, others who only
purchase our owned copper and others who use some tolled and some owned copper purchased from
us. This decision is based on each customers internal factors which are unknown to us and out
of our control. In order to compare tolled customers with non-tolled customers, we sometimes
refer to adder sales, which is the net sales from our products less, if applicable, the cost
of owned copper.
13
Our costs and expenses in producing these products fall into three main categories raw
materials, including copper, silver, nickel and tin, labor and, to a lesser extent, utilities.
Copper is the primary raw material incorporated in all of our products. As a world traded
commodity, copper prices have historically been subject to fluctuations. The average price of
copper based upon The New York Mercantile Exchange, Inc. (COMEX) decreased to $2.15 per pound
for the three months ended June 30, 2009 from $3.80 per pound for the three months ended June
30, 2008, or 44%.
In order to reduce the potential negative impact of fluctuations in the price of copper, we have
copper price pass-through arrangements with our customers based on variations of monthly copper
price formulas. These pass-through arrangements are less effective when copper prices are
volatile. Additionally, these pass-through arrangements do not apply to the scrap which is
created in the production process (and subsequently sold as scrap sales) as the base price for
the copper in the scrap sales may be more or less than the base price at the time we acquired
the copper. Changing copper prices may adversely affect both profitability and liquidity
depending on the magnitude of these changes, the timing of purchases, quantity levels and the
applicable account receivable and payable payment terms.
Moreover, since we generally do not obtain long-term purchase commitments, our customers may
cancel, reduce or delay their orders if they believe copper prices will be falling (in order to
purchase our products at lower prices in the future) or in response to increases in copper
prices. Additionally, declining copper prices can result in inventory charges, increasing our
costs of goods sold and negatively impacting profitability. Conversely, a severe increase in
the price of copper can negatively impact our short-term liquidity because of the period of time
between our purchase of copper at an increased price and the time at which we receive cash
payments after selling end products to customers reflecting the increased price. Currently, a
$0.10 per pound fluctuation in the price of copper will have approximately a $2.3 million impact
on our working capital. Increased working capital requirements cause us to increase our
borrowings, which increases our interest expense.
Other raw materials used include silver, nickel and tin. The cost of silver, nickel and tin are
generally passed-through to our customers through a variety of pricing mechanisms. Our price of
silver includes a margin and consequently market fluctuations in the price of silver can result
in an increase or decrease in profitability at a given volume. For the three months ended June
30, 2009, the average price of silver decreased by 20%, the average price of nickel decreased by
50% and the average price of tin decreased by 39% compared to the three months ended June 30,
2008.
Our labor and utility expenses are directly tied to our level of production. While the number
of employees we use in our operations has fluctuated with sales volume, our cost per employee
continues to rise with increases in wages and the costs of providing medical coverage, workers
compensation and other fringe benefits to employees. The cost of providing medical coverage is
impacted by continued inflation in medical products and services. Utility rates vary by season
and the prices for coal, natural gas and other similar commodities which are used in the
generation of power. We attempt to manage our utility rates through usage agreements which
affect our power usage during peak usage hours.
Strategic Alternatives
On July 14, 2009, the Company terminated its arrangement with Jefferies & Company, Inc. as its
exclusive financial advisor to assist the Company in evaluating strategic alternatives,
including a possible sale of the Company.
14
Current Outlook
Uncertainties in the financial and credit markets and a slowdown in consumer spending and
business investment that began in the fourth quarter of 2008 have resulted in difficult
business conditions. These factors have
contributed to pressures on companies in the U.S. and Europe. Accordingly, we expect difficult
market conditions and weak customer demand to continue in the third quarter of 2009. We plan to
remain flexible in managing our business in the face of these challenges and accordingly have
considered implementing certain further cost savings initiatives such as additional reductions
in headcount and personnel costs and/or the temporary idling of one or more plants.
Results of Operations
The following table sets forth certain unaudited statements of operations data in millions of
dollars and percentage of net sales for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net sales |
|
$ |
102.0 |
|
|
|
100.0 |
% |
|
$ |
199.9 |
|
|
|
100.0 |
% |
|
$ |
203.3 |
|
|
|
100.0 |
% |
|
$ |
406.4 |
|
|
|
100.0 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold, exclusive
of depreciation and
amortization expense shown
below |
|
|
87.0 |
|
|
|
85.3 |
|
|
|
173.0 |
|
|
|
86.5 |
|
|
|
170.6 |
|
|
|
83.9 |
|
|
|
350.1 |
|
|
|
86.1 |
|
Selling, general and
administrative expenses |
|
|
8.8 |
|
|
|
8.6 |
|
|
|
11.5 |
|
|
|
5.8 |
|
|
|
17.9 |
|
|
|
8.8 |
|
|
|
23.1 |
|
|
|
5.7 |
|
Depreciation and amortization |
|
|
4.9 |
|
|
|
4.8 |
|
|
|
4.5 |
|
|
|
2.2 |
|
|
|
9.8 |
|
|
|
4.8 |
|
|
|
8.9 |
|
|
|
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1.3 |
|
|
|
1.3 |
|
|
|
10.9 |
|
|
|
5.5 |
|
|
|
5.0 |
|
|
|
2.5 |
|
|
|
24.3 |
|
|
|
6.0 |
|
Other income/(expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(2.2 |
) |
|
|
(2.2 |
) |
|
|
(2.5 |
) |
|
|
(1.3 |
) |
|
|
(4.5 |
) |
|
|
(2.2 |
) |
|
|
(4.9 |
) |
|
|
(1.2 |
) |
Amortization of deferred
financing costs |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
(0.1 |
) |
|
|
(0.3 |
) |
|
|
(0.2 |
) |
|
|
(0.3 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing
operations before income tax
(benefit)/provision |
|
|
(1.1 |
) |
|
|
(1.1 |
) |
|
|
8.2 |
|
|
|
4.1 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
19.1 |
|
|
|
4.7 |
|
Income tax (benefit)/provision |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
2.6 |
|
|
|
1.3 |
|
|
|
0.1 |
|
|
|
0.0 |
|
|
|
6.4 |
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing
operations |
|
|
(0.9 |
) |
|
|
(0.9 |
) |
|
|
5.6 |
|
|
|
2.8 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
12.7 |
|
|
|
3.1 |
|
Income from discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) |
|
$ |
(0.9 |
) |
|
|
(0.9 |
)% |
|
$ |
5.6 |
|
|
|
2.8 |
% |
|
$ |
0.1 |
|
|
|
0.1 |
% |
|
$ |
12.8 |
|
|
|
3.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have three reportable segments: Bare Wire, Engineered Wire Products-Europe, and High
Performance Conductors. The following table sets forth unaudited net sales and operating income
for the periods presented in millions of dollars and percentages of totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bare Wire |
|
$ |
70.0 |
|
|
|
69 |
% |
|
$ |
145.5 |
|
|
|
73 |
% |
|
$ |
135.9 |
|
|
|
67 |
% |
|
$ |
295.5 |
|
|
|
73 |
% |
Engineered Wire
Products Europe |
|
|
10.2 |
|
|
|
10 |
|
|
|
20.9 |
|
|
|
10 |
|
|
|
21.5 |
|
|
|
10 |
|
|
|
41.5 |
|
|
|
10 |
|
High Performance
Conductors |
|
|
22.0 |
|
|
|
21 |
|
|
|
34.0 |
|
|
|
17 |
|
|
|
46.4 |
|
|
|
23 |
|
|
|
70.3 |
|
|
|
17 |
|
Eliminations |
|
|
(0.2 |
) |
|
|
|
|
|
|
(0.5 |
) |
|
|
|
|
|
|
(0.5 |
) |
|
|
|
|
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
102.0 |
|
|
|
100 |
% |
|
$ |
199.9 |
|
|
|
100 |
% |
|
$ |
203.3 |
|
|
|
100 |
% |
|
$ |
406.4 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bare Wire |
|
$ |
2.5 |
|
|
|
166 |
% |
|
$ |
5.5 |
|
|
|
50 |
% |
|
$ |
4.8 |
|
|
|
87 |
% |
|
$ |
12.9 |
|
|
|
52 |
% |
Engineered Wire
Products Europe |
|
|
(0.2 |
) |
|
|
(13 |
) |
|
|
1.8 |
|
|
|
16 |
|
|
|
(0.3 |
) |
|
|
(5 |
) |
|
|
3.6 |
|
|
|
15 |
|
High Performance
Conductors |
|
|
(0.8 |
) |
|
|
(53 |
) |
|
|
3.8 |
|
|
|
34 |
|
|
|
1.0 |
|
|
|
18 |
|
|
|
8.2 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
1.5 |
|
|
|
100 |
% |
|
|
11.1 |
|
|
|
100 |
% |
|
|
5.5 |
|
|
|
100 |
% |
|
|
24.7 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
(0.2 |
) |
|
|
|
|
|
|
(0.2 |
) |
|
|
|
|
|
|
(0.5 |
) |
|
|
|
|
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1.3 |
|
|
|
|
|
|
$ |
10.9 |
|
|
|
|
|
|
$ |
5.0 |
|
|
|
|
|
|
$ |
24.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Three Months Ended June 30, 2009 versus Three Months Ended June 30, 2008
Net sales were $102.0 million and $199.9 million for the three months ended June 30, 2009 and
2008, respectively. Sales for the three months ended June 30, 2009 were $97.9 million, or
49.0%, lower than comparable 2008 levels as a result of the decreased average cost and selling
price of copper ($40.7 million), decreased volume (despite sales from the Global Wire
acquisition in the 2009 period) from lower customer demand and weak end user markets from the
recessionary pressures in the U.S. and Europe ($60.6 million), lower customer pricing/mix
(including silver, nickel and tin prices) ($1.4 million) and an unfavorable currency exchange
rate ($2.7 million). These were partially offset by a lower proportion of tolled copper shipped
in the 2009 period compared to the 2008 period ($7.5 million). Global Wire sales were $2.3
million in the second quarter of 2009. For sales of product comprised of customer-owned
(tolled) copper, the value of the copper material processed is excluded from sales.
Accordingly, as the proportion of tolled sales decrease, sales increase. The average price of
copper based upon COMEX decreased to $2.15 per pound for the three months ended June 30, 2009
from $3.80 per pound for the three months ended June 30, 2008. Total pounds of product sold in
the second quarter of 2009 declined by 33.1% compared to the second quarter of 2008.
Bare Wire segment net sales for the three months ended June 30, 2009 were $70.0 million, or a
decrease of $75.5 million, or 51.9%, from net sales of $145.5 million for the comparable 2008
period. This decrease was primarily the result of a decrease in the average cost and selling
price of copper ($37.0 million), lower volume to customers in all major markets ($45.8 million)
and lower customer pricing/mix ($0.2 million). These decreases were partially offset by a lower
proportion of tolled copper shipped in the 2009 period compared to the 2008 period ($7.5
million). Of the total pounds processed for the three months ended June 30, 2009 and 2008,
respectively, 52.1% and 56.7% were from customers tolled copper.
Engineered Wire Products-Europe net sales of $10.2 million for the three months ended June 30,
2009 were $10.7 million, or 51.2%, lower than sales of $20.9 million for the 2008 period. This
decrease was the result of $6.1 million from decreased volume from lower customer demand with
most major customers, $1.6 million lower average cost and selling price of copper, $0.3 million
lower customer pricing/mix and $2.7 million of an unfavorable currency impact.
High Performance Conductors net sales of $22.0 million for the three months ended June 30, 2009
were $12.0 million, or 35.3%, lower than sales of $34.0 million for the 2008 period. This
decrease was the result of $2.1 million lower average cost and selling price of copper, $0.8
million lower customer pricing/mix (including silver, tin and nickel prices) and $9.1 million of
lower volume from weak end user markets.
Cost of goods sold, exclusive of depreciation and amortization, as a percentage of sales
decreased to 85.3% for the three months ended June 30, 2009 from 86.5% for the same period in
2008. The decrease of 1.2 percentage points was due to the decrease in the average cost and
selling price of copper (4.2 percentage points), partially
offset by the change in the proportion and level of tolled and owned
copper sales (0.9 percentage points), lower customer
pricing/mix (1.0 percentage points), higher medical costs in the
High Performance Conductors segment (0.8 percentage points) and lower plant
overhead absorption and utilization (0.3 percentage points).
Selling, general and administrative expenses were $8.8 million for the three months ended June
30, 2009 compared to $11.5 million for the same period in 2008. This decrease of $2.7 million
was the result of $1.8 million of decreased transportation costs, $0.5 million of lower salaries
and bonus accruals, $0.2 million of lower professional fees and $0.4 million other cost
reductions, net which were partially offset by $0.2 million of higher bad debt expense. These
expenses, as a percent of net sales, increased to 8.6% for the three months ended June 30, 2009
from 5.8% for the three months ended June 30, 2008, primarily due to the significant decrease in
net sales in the 2009 period compared to 2008.
Depreciation and amortization was $4.9 million for the three months ended June 30, 2009 compared
to $4.5 million for the same period in 2008. This increase of $0.4 million was primarily the
result of the Global Wire acquisition and other additions to property, plant and equipment.
Operating income for the three months ended June 30, 2009 was $1.3 million compared to $10.9
million for the 2008 period, or a decrease of $9.6 million, or
88.1%, primarily due to lower sales
volume in all three business segments partially offset by operating cost reductions and lower
selling, general and administrative expenses. Bare Wire
segments operating income of $2.5 million for the 2009 period decreased by $3.0 million, or
54.5%, compared to $5.5 million for the 2008 period, primarily
due to decreased
sales volume. Engineered Wire Products-Europe operating loss was $0.2 million, or a decrease of
$2.0 million from the 2008 period of $1.8 million operating
income due to decreased sales volume
to all major markets, lower pricing/mix and an unfavorable currency exchange impact. High
Performance Conductors operating loss was $0.8 million, or a decrease of $4.6 million from the
2008 period of $3.8 million operating income due to lower sales volume and plant utilization,
higher medical costs, lower customer pricing/mix and higher
depreciation.
16
Interest expense was $2.2 million for the three months ended June 30, 2009 compared to $2.5
million for the three months ended June 30, 2008. This decrease of $0.3 million was the result
of the impact of lower levels of borrowings from reduced working capital requirements during the
2009 period compared to 2008 and lower interest rates in 2009.
Amortization of deferred financing costs was $0.2 million for both the three months ended June
30, 2009 and 2008.
Income tax (benefit) was ($0.2) million for the three months ended June 30, 2009 as compared to
income tax expense of $2.6 million for the three months ended June 30, 2008. The Companys
effective tax rate for the three months ended June 30, 2009 was 20.4% and 32.4% for the three
months ended June 30, 2008. The lower effective tax rate in 2009 was due to the increased
benefit of permanent items due to the lower pre-tax income in 2009 as compared to 2008.
As a result of the aforementioned changes, net income/(loss) was ($0.9) million, or ($0.09) per
basic and diluted share, and $5.6 million, or $0.56 per basic share and $0.54 per diluted share,
for the three months ended June 30, 2009 and 2008, respectively.
Six Months Ended June 30, 2009 versus Six Months Ended June 30, 2008
Net sales were $203.3 million and $406.4 million for the six months ended June 30, 2009 and
2008, respectively. Sales for the six months ended June 30, 2009 were $203.1 million, or 50.0%,
below comparable 2008 levels, as a result of the decreased average cost and selling price of
copper ($89.3 million), reduced volume (despite sales from the Global Wire acquisition in the
2009 period) from lower customer demand and weak end user markets from the recessionary
pressures in the U.S. and Europe ($117.2 million), lower customer pricing/mix (including silver,
nickel and tin prices) ($4.6 million) and an unfavorable currency exchange rate ($5.3 million)
which were partially offset by a lower proportion of tolled copper shipped in the 2009 period
compared to the 2008 period ($13.3 million). Global Wire sales were $6.7 million in the first
six months of 2009. For sales of product comprised of customer-owned (tolled) copper, the
value of the copper material processed is excluded from sales. Accordingly, as the proportion of
tolled sales decrease, sales increase. The average price of copper based upon COMEX decreased to
$1.86 per pound for the six months ended June 30, 2009 from $3.67 per pound for the six months
ended June 30, 2008. Total pounds of product sold in the first six months of 2009 declined by
32.3% compared to the first six months of 2008.
Bare Wire segment net sales for the six months ended June 30, 2009 were $135.9 million, or a
decrease of $159.6 million, or 54.0%, from sales of $295.5 million for the comparable 2008
period. This decrease was primarily the result of a decrease in the average cost and selling
price of copper ($81.1 million) and lower volume to customers in all major markets ($92.7
million). These decreases were partially offset by a lower proportion of tolled copper shipped
in the 2009 period compared to the 2008 period ($13.4 million) and higher customer pricing/mix
($0.8 million). Of the total pounds processed for the six months ended June 30, 2009 and 2008,
respectively, 50.8% and 54.9% were from customers tolled copper.
Engineered Wire Products-Europe net sales of $21.5 million for the six months ended June 30,
2009 were $20.0 million, or 48.2%, lower than sales of $41.5 million for the 2008 period. This
decrease was the result of $11.3 million from lower volume from reduced customer demand with
most major customers, $2.8 million lower average cost and selling price of copper, $0.6 million
lower customer pricing/mix and $5.3 million of an unfavorable currency impact.
High Performance Conductors net sales of $46.4 million for the six months ended June 30, 2009
were $23.9 million, or 34.0%, lower than sales of $70.3 million for the 2008 period. This
decrease was the result of $5.4 million lower average cost and selling price of copper, $4.8
million lower customer pricing/mix (including silver, tin and nickel prices) and $13.7 million
of lower volume from weak end user markets.
17
Cost of goods sold, exclusive of depreciation and amortization, as a percentage of sales
decreased to 83.9% for the six months ended June 30, 2009 from 86.1% for the same period in
2008. The decrease of 2.2 percentage points was due to the decrease in the average cost and
selling price of copper (4.9 percentage points) and the
change in the proportion and level of tolled and owned copper sales
(0.7 percentage points), partially offset by lower customer
pricing/mix (1.5 percentage points), higher medical costs in the
High Performance Conductors segment (0.3 percentage points), the
flow through of higher cost copper in the first quarter of 2009
in Europe (0.2 percentage points) and lower plant
overhead absorption and utilization (1.4 percentage points).
Selling, general and administrative expenses were $17.9 million for the six months ended June
30, 2009 compared to $23.1 million for the same period in 2008. This decrease of $5.2 million
was the result of $3.3 million of decreased transportation costs, $1.3 million of lower salaries
and bonus accruals, $0.3 million of lower professional fees and $0.7 million other cost
reductions, net which were partially offset by $0.4 million of higher bad debt expense. These
expenses, as a percent of net sales, increased to 8.8% for the six months ended June 30, 2009
from 5.7% for the six months ended June 30, 2008, primarily due to the significant decrease in
net sales in the 2009 period compared to 2008.
Depreciation and amortization was $9.8 million for the six months ended June 30, 2009 compared
to $8.9 million for the same period in 2008. This increase of $0.9 million was primarily the
result of the Global Wire acquisition and other additions to property, plant and equipment.
Operating income for the six months ended June 30, 2009 was $5.0 million compared to $24.3
million for the 2008 period, or a decrease of $19.3 million, or 79.4%, primarily from lower
sales volume and plant utilization in all three business segments partially offset by operating
cost reductions and lower selling, general and administrative expenses. Bare Wire segments
operating income of $4.8 million for the 2009 period decreased by $8.1 million, or 62.8%,
compared to $12.9 million for the comparable 2008 period, primarily from decreased sales volume,
lower plant utilization and higher depreciation, which were partially offset by higher customer
pricing/mix, operating cost reductions and lower selling, general and administrative expenses.
Engineered Wire Products-Europe operating loss was ($0.3) million, or a decrease of $3.9
million, or 108.3%, from operating income in the 2008 period of $3.6 million from decreased
sales volume to all major markets, lower pricing/mix and an unfavorable currency exchange
impact. High Performance Conductors operating income was $1.0 million, or a decrease of $7.2
million, or 87.8%, from the 2008 period of $8.2 million due to lower sales volume and plant
utilization, higher medical costs in the second quarter of 2009, lower customer pricing/mix and higher depreciation.
Interest expense was $4.5 million for the six months ended June 30, 2009 compared to $4.9
million for the six months ended June 30, 2008. This decrease of $0.4 million was the result of
the impact of lower levels of borrowings from reduced working capital requirements during the
2009 period compared to 2008 and lower interest rates in 2009.
Amortization of deferred financing costs was $0.3 million for both the six months ended June 30,
2009 and 2008.
Income tax provision was $0.1 million and $6.4 million for the six months ended June 30, 2009
and 2008, respectively. The Companys effective tax rate for the six months ended June 30, 2009
was 59.0% and 33.6% for the six months ended June 30, 2008. The higher effective tax rate in
2009 was due to the increased impact of discrete items partially offset by the increased impact
of permanent items due to the lower pre-tax income in 2009 as compared to 2008.
Income from continuing operations was $0.1 million and $12.7 million for the six months ended
June 30, 2009 and 2008, respectively, or a decrease of $12.6 million, or 99.2%, primarily from
lower operating income and a higher effective tax rate.
Income from discontinued operations was $0.0 million for the six months ended June 30, 2009 and
$0.1 million for the six months ended June 30, 2008.
As a result of the aforementioned changes, net income was $0.1 million, or $0.01 per basic and
diluted share, and $12.8 million, or $1.29 per basic and $1.25 per diluted share, for the six
months ended June 30, 2009 and 2008, respectively.
18
Financial Condition
At the end of the second quarter, total cash and cash equivalents were $6.4 million, down $0.9
million from year-end 2008. During the first six months of 2009, we used excess cash to reduce
outstanding long-term debt borrowings.
Accounts receivable of $63.0 million decreased $3.4 million, or 5.1%, from year-end 2008. This
decrease was primarily due to lower sales levels in the preceding period and a decrease in days
sales outstanding of 55 days as of June 30, 2009 compared to year-end 2008 at 56 days. The
allowance for doubtful accounts as a percentage of accounts receivable increased from 4.5% at
December 31, 2008 to 5.6% as of June 30, 2009 reflecting a higher level of allowances and a
lower level of accounts receivable at June 30, 2009 compared to December 31, 2008.
Inventories of $48.6 million as of June 30, 2009 decreased by $14.0 million from December 31,
2008. This decrease was the result of a decrease in pounds of copper and other inventory in the
Bare Wire segment ($5.4 million), decreased inventory levels primarily from lower quantities at
High Performance Conductors ($3.4 million), lower inventory levels in Engineered Wire
Products-Europe ($3.3 million) and an increase in the LIFO reserve due to higher metal prices
($1.9 million), which have increased from the prices at December 31, 2008 (as opposed to the
year over year decreases reflected in our operating results).
Accounts payable were $16.6 million as of June 30, 2009, or a decrease of $5.6 million from
December 31, 2008 levels, resulting from fewer pounds of metals purchased due to lower sales
demand.
Liquidity and Capital Resources
Working Capital and Cash Flows
Net cash provided by operating activities was $23.5 million for the six months ended June 30,
2009, compared to net cash provided by operating activities of $19.8 million for the six months
ended June 30, 2008. This increase of $3.7 million was the result of lower accounts receivable
from decreased sales and lower metals prices ($25.6 million), inventory changes ($26.2 million),
change in accrued/refundable income taxes ($1.5 million), partially offset by decreased net
income ($12.7 million), decreased accounts payable
($33.3 million) and other, net ($3.6 million).
Net cash used in investing activities was $3.7 million for the six months ended June 30, 2009,
compared to $14.6 million for the six months ended June 30, 2008. This decrease in net cash used
of $10.9 million resulted primarily from the acquisition of Hamilton Products for $9.1 million
in the 2008 period and lower capital expenditures of $2.6 million partially offset by investment in
short-term securities in the 2009 period of $0.7 million and $0.1 million other, net.
Net cash used in financing activities was $21.0 million for the six months ended June 30, 2009,
compared to net cash used in financing activities of $4.0 million for the six months ended
June 30, 2008. There were net repayments of borrowings of $9.0 million for the six months ended
June 30, 2009, and net repayments of borrowings of $5.0 million for the six months ended June
30, 2008. In the 2009 period there was a dividend payment of $12.0 million. In the 2008 period
there were $0.9 million in proceeds from the issuance of common stock.
Financing Arrangements
We are party to a revolving credit facility with Wachovia Capital Finance Corporation (Central)
(the Revolving Credit Facility). The Revolving Credit Facility provides for a $200 million
revolving credit facility subject to borrowing availability (including a $25 million letter of
credit facility) and matures August 22, 2011.
We are party to an indenture governing the Notes we issued in October 2004. For a description of
the terms of the Revolving Credit Facility and the Notes, see Note 9 to the unaudited condensed
consolidated financial statements.
19
Liquidity
We require cash for working capital, capital expenditures, debt service and taxes. Our working
capital requirements generally increase when demand for our products increase or when copper,
copper premiums, silver, nickel, tin and alloy costs increase significantly or rapidly.
Currently, a $0.10 per pound fluctuation in the price of copper will have an approximate $2.3
million impact on our working capital. The average price of copper based upon COMEX decreased to
$2.15 per pound for the three months ended June 30, 2009 from $3.80 per pound for the three
months ended June 30, 2008. Copper prices continue to be volatile, and the price of copper on
the COMEX was $2.75 per pound as of August 6, 2009.
Our principal sources of cash are generated from operations and availability under our Revolving
Credit Facility.
As of June 30, 2009, we had $6.4 million of unrestricted cash and cash equivalents. Actual
borrowings availability under our Revolving Credit Facility is subject to a borrowing base
calculation, generally based upon a percentage of eligible accounts receivable, inventory and
property, plant and equipment. As of June 30, 2009, our borrowing base was $81.6 million and our
outstanding indebtedness under the Revolving Credit Facility (including outstanding letters of
credit) was $14.6 million, resulting in a remaining availability as of such date of $67.0
million.
We expect our cash on hand, operating cash flow, together with available borrowings under the
Revolving Credit Facility, will be sufficient to meet our anticipated future operating expenses,
capital expenditures and debt service requirements for the next twelve months and the
foreseeable future. Our ability to generate sufficient cash flow to meet our operating needs
could be affected by general economic, financial, competitive, legislative, regulatory, business
and other factors beyond our control. Any significant reduction in customer demand for our
products, change in competitive conditions, reduction in vendor terms from our suppliers,
increases in prices of our major raw material components including copper, silver, nickel and
tin increases in other expenses such as utility costs, or adverse changes in economic conditions
in the U.S. or worldwide could impact our ability to generate sufficient cash flow to fund
operations.
Stock Repurchase Program
Our Board of Directors previously approved a stock repurchase program pursuant to which we may repurchase up to $20.0 million of our common
stock through open market and privately negotiated transactions from time to time. To date, we have repurchased 144,000 shares of our common
stock under the program for an aggregate purchase price of $3.0 million, resulting in an average purchase price of $21.09 per share, inclusive of broker
commissions.
Our ability to make restricted payments, including repurchases of our common stock, is limited under our 10% Secured Senior Subordinated Notes to the amount
available from time to time under a restricted payment basket as calculated under the indenture governing such indebtedness. Because
that basket at present is fully depleted, we currently are unable to make any further repurchases under the stock repurchase program.
Off-Balance Sheet Arrangements
We have not historically utilized off-balance sheet financing arrangements and have no such
arrangements as of June 30, 2009. However, we do finance the use of certain facilities and
equipment under lease agreements provided by various institutions. Since the terms of these
agreements meet the definition of operating lease agreements, the sum of future lease payments
is not reflected on our condensed consolidated balance sheet. As of June 30, 2009, the future
minimum lease payments under these arrangements totaled $5.1 million.
Recently Issued Accounting Standards
In February 2008, the Financial Accounting Standards Board (FASB) issued FSP No. 157-2, which
delays the effective date of SFAS No. 157, Fair Value Measurements, for all non-financial assets
and non-financial liabilities, except those that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually). FSP No. 157-2 partially
defers the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and
interim periods within those fiscal years for items within the scope of the statement. Effective
January 1, 2008, the Company adopted SFAS No. 157 except as it applies to those non-financial
assets and non-financial liabilities as noted in FSP No. 157-2, which has been adopted effective
January 1, 2009. The adoption of FSP No. 157-2 and SFAS No. 157 did not have a material impact
on the Companys consolidated financial statements.
In June 2008, the FASB issued FSP EITF 03-6-1 Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities, which addresses whether unvested
instruments granted in share-based payment transactions that contain nonforfeitable rights to
dividends or dividend equivalents are participating securities subject to the two-class method
of computing earnings per share under SFAS No. 128, Earnings Per Share. FSP EITF 03-6-1 is
effective for financial statements issued for fiscal years beginning after December 15, 2008 and
interim periods within those years. The Companys adoption of FSP EITF 03-6-1 did not result in
a change in the Companys earnings per share.
20
In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments. FSP No. FAS 107-1 and APB 28-1 amends SFAS No. 107, Disclosures
about Fair Value of Financial Instruments, to require disclosures about fair value of financial
instruments in interim as well as in annual financial statements. This FSP also amends
Accounting Principles Board (APB) Opinion No. 28, Interim Financial Reporting, to require
those disclosures in all interim financial statements. FSP No. FAS 107-1 and APB 28-1 is
effective for interim reporting periods ending after June 15, 2009. The adoption of FSP No. FAS
107-1 and APB 28-1 did not have a material effect on the Companys consolidated financial
statements. See Note 9.
In May 2009, the FASB issued SFAS No. 165 (SFAS 165), Subsequent Events, which provides
guidance to establish general standards of accounting for and disclosures of events that occur
after the balance sheet date but before financial statements are issued or are available to be
issued. It also requires the disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date, that is, whether that date represents the date
the financial statements were issued or were available to be issued. This disclosure should
alert all users of financial statements that an entity has not evaluated subsequent events after
that date in the set of financial statements being presented. SFAS 165 is effective for interim
and annual periods ending after June 15, 2009. The Company implemented SFAS 165 during the
three months ended June 30, 2009. The Company evaluated for
subsequent events through August 7,
2009, the issuance date of the Companys financial statements. No subsequent events requiring
disclosure were noted.
In June 2009, the FASB issued SFAS No. 168 (SFAS 168), The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles a replacement of
FASB Statement No. 162. SFAS 168 replaces SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles, and identifies the sources of authoritative accounting principles and the
framework for selecting the principles used in the preparation of financial statements that are
presented in conformity with generally accepted accounting principles in the U.S. The Company is
required to adopt the provisions of SFAS 168 for its interim period ending September 30, 2009
and the adoption will impact the Companys financial statement disclosures as all future references to
authoritative accounting literature will be referenced in accordance with SFAS 168. There will
be no changes to the content of the Companys financial statements or disclosures as a result of
implementing SFAS 168.
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|
|
ITEM 3. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We do not ordinarily hold market risk sensitive instruments for trading purposes.
Interest Rate Risk
At June 30, 2009, approximately $4.4 million of $79.4 million of long-term debt, specifically,
$4.4 million of borrowings under our Revolving Credit Facility, bear interest at variable rates.
A hypothetical 1% increase in variable interest rates would increase our interest rate expense
by less than $0.1 million based on the debt outstanding as of June 30, 2009. We are not
currently engaged in any hedging activities.
Foreign Currency Risk
As of June 30, 2009, we had operations in Belgium, France and Italy. Our operations may,
therefore, be subject to volatility because of currency fluctuations. Sales and expenses are
denominated in the euro for the Belgium, French and Italian operations. As a result, these
operations are subject to fluctuations in the relative value of the euro. We evaluate from
time-to-time various currency hedging programs that could reduce the risk.
In terms of foreign currency translation risk, we are exposed primarily to the euro. Our net
foreign currency investment in foreign subsidiaries and affiliates translated into U.S. dollars
using month-end exchange rates at June 30, 2009 and year-end exchange rates at December 31,
2008, was $26.1 million and $30.5 million, respectively.
At June 30, 2009, we had no financial instruments outstanding that were sensitive to changes in
foreign currency rates.
21
Commodity Price Risk
The principal raw material used in our products is 5/16 inch copper rod, which is sourced either
directly from world copper producers or through rod mill operators in North America and Europe.
A significant percentage of total copper is purchased from four major suppliers. Copper rod
prices are based on market prices, which are generally established by reference to the New York
Mercantile Exchange, Inc. (COMEX) prices, plus a premium charged to convert copper cathode to
copper rod and deliver it to the required location. Copper prices are affected by a number of
factors, including worldwide demand, mining and transportation capacity, political instability
and financial markets. Copper supply is generally affected by the number and capacity of the
mines that produce copper. For instance, production problems at a single major mine can impact
worldwide supply and therefore prices. The average price of copper based upon COMEX decreased
to $2.15 per pound for the three months ended June 30, 2009 from $3.80 per pound for the three
months ended June 30, 2008, or 44%.
In order to reduce the potential negative impact of fluctuations in the price of copper, we have
copper price pass-through arrangements with our customers based on variations of monthly copper
price formulas. These pass-through arrangements are less effective when copper prices are
volatile. Additionally, these pass-through arrangements do not apply to the scrap which is
created in the production process (and subsequently sold as scrap) as the base price for the
copper in the scrap sales may be more or less than the base price at the time we acquired the
copper. Changing copper prices may adversely affect both profitability and liquidity depending
on the magnitude of these changes, the timing of purchases, quantity levels and the applicable
account receivable and payable payment terms.
Moreover, since we generally do not obtain long-term purchase commitments, our customers may
cancel, reduce or delay their orders if they believe copper prices will be falling (in order to
purchase our products at lower prices in the future) or in response to increases in copper
prices. Additionally, declining copper prices can result in inventory charges, increasing our
costs of goods sold and negatively impacting profitability. Conversely, a severe increase in
the price of copper can negatively impact our short-term liquidity because of the period of time
between our purchase of copper at an increased price and the time at which we receive cash
payments after selling end products to customers reflecting the increased price. Currently, a
$0.10 per pound fluctuation in the price of copper will have approximately a $2.3 million impact
on our working capital. Increased working capital requirements cause us to increase our
borrowings, which increases our interest expense.
Tin is also a component in our products in the Bare Wire and High Performance Conductors
segments. The High Performance Conductors segment also uses silver and nickel. The cost of
silver, nickel and tin is generally passed-through to our customers through a variety of pricing
mechanisms. Our price of silver includes a margin and, consequently, market fluctuations in the
price of silver can result in an increase or decrease in profitability at a given volume. For
the three months ended June 30, 2009, the average price of silver decreased by 20%, the average
price of nickel decreased by 50% and the average price of tin decreased by 39% compared to the
three months ended June 30, 2008.
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|
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ITEM 4. |
|
CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Based on an evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by
this Form 10-Q, conducted under the supervision of and with the participation of our chief
executive officer (CEO) and chief financial officer (CFO), such officers have concluded that
our disclosure controls and procedures are designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SECs rules and
forms, and are operating in an effective manner. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and
communicated to our management, including our CEO and CFO, to allow timely decisions regarding
required disclosure.
22
Changes in Internal Control over Financial Reporting
There was no change in the Companys internal control over financial reporting that occurred
during the quarter ended June 30, 2009 that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting.
PART II. OTHER INFORMATION
|
|
|
ITEM 1. |
|
LEGAL PROCEEDINGS |
During the three and six months ended June 30, 2009, there have been no material developments in
the Companys legal proceedings. For more detailed information, see the disclosures provided in
Note 13 to the unaudited condensed consolidated financial statements in this Form 10-Q and Note
13 to our Consolidated Financial Statements and in Item 3Legal Proceedings set forth in our
2008 Form 10-K.
In addition to the other information set forth in this report, you should carefully consider the
factors discussed in Part I, Item 1A, Risk Factors in our 2008 Form 10-K for the year ended
December 31, 2008, which could materially affect our business, financial condition or future
results. The Risk Factors included in our 2008 10-K have not materially changed. The risks
described in our 2008 10-K are not the only risks we face. Additional risks and uncertainties
not currently known to us or that we currently deem to be immaterial also may materially
adversely affect our business, financial condition and/or operating results.
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|
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ITEM 2. |
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
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|
ITEM 3. |
|
DEFAULTS UPON SENIOR SECURITIES |
None.
|
|
|
ITEM 4. |
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
|
|
Our Annual Meeting of Stockholders was held on June 18, 2009. At the Annual Meeting,
stockholders voted on two matters and each matter was approved. The number of shares voted
with respect to each matter required to be reported herein are as follows: |
1. Election of Directors
|
|
|
|
|
|
|
|
|
Rodney D. Kent |
|
For: 7,934,201 |
|
Withheld: 55,667 |
Mark K. Holdsworth |
|
For: 7,989,868 |
|
Withheld: 0 |
William Lane Pennington |
|
For: 7,934,201 |
|
Withheld: 55,667 |
Peter Blum |
|
For: 7,989,868 |
|
Withheld: 0 |
David M. Gilchrist, Jr. |
|
For: 7,989,868 |
|
Withheld: 0 |
David H. Robbins |
|
For: 7,989,868 |
|
Withheld: 0 |
Lowell W. Robinson |
|
For: 7,989,868 |
|
Withheld: 0 |
John T. Walsh |
|
For: 7,989,868 |
|
Withheld: 0 |
2. Ratification of the Audit Committees selection of Deloitte & Touche LLP as our
independent registered public accounting firm.
For: 7,989,868 Against: 0 Abstain: 0
|
|
|
ITEM 5. |
|
OTHER INFORMATION |
None.
23
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
|
31.1 |
|
|
Certification of Principal Executive Officer Required by
Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. |
|
|
|
|
|
|
31.2 |
|
|
Certification of Principal Financial Officer Required by
Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. |
|
|
|
|
|
|
32.1 |
|
|
Certification of Principal Executive Officer Required by
Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended,
and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
32.2 |
|
|
Certification of Principal Financial Officer Required by
Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended,
and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
|
|
|
|
|
INTERNATIONAL WIRE GROUP, INC.
|
|
Dated: August 7, 2009 |
By: |
/s/ GLENN J. HOLLER
|
|
|
|
Name: |
Glenn J. Holler |
|
|
|
Title: |
Senior Vice
President, Chief
Financial Officer
(Principal
Financial and
Accounting Officer)
and Secretary |
|
25
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
|
31.1 |
|
|
Certification of Principal Executive Officer Required by
Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. |
|
|
|
|
|
|
31.2 |
|
|
Certification of Principal Financial Officer Required by
Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. |
|
|
|
|
|
|
32.1 |
|
|
Certification of Principal Executive Officer Required by
Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended,
and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
32.2 |
|
|
Certification of Principal Financial Officer Required by
Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended,
and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
26