1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED...................JUNE 30, 2001.................
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
33-93970
(Commission File Number)
INTERNATIONAL WIRE GROUP, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
43-1705942
(I.R.S. Employer Identification No.)
101 SOUTH HANLEY ROAD
ST. LOUIS, MO 63105
(314) 719-1000
(Address, including zip code, and telephone number, including
area code, of Registrant's 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 [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
OUTSTANDING AT
CLASS JULY 31, 2001
----- -------------
Common Stock 1,000
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INTERNATIONAL WIRE GROUP, INC.
INDEX
PART I - FINANCIAL INFORMATION Page
----
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000..................... 3
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2001
and 2000 ...................................................................................... 4
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000..... 5
Notes to Condensed Consolidated Financial Statements................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 15
Item 3. Quantitative and Qualitative Disclosure About Market Risk..................................... 18
PART II - OTHER INFORMATION............................................................................... 19
SIGNATURES................................................................................................ 20
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ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
INTERNATIONAL WIRE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
2001 2000
---------- ------------
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 16,044 $ 32,244
Accounts receivable, less allowance of $2,386
and $2,760, respectively ....................... 83,821 82,339
Inventories ...................................... 79,566 83,527
Other current assets ............................. 29,872 28,163
---------- ----------
Total current assets ........................... 209,303 226,273
Property, plant and equipment, net ................. 144,933 148,414
Intangible and other assets ........................ 205,763 211,047
---------- ----------
Total assets ................................... $ 559,999 $ 585,734
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term obligations ...... $ 3,920 $ 4,312
Accounts payable ................................. 39,839 42,654
Accrued and other liabilities .................... 33,277 38,227
Accrued payroll and payroll related items ........ 5,804 11,740
Accrued interest ................................. 2,870 3,195
---------- ----------
Total current liabilities ...................... 85,710 100,128
Long-term obligations, less current maturities ..... 329,436 331,121
Other long-term liabilities ........................ 42,644 46,736
---------- ----------
Total liabilities .............................. 457,790 477,985
Stockholder's equity:
Common stock, $.01 par value, 1,000 shares
authorized, issued and outstanding ............. 0 0
Contributed capital .............................. 246,724 246,724
Carryover of predecessor basis ................... (67,762) (67,762)
Accumulated deficit .............................. (73,343) (69,989)
Accumulated other comprehensive loss ............. (3,410) (1,224)
---------- ----------
Total stockholder's equity ..................... 102,209 107,749
---------- ----------
Total liabilities and stockholder's equity ..... $ 559,999 $ 585,734
========== ==========
See accompanying notes to the condensed consolidated financial statements.
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INTERNATIONAL WIRE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(Unaudited)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------- -------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net sales ........................................ $ 115,671 $ 145,509 $ 240,420 $ 290,122
Operating expenses:
Cost of goods sold excluding item below ........ 87,359 106,953 183,842 214,143
Unusual costs related to plant
consolidations (see Note 3)................... 1,714 -- 1,714 --
---------- ---------- ---------- ----------
Total cost of goods sold ................ 89,073 106,953 185,556 214,143
Selling, general and administrative expenses ... 9,673 12,294 20,695 24,709
Depreciation and amortization .................. 9,214 9,174 18,165 18,282
Unusual charges ................................ 837 -- 3,937 --
---------- ---------- ---------- ----------
Operating income ................................. 6,874 17,088 12,067 32,988
Other income (expense):
Interest expense ............................... (8,825) (9,190) (17,275) (22,241)
Amortization of deferred financing costs ....... (338) (410) (677) (1,211)
---------- ---------- ---------- ----------
Income (loss) from continuing
operations before income tax provision
and extraordinary item ......................... (2,289) 7,488 (5,885) 9,536
Income tax provision (benefit) ................... (985) 3,244 (2,531) 4,799
---------- ---------- ---------- ----------
Income (loss) from continuing
operations before extraordinary item ........... (1,304) 4,244 (3,354) 4,737
Income from discontinued operations, net
of income taxes of $1,598 ...................... -- -- -- 3,634
---------- ---------- ---------- ----------
Income (loss) before extraordinary item .......... (1,304) 4,244 (3,354) 8,371
Extraordinary item - loss related to
early extinguishment of debt, net of
taxes of $2,073 ................................ -- -- -- (2,747)
---------- ---------- ---------- ----------
Net income (loss) ................................ $ (1,304) $ 4,244 $ (3,354) $ 5,624
========== ========== ========== ==========
See accompanying notes to the condensed consolidated financial statements.
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INTERNATIONAL WIRE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
SIX MONTHS
ENDED JUNE 30,
--------------------------
2001 2000
---------- ----------
Cash flows provided by (used in) operating activities:
Net cash provided by (used in) continuing operations ... $ (3,486) $ 5,442
Net cash provided by (used in)
discontinued operations ............................... (684) 430
---------- ----------
Net cash provided by (used in) operating
activities ............................................. (4,170) 5,872
---------- ----------
Cash flows used in investing activities:
Capital expenditures ................................... (10,570) (8,539)
Capital expenditures of discontinued
operations ........................................... -- (982)
---------- ----------
Net cash used in investing activities .................... (10,570) (9,521)
---------- ----------
Cash flows provided by (used in) financing
activities:
Repayment of long-term obligations ..................... (1,292) (198,998)
Financing fees and other ............................... -- (699)
Net proceeds from sale of Wire Harness
Segment .............................................. -- 208,500
---------- ----------
Net cash provided by (used in) financing
activities ............................................. (1,292) 8,803
---------- ----------
Effects of exchange rate changes on cash
and cash equivalents ................................... (168) --
---------- ----------
Net change in cash and cash equivalents .................. (16,200) 5,154
Cash at beginning of the period .......................... 32,244 7,425
---------- ----------
Cash at end of the period ................................ $ 16,044 $ 12,579
========== ==========
See accompanying notes to the condensed consolidated financial statements.
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INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(Unaudited)
1. BASIS OF PRESENTATION
Unaudited Interim Condensed Consolidated Financial Statements
The unaudited interim condensed 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 and results of operations of International Wire Group,
Inc. (the "Company"). The results for the three and six months ended June
30, 2001 are not necessarily indicative of the results that may be
expected for a full fiscal year. These financial statements should be read
in conjunction with the audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission for the year ended December
31, 2000.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board (the "FASB")
adopted Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value and that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company must
formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. The Company adopted SFAS No. 133 as of
January 1, 2001. The adoption of this statement did not have a significant
impact on the Company's consolidated financial position or results of
operations.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 141 supercedes Accounting Principles Board Opinion ("APB") No.
16, "Business Combinations." The most significant changes made by SFAS No.
141 are: (1) requiring that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001, (2) establishing
specific criteria for the recognition of intangible assets separately from
goodwill, and (3) requiring unallocated negative goodwill to be written
off immediately as an extraordinary gain (instead of being deferred and
amortized).
SFAS No. 142 supercedes APB No. 17, "Intangible Assets." SFAS No. 142
primarily addresses the accounting for goodwill and intangible assets
subsequent to their acquisition (i.e., the post-acquisition accounting).
The provisions of SFAS No. 142 will be effective for fiscal years
beginning after December 15, 2001. The most significant changes made by
SFAS No. 142 are: (1) goodwill and indefinite lived intangible assets will
no longer be amortized, (2) goodwill will be tested for impairment at
least annually at the reporting unit level, (3) intangible assets deemed
to have an indefinite life will be tested for impairment at least
annually, and (4) the amortization period of intangible assets with finite
lives will no longer be limited to forty years. The Company has not yet
determined the effect SFAS 141 and 142 will have on its consolidated
financial position or results of operations.
2. DISCONTINUED OPERATIONS
On March 29, 2000, the Company consummated the sale of its wire harness
business (the "Wire Harness Sale") for $210,000 in cash. The results of
operations of the wire harness business have been reclassified to
discontinued operations for all periods presented.
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INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
3. UNUSUAL CHARGES AND UNUSUAL COSTS RELATED TO PLANT CONSOLIDATIONS
During the first quarter of 2001, the Company announced its plan for a
realignment of its insulated wire production and initiated the closure of
three of its manufacturing facilities located in Alabama and Indiana.
During the second quarter of 2001, the Company initiated the closures of
two additional facilities, the third and final Alabama facility and a
second plant in Indiana. The production capacity for these locations is
being primarily transferred and consolidated into the Company's existing
manufacturing facilities in Texas and the remaining Indiana facilities,
which are being expanded, as necessary, to accommodate the production
transfer. In addition to the plant consolidations announced in the first
and second quarters, the Company has undertaken a strategic initiative and
expects to establish a "greenfield" insulated wire facility in Mexico by
the end of 2001. The startup of this Mexican facility is expected to
complete the Company's realignment.
In connection with the plant closures, the Company anticipates that 128
employees will be terminated, all of whom have been notified by the
Company. Through June 2001, 75 employees have been terminated in
conjunction with the realignment plan. The Company estimates that four of
the five plant closures announced in the first and second quarters will be
completed by the end of the third quarter with the fifth plant closure
completed by the end of the year or early 2002. In connection with the
plant closures, the Company has accrued $837 and $3,937 for the three and
six months ended June 30, 2001, respectively.
A summary of activity related to plant closings is as follows:
SIX MONTHS ENDED
JUNE 30,
2001
---------------
Balance, beginning of period ...................... $ --
Charges to operations:
Facility shut-down costs ........................ 1,286
Personnel and severance costs ................... 2,651
------------
3,937
------------
Costs incurred:
Facility shut-down costs ........................ (527)
Personnel and severance costs ................... (1,651)
------------
(2,178)
------------
Balance, end of period ............................ $ 1,759
============
In addition to the accruals for plant closings in the first and second
quarters, the Company also incurred an additional $1,714 of expenses
related to the facility consolidations that the Company considers to be
one-time items incremental to the on-going operations. These expenses
include inefficiencies incurred during the transition of production
capacity and incremental costs related to the transferred lines of
production. These unusual one-time charges are included in cost of goods
sold for the three and six months ended June 30, 2001.
4. EXTRAORDINARY ITEM - LOSS RELATED TO EARLY RETIREMENT OF DEBT
Substantially all of the net proceeds (after the payment of fees and
expenses) from the Wire Harness Sale were used to repay indebtedness
outstanding under the Company's senior credit facility. Accordingly, the
Company recorded an extraordinary loss during the first quarter of 2000 of
$2,747, net of income tax benefit, related to the write-off of deferred
financing fees.
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INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
5. INVENTORIES
The composition of inventories at June 30, 2001 and December 31, 2000 is
as follows:
JUNE 30, DECEMBER 31,
2001 2000
---------- ------------
Raw materials .................................... $ 14,696 $ 28,402
Work-in-process .................................. 31,365 26,414
Finished goods ................................... 33,505 28,711
---------- ----------
Total ........................................... $ 79,566 $ 83,527
========== ==========
The carrying value of inventories on a last-in, first-out basis, at June
30, 2001 and December 31, 2000, approximates their current cost.
6. LONG-TERM OBLIGATIONS
The composition of long-term obligations at June 30, 2001 and December 31,
2000 is as follows:
JUNE 30, DECEMBER 31,
2001 2000
---------- ------------
Amended and Restated Credit Agreement:
Revolving credit facility .................. $ -- $ --
Term facility .............................. 1,988 2,273
Senior Subordinated Notes .................... 150,000 150,000
Series B Senior Subordinated Notes ........... 150,000 150,000
Series B Senior Subordinated Notes Premium ... 7,737 8,523
Industrial revenue bonds ..................... 15,500 15,500
Other ........................................ 8,131 9,137
---------- ----------
333,356 335,433
Less, current maturities ..................... 3,920 4,312
---------- ----------
$ 329,436 $ 331,121
========== ==========
The schedule of principal payments for long-term obligations, excluding
premium, at June 30, 2001 is as follows:
2001 $ 1,410
2002 1,815
2003 375
2004 125
2005 314,137
Thereafter ........................................... 7,757
------------
Total .............................................. $ 325,619
============
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INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
As of June 30, 2001, the Amended and Restated Credit Agreement (the
"Credit Agreement") provides senior secured financing of up to $1,988 (the
"Term Facility") and a $75,000 revolving loan and letter of credit
facility (the "Revolver"). Mandatory principal payments of the Term
Facility are due in quarterly installments. The final installment is due
September 30, 2002, at which time the Revolver is also due.
Borrowings under the Term A Loan and Revolver bear interest, at the option
of the Company, at a rate per annum equal to (a) the Alternate Base Rate
(as defined in the Credit Agreement) plus an applicable margin as defined
in the Credit Agreement; or (b) the Eurodollar Rate (as defined in the
Credit Agreement) plus an applicable margin as defined in the Credit
Agreement. The Alternate Base Rate and Eurodollar Rate margins are
established quarterly based on a formula described in the Credit
Agreement. Interest payment dates vary depending on the interest rate
option to which the Term Facility and the Revolver are tied, but generally
interest is payable quarterly. The Credit Agreement contains several
financial covenants which, among other things, require the Company to
maintain certain financial ratios and restrict the Company's ability to
incur indebtedness, make capital expenditures and pay dividends.
The Company's 11 3/4% Senior Subordinated Notes, 11 3/4% Series B Senior
Subordinated Notes, and 14% Senior Subordinated Notes (collectively, the
"Senior Notes") restrict, among other things, the incurrence of additional
indebtedness by the Company, the payment of dividends and other
distributions in respect of the Company's capital stock, the imposition of
restrictions on the payment of dividends and other distributions by the
Company's subsidiaries, the creation of liens on the properties and the
assets of the Company to secure certain subordinated debt and certain
mergers, sales of assets and transactions with affiliates.
7. BUSINESS SEGMENT INFORMATION
The Company operates its business as one business segment.
8. GUARANTOR SUBSIDIARIES
The Senior Notes are fully and unconditionally (as well as jointly and
severally) guaranteed on an unsecured, senior subordinated basis by each
subsidiary of the Company (the "Guarantor Subsidiaries") other than
IWG-Philippines, Inc., IWG International, Inc., Italtrecce-Societa
Italiana Trecce & Affini S.r.l., International Wire SAS, Tresse Metalique
J. Forissier, S.A. and Cablerie E. Charbonnet, S.A. (the "Non-Guarantor
Subsidiaries"). Each of the Guarantor Subsidiaries and Non-Guarantor
Subsidiaries is wholly owned by the Company.
The following condensed, consolidating financial statements of the Company
include the accounts of the Company, the combined accounts of the
Guarantor Subsidiaries and the combined accounts of the Non-Guarantor
Subsidiaries.
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INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
---------- ---------- ---------- ------------ ----------
BALANCE SHEET
AS OF JUNE 30, 2001
ASSETS
Cash and cash equivalents .................. $ -- $ 13,607 $ 2,437 $ -- $ 16,044
Accounts receivable ........................ -- 62,674 21,147 -- 83,821
Inventories ................................ -- 68,221 11,345 -- 79,566
Other current assets ....................... -- 28,443 1,429 -- 29,872
---------- ---------- ---------- ---------- ----------
Total current assets ....................... -- 172,945 36,358 -- 209,303
Property, plant and equipment, net ......... -- 124,524 20,409 -- 144,933
Investment in subsidiaries ................. 457,252 -- -- (457,252) --
Intangibles and other assets ............... 7,392 186,128 12,243 -- 205,763
---------- ---------- ---------- ---------- ----------
Total assets .......................... $ 464,644 $ 483,597 $ 69,010 $ (457,252) $ 559,999
========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities ........................ $ 5,617 $ 68,085 $ 12,008 $ -- $ 85,710
Long-term obligations, less current
maturities ............................. 311,979 17,457 -- -- 329,436
Other long-term liabilities ................ -- 41,240 1,404 -- 42,644
Intercompany (receivable) payable .......... (26,333) (11,295) 37,628 -- --
---------- ---------- ---------- ---------- ----------
Total liabilities .......................... 291,263 115,487 51,040 -- 457,790
Stockholder's equity:
Common stock ............................... 0 0 0 0 0
Contributed capital ........................ 246,724 297,106 11,887 (308,993) 246,724
Carryover of predecessor basis ............. -- (67,762) -- -- (67,762)
Retained earnings (accumulated deficit) .... (73,343) 138,766 9,493 (148,259) (73,343)
Other comprehensive loss ................... -- -- (3,410) -- (3,410)
---------- ---------- ---------- ---------- ----------
Total stockholder's equity ................. 173,381 368,110 17,970 (457,252) 102,209
---------- ---------- ---------- ---------- ----------
Total liabilities and stockholder's
equity ............................ $ 464,644 $ 483,597 $ 69,010 $ (457,252) $ 559,999
========== ========== ========== ========== ==========
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INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
---------- ---------- ---------- ------------ ----------
BALANCE SHEET
AS OF DECEMBER 31, 2000
ASSETS
Cash and cash equivalents .................. $ -- $ 27,772 $ 4,472 $ -- $ 32,244
Accounts receivable ........................ -- 66,362 15,977 -- 82,339
Inventories ................................ -- 73,573 9,954 -- 83,527
Other current assets ....................... -- 26,937 1,226 -- 28,163
---------- ---------- ---------- ---------- ----------
Total current assets ....................... -- 194,644 31,629 -- 226,273
Property, plant and equipment, net ....... -- 127,661 20,753 -- 148,414
Investment in subsidiaries ................. 461,033 -- -- (461,033) --
Intangibles and other assets ............... 8,357 189,099 13,591 -- 211,047
---------- ---------- ---------- ---------- ----------
Total assets .......................... $ 469,390 $ 511,404 $ 65,973 $ (461,033) $ 585,734
========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities ........................ $ 5,942 $ 84,003 $ 10,183 $ -- $ 100,128
Long-term obligations, less current
maturities ............................. 313,049 18,072 -- -- 331,121
Other long-term liabilities ................ -- 45,472 1,264 -- 46,736
Intercompany (receivable) payable .......... (26,336) (10,589) 36,925 -- --
---------- ---------- ---------- ---------- ----------
Total liabilities .......................... 292,655 136,958 48,372 -- 477,985
Stockholder's equity (deficit):
Common stock ............................... 0 0 0 0 0
Contributed capital ........................ 246,724 297,106 11,887 (308,993) 246,724
Carryover of predecessor basis ............. -- (67,762) -- -- (67,762)
Retained earnings (accumulated deficit) .... (69,989) 145,102 6,938 (152,040) (69,989)
Other comprehensive loss ................... -- -- (1,224) -- (1,224)
---------- ---------- ---------- ---------- ----------
Total stockholder's equity (deficit) ....... 176,735 374,446 17,601 (461,033) 107,749
---------- ---------- ---------- ---------- ----------
Total liabilities and stockholder's
equity (deficit) .................. $ 469,390 $ 511,404 $ 65,973 $ (461,033) $ 585,734
========== ========== ========== ========== ==========
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INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
---------- ---------- ---------- ------------ ----------
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED
JUNE 30, 2001
Net sales ...................................... $ -- $ 99,751 $ 15,920 $ -- $ 115,671
Operating expenses:
Cost of goods sold before item below ....... -- 74,079 11,566 -- 85,645
Unusual costs related to plant
consolidations ......................... -- 1,714 -- -- 1,714
---------- ---------- ---------- ---------- ----------
Total cost of goods sold ................... -- 75,793 11,566 -- 87,359
Selling, general and administrative
expenses ............................... -- 8,487 1,186 -- 9,673
Depreciation and amortization .............. 144 7,981 1,089 -- 9,214
Unusual charges ............................ -- 2,551 -- -- 2,551
---------- ---------- ---------- ---------- ----------
Operating income ............................... (144) 4,939 2,079 -- 6,874
Other income (expense):
Interest expense ........................... 9,226 (17,681) (370) -- (8,825)
Amortization of deferred financing costs ... (338) -- -- -- (338)
Equity in net income of subsidiaries ....... (10,048) -- -- 10,048 --
---------- ---------- ---------- ---------- ----------
Income (loss) before tax provision (benefit) ... (1,304) (12,742) 1,709 10,048 (2,289)
Income tax provision (benefit) ................. -- (1,058) 73 -- (985)
---------- ---------- ---------- ---------- ----------
Net income (loss) .............................. $ (1,304) $ (11,684) $ 1,636 $ 10,048 $ (1,304)
========== ========== ========== ========== ==========
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
---------- ---------- ---------- ------------ ----------
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED
JUNE 30, 2000
Net sales ...................................... $ -- $ 130,170 $ 15,339 $ -- $ 145,509
Operating expenses:
Cost of goods sold ......................... -- 95,727 11,226 -- 106,953
Selling, general and administrative
expenses ............................... -- 11,246 1,048 -- 12,294
Depreciation and amortization .............. 1,163 7,004 1,007 -- 9,174
---------- ---------- ---------- ---------- ----------
Operating income ............................... (1,163) 16,193 2,058 -- 17,088
Other income (expense):
Interest expense ........................... (9,017) 187 (360) -- (9,190)
Amortization of deferred financing costs ... (410) -- -- -- (410)
Equity in net income of subsidiaries ....... 14,834 -- -- (14,834) --
---------- ---------- ---------- ---------- ----------
Income (loss) before tax provision (benefit) ... 4,244 16,380 1,698 (14,834) 7,488
Income tax provision ........................... -- 2,998 246 -- 3,244
---------- ---------- ---------- ---------- ----------
Net income (loss) .............................. $ 4,244 $ 13,382 $ 1,452 $ (14,834) $ 4,244
========== ========== ========== ========== ==========
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INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
---------- ---------- ---------- ------------ ----------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED
JUNE 30, 2001
Net sales ...................................... $ -- $ 208,883 $ 31,537 $ -- $ 240,420
Operating expenses:
Cost of goods sold before item below ....... -- 158,555 23,573 -- 182,128
Unusual costs related to plant
consolidations ......................... -- 1,714 -- -- 1,714
---------- ---------- ---------- ---------- ----------
Total cost of goods sold ................... -- 160,269 23,573 -- 183,842
Selling, general and administrative
expenses ............................... -- 18,368 2,327 -- 20,695
Depreciation and amortization .............. 288 15,754 2,123 -- 18,165
Unusual charges ............................ -- 5,651 -- -- 5,651
---------- ---------- ---------- ---------- ----------
Operating income ............................... (288) 8,841 3,514 -- 12,067
Other income (expense):
Interest expense ........................... 1,392 (17,925) (742) -- (17,275)
Amortization of deferred financing costs ... (677) -- -- -- (677)
Equity in net income of subsidiaries ....... (3,781) -- -- 3,781 --
---------- ---------- ---------- ---------- ----------
Income (loss) before tax provision (benefit) ... (3,354) (9,084) 2,772 3,781 (5,885)
Income tax provision (benefit) ................. -- (2,750) 219 -- (2,531)
---------- ---------- ---------- ---------- ----------
Net income (loss) .............................. $ (3,354) $ (6,334) $ 2,553 $ 3,781 $ (3,354)
========== ========== ========== ========== ==========
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
---------- ---------- ---------- ------------ ----------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED
JUNE 30, 2000
Net sales ...................................... $ -- $ 259,023 $ 31,099 $ -- $ 290,122
Operating expenses:
Cost of goods sold ......................... -- 192,007 22,136 -- 214,143
Selling, general and administrative
expenses ............................... -- 22,538 2,171 -- 24,709
Depreciation and amortization .............. 1,319 14,918 2,045 -- 18,282
---------- ---------- ---------- ---------- ----------
Operating income ............................... (1,319) 29,560 4,747 -- 32,988
Other income (expense):
Interest expense ........................... (21,780) (2) (459) -- (22,241)
Amortization of deferred financing
costs .................................... (1,211) -- -- -- (1,211)
Equity in net income of
subsidiaries ............................. 32,681 -- -- (32,681) --
---------- ---------- ---------- ---------- ----------
Income from continuing operations
before income tax provision
and extraordinary item ..................... 8,371 29,558 4,288 (32,681) 9,536
Income tax provision ........................... -- 4,169 630 -- 4,799
---------- ---------- ---------- ---------- ----------
Income from continuing operations
before extraordinary item .................. 8,371 25,389 3,658 (32,681) 4,737
Income from discontinued operations,
net of taxes of $1,598 ..................... -- 2,288 1,346 -- 3,634
---------- ---------- ---------- ---------- ----------
Income before extraordinary item ............... 8,371 27,677 5,004 (32,681) 8,371
Extraordinary item - loss related
to early extinguishment of debt,
net of taxes of $2,073 ..................... (2,747) -- -- -- (2,747)
---------- ---------- ---------- ---------- ----------
Net income ..................................... $ 5,624 $ 27,677 $ 5,004 $ (32,681) $ 5,624
========== ========== ========== ========== ==========
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INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
---------- ---------- ---------- ------------ ----------
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30, 2001
Net cash used in operating activities .......... $ (397) $ (3,831) $ 58 $ -- $ (4,170)
---------- ---------- ---------- ---------- ----------
Cash flows used in investing activities for
capital expenditures ......................... -- (8,645) (1,925) -- (10,570)
---------- ---------- ---------- ---------- ----------
Cash flows used in financing activities for
repayment of long-term obligations ........... 397 (1,689) -- -- (1,292)
---------- ---------- ---------- ---------- ----------
Effect of exchange rate changes
on cash and cash equivalents ................ -- -- (168) -- (168)
---------- ---------- ---------- ---------- ----------
Net change in cash and cash equivalents ........ $ -- $ (14,165) $ (2,035) $ -- $ (16,200)
========== ========== ========== ========== ==========
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
---------- ---------- ---------- ------------ ----------
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30, 2000
Net cash provided by (used in) operating
activities.................................... $ (9,491) $ 11,193 $ 4,170 $ -- $ 5,872
---------- ---------- ---------- ---------- ----------
Cash flows used in investing activities for
capital expenditures ......................... -- (7,712) (1,809) -- (9,521)
---------- ---------- ---------- ---------- ----------
Cash flows provided by (used in) financing
activities:
Repayment of long-term obligations ......... (198,310) (688) -- -- (198,998)
Financing fees and other ................... (699) -- -- -- (699)
Net proceeds from sale of
Wire Harness Segment ..................... 208,500 -- -- -- 208,500
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities ................................... 9,491 (688) -- -- 8,803
---------- ---------- ---------- ---------- ----------
Net change in cash and cash equivalents ........ $ -- $ 2,793 $ 2,361 $ -- $ 5,154
========== ========== ========== ========== ==========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion and analysis includes the results of operations for the
three and six months ended June 30, 2001, compared to the three and six months
ended June 30, 2000.
In March 2000, the Company sold its Wire Harness Segment to Viasystems Group,
Inc. The Wire Harness Segment was previously reported as a separate segment. The
results of operations of the Wire Harness Segment for 2000 have been
reclassified to discontinued operations.
A portion of the Company's revenues is derived from processing customer-owned
("tolled") copper. The value of tolled copper is excluded from both sales and
costs of sales of the Company, as title to these materials and the related risks
of ownership do not pass to the Company.
The cost of copper has historically been subject to fluctuations. While
fluctuations in the price of copper may directly affect the per unit prices of
the Company's products, these fluctuations have not had, nor are expected to
have, a material impact on the Company's profitability due to copper price
pass-through arrangements that the Company has with its customers. These sales
arrangements are based on similar variations of monthly copper price formulas.
Use of these copper price formulas minimizes the differences between raw
material copper costs charged to the cost of sales and the pass-through pricing
charged to customers.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000
Net sales for the quarter were $115.7 million, a decrease of $29.8 million, or
20.5%, compared to the three months ended June 30, 2000. This decrease in sales
was primarily the result of lower sales volume from weak general U.S. economic
conditions and a lower average cost and selling price of copper. In general, the
Company prices its wire products based on a spread over the cost of copper,
which results in a decreased dollar value of sales when copper costs decrease.
The average price of copper based on the New York Mercantile Exchange, Inc.
("COMEX") declined from $0.80 per pound during the three months ended June 30,
2000 to $0.75 per pound during the three months ended June 30, 2001.
Cost of goods sold excluding unusual costs related to plant consolidations as a
percentage of sales increased to 75.5% for the three months ended June 30, 2001,
from 73.5% for the three months ended June 30, 2000. This change was due
primarily to lower pricing under new agreements with customers who supply the
automotive industry and operating inefficiencies associated with lower
production levels. These operating inefficiencies have been partially offset by
headcount reductions, plant closures and other cost reduction and containment
actions taken by the Company and the impact of lower copper prices.
Selling, general and administrative expenses decreased $2.6 million to $9.7
million for the three months ended June 30, 2001, compared to $12.3 million for
the same period in 2000 due to volume related items, headcount reductions and
other cost reduction and containment actions.
Depreciation and amortization was $9.2 million for the three months ended June
30, 2001 and for the same period in 2000.
During the first quarter of 2001, the Company announced its plan for a
realignment of its insulated wire production and initiated the closure of three
of its manufacturing facilities located in Alabama and Indiana. During the
second quarter of 2001, the Company initiated the closures of two additional
facilities, the third and final Alabama facility and a second plant in Indiana.
The production capacity for these locations is being primarily transferred and
consolidated into the Company's existing manufacturing facilities in Texas and
its remaining Indiana facilities, which are being expanded, as necessary, to
accommodate the production transfer. In addition to the plant consolidations
announced in the first and second quarters, the
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Company has undertaken a strategic initiative and expects to establish a
"greenfield" insulated wire facility in Mexico by the end of 2001. The startup
of this Mexican facility, will complete the Company's realignment.
In connection with the plant closures, the Company anticipates that 128
employees will be terminated, all of whom have been notified by the Company.
Through June 2001, 75 employees have been terminated in conjunction with the
realignment plan. The Company estimates that four of the five plant closures
announced in the first and second quarters will be completed by the end of the
third quarter with the fifth plant closure completed by the end of the year or
early 2002.
Unusual charges from plant closures for the three months ended June 30, 2001
were $0.8 million. The Company incurred additional costs of $1.7 million related
to plant consolidations that was included in cost of goods sold for the six
months ended June 30, 2001. There were no similar charges for the same period in
2000.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000
Net sales for the six months ended June 30, 2001 were $240.4 million, a decrease
of $49.7 million, or 17.1%, compared to the six months ended June 30, 2000. This
decrease was primarily the result of lower volume from the weak general economic
conditions in the U.S., including reduced customer demand from customers
supplying the automotive and electronic/data communication markets, and a lower
average cost and sales price of copper. The average price of copper based on
COMEX declined from $0.81 per pound during the six months ended June 30, 2000 to
$0.79 per pound during the six months ended June 30, 2001.
Cost of goods sold excluding unusual costs related to plant consolidations as a
percentage of sales increased to 76.5% for the six months ended June 30, 2001,
from 73.8% for the six months ended June 30, 2000. This change was due primarily
to lower pricing under new agreements with customers who supply the automotive
industry and operating inefficiencies associated with lower production levels.
These operating inefficiencies have been partially offset by headcount
reductions, plant closures and other cost reduction and containment actions
taken by the Company and the impact of lower copper prices.
Selling, general and administrative expenses decreased $4.0 million to $20.7
million for the six months ended June 30, 2001, compared to $24.7 million for
the same period in 2000 due to volume related items, headcount reductions and
other cost reduction and containment actions.
Depreciation and amortization was $18.2 million for the six months ended June
30, 2001, compared to $18.3 million for the same period in 2000.
Unusual charges from plant closures for the six months ended June 30, 2001 were
$3.9 million. The Company incurred additional costs of $1.7 million related to
plant consolidations that was included in cost of goods sold for the six months
ended June 30, 2001. There were no similar charges for the same period in 2000.
LIQUIDITY AND CAPITAL RESOURCES
Inflation has not been a material factor affecting the Company's business. As a
result of the copper price pass-through arrangements that the Company has with
its customers, fluctuations in the price of copper have not, nor are expected to
have, a material impact on the Company's profitability. The Company's general
operating expenses, such as salaries, employee benefits and facilities costs are
subject to normal inflationary pressures.
Net cash provided by (used in) operating activities by continuing operations for
the six months ended June 30, 2001 was ($3.5) million, compared to $5.4 million
for the six months ended June 30, 2000. This change was primarily due to lower
operating results, including additional costs related to plant consolidations,
partially offset by reduced interest and tax payments.
Net cash used in investing activities, representing capital expenditures, was
$10.6 million for the six months ended June 30, 2001, compared to $9.5 million
for the six months ended June 30, 2000. The change was due, in part, to
additional capital expenditures required for plant consolidations. Capital
expenditures for the six months ended June 30, 2000 include $1.0 million related
to discontinued operations.
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17
Net cash provided by (used in) financing activities was ($1.3) million,
representing the repayment of long-term obligations, for the six months ended
June 30, 2001, compared to $8.8 million for the six months ended June 30, 2000.
In March 2000, the Company generated $208.5 million in proceeds from the sale of
the Wire Harness Segment, net of transaction costs of $1.5 million. The Company
applied substantially all of the net proceeds from this sale for repayment of
outstanding obligations under the Company's Amended and Restated Credit
Agreement.
The Company's ability to fund its liquidity and capital requirements and to pay
its indebtedness is limited to its ability to receive dividends and other
distributions from its subsidiaries. The Company's Amended and Restated Credit
Agreement and its Senior Notes prohibit the Company from imposing certain
restrictions on the ability of its subsidiaries to pay dividends or make other
distributions to the Company.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (the "FASB") adopted
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value and that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting. SFAS No. 133 is effective for
fiscal years beginning after June 15, 2000. The Company adopted SFAS No. 133 as
of January 1, 2001. The adoption of this statement did not have a significant
impact on the Company's consolidated financial position or results of
operations.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 141 supercedes Accounting Principles Board Opinion ("APB") No. 16,
"Business Combinations." The most significant changes made by SFAS No. 141 are:
(1) requiring that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, (2) establishing specific criteria
for the recognition of intangible assets separately from goodwill, and (3)
requiring unallocated negative goodwill to be written off immediately as an
extraordinary gain (instead of being deferred and amortized).
SFAS No. 142 supercedes APB No. 17, "Intangible Assets." SFAS No. 142 primarily
addresses the accounting for goodwill and intangible assets subsequent to their
acquisition (i.e., the post-acquisition accounting). The provisions of SFAS No.
142 will be effective for fiscal years beginning after December 15, 2001. The
most significant changes made by SFAS No. 142 are: (1) goodwill and indefinite
lived intangible assets will no longer be amortized, (2) goodwill will be tested
for impairment at least annually at the reporting unit level, (3) intangible
assets deemed to have an indefinite life will be tested for impairment at least
annually, and (4) the amortization period of intangible assets with finite lives
will no longer be limited to forty years. The Company has not yet determined the
effect SFAS 141 and 142 will have on its consolidated financial position or
results of operations.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In accordance with Item 305 of Regulation S-K, the Company provided quantitative
and qualitative information about market risk in "Item 7a. Quantitative and
Qualitative Disclosures About Market Risk" of the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission for the year ended
December 31, 2000. There have been no material changes to the information
disclosed in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission for the year ended December 31, 2000.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the reporting period.
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SIGNATURES
Pursuant to the requirements of the Securities and 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 14, 2001 By: /s/ GLENN HOLLER
--------------------------------------------
Name: Glenn J. Holler
Title: Chief Financial Officer
(Principal Financial and Accounting Officer)
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