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 MARCH 31 , 2002
--------------------------------------------------
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 APRIL 30, 2002
----- --------------
Common Stock 1,000
1
INTERNATIONAL WIRE GROUP, INC.
INDEX
PART I - FINANCIAL INFORMATION Page
----
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001...................... 3
Condensed Consolidated Statements of Operations for the three months ended March 31, 2002 and 2001 ... 4
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and 2001.... 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....................................... 19
PART II - OTHER INFORMATION................................................................................ 20
SIGNATURES................................................................................................. 21
2
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL WIRE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
2002 2001
---------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ........................... $ 9,654 $ 8,017
Accounts receivable, less allowance of $4,767
and $4,065, respectively .......................... 72,334 62,500
Inventories ......................................... 56,922 58,201
Other current assets ................................ 28,663 28,107
---------- ------------
Total current assets .............................. 167,573 156,825
Property, plant and equipment, net .................. 133,978 138,784
Deferred income taxes ............................... 30,576 11,198
Intangible assets, net .............................. 119,387 193,627
Other assets ........................................ 10,983 11,509
---------- ------------
Total assets ...................................... $ 462,497 $ 511,943
========== ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term obligations ......... $ 3,152 $ 3,049
Accounts payable .................................... 25,939 23,382
Accrued and other liabilities ....................... 39,843 42,917
Accrued interest .................................... 12,169 2,937
---------- ------------
Total current liabilities ......................... 81,103 72,285
Long-term obligations, less current maturities ........ 327,789 328,743
Other long-term liabilities ........................... 32,278 33,334
---------- ------------
Total liabilities ................................. 441,170 434,362
Stockholder's equity:
Common stock, $.01 par value, 1,000 shares
authorized, issued and outstanding ................ 0 0
Contributed capital ................................. 236,331 236,331
Carryover of predecessor basis ...................... (67,762) (67,762)
Accumulated deficit ................................. (143,324) (87,493)
Accumulated other comprehensive loss ................ (3,918) (3,495)
---------- ------------
Total stockholder's equity ........................ 21,327 77,581
---------- ------------
Total liabilities and stockholder's equity ........ $ 462,497 $ 511,943
========== ============
See accompanying notes to the condensed consolidated financial statements.
3
INTERNATIONAL WIRE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(Unaudited)
THREE MONTHS
ENDED MARCH 31,
--------------------------
2002 2001
---------- ----------
Net sales ............................................. $ 100,443 $ 124,749
Operating expenses:
Cost of goods sold .................................. 80,015 96,483
Selling, general and administrative expenses ........ 8,234 11,022
Depreciation ........................................ 6,121 6,678
Amortization ........................................ 732 2,273
Impairment, unusual and plant closing charges ....... -- 3,100
---------- ----------
Operating income ...................................... 5,341 5,193
Other income (expense):
Interest expense .................................... (9,020) (8,450)
Amortization of deferred financing costs ............ (534) (339)
---------- ----------
Loss before income tax benefit and
change in accounting principle ...................... (4,213) (3,596)
Income tax provision (benefit) ........................ (2,886) (1,546)
---------- ----------
Loss before change in accounting principle ............ (1,327) (2,050)
Change in accounting for goodwill, net of
$19,408 tax benefit ................................. (54,504) --
---------- ----------
Net loss .............................................. $ (55,831) $ (2,050)
========== ==========
See accompanying notes to the condensed consolidated financial statements.
4
INTERNATIONAL WIRE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
THREE MONTHS
ENDED MARCH 31,
------------------------
2002 2001
---------- ----------
Cash flows provided by (used in) operating activities:
Net loss ................................................... $ (55,831) $ (2,050)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization ............................ 7,387 9,290
Deferred income taxes .................................... 26 (1,399)
Change in accounting for goodwill ........................ 54,504 --
Changes of assets and liabilities of continuing
operations ............................................ (3,929) (6,494)
---------- ----------
Net cash provided by (used in) continuing operations ......... 2,157 (653)
Net cash provided by (used in) discontinued operations .... 1,337 (332)
---------- ----------
Net cash provided by (used in) operating activities .......... 3,494 (985)
Net cash used in investing activities for capital
expenditures ............................................... (1,372) (3,228)
Net cash used in financing activities for repayment
of long-term obligations ................................... (422) (623)
Effects of exchange rate changes on cash
and cash equivalents ....................................... (63) (99)
---------- ----------
Net change in cash and cash equivalents ...................... 1,637 (4,935)
Cash at beginning of the period .............................. 8,017 32,244
---------- ----------
Cash at end of the period .................................... $ 9,654 $ 27,309
========== ==========
See accompanying notes to the condensed consolidated financial statements.
5
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 months ended March 31, 2002 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, 2001.
Recently Issued Accounting Standards
In August 2001, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-lived Assets." SFAS
No. 144 supercedes SFAS No. 121, "Accounting for the Impairment of
Long-lived Assets and Assets to be Disposed of" and the accounting and
reporting provisions of APB No. 30, "Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions." SFAS No. 144 also amends Accounting Research
Bulletin No. 51, "Consolidated Financial Statements," to eliminate the
exception to consolidation for a subsidiary for which control is likely
to be temporary. The provisions of SFAS No. 144 will be effective for
fiscal years beginning after December 15, 2001. The most significant
changes made by SFAS No. 144 are: (1) removes goodwill from its scope
and, therefore, eliminates the requirements of SFAS No. 121 to allocate
goodwill to long-lived assets to be tested for impairment, and (2)
describes a probability-weighted cash flow estimation approach to deal
with situations in which alternative courses of action to recover the
carrying amount of long-lived assets are under consideration or a range
is estimated for the amount of possible future cash flows. The Company
adopted SFAS No. 144 as of January 1, 2002. The adoption of this
statement did not have an impact on the Company's consolidated
financial position.
2. CHANGE IN ACCOUNTING FOR GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets," which addresses financial accounting and reporting
for acquired goodwill and other intangible assets. Under SFAS No. 142,
goodwill is no longer amortized and the rules for measuring goodwill
impairment use a fair-value-based test. Under the new rules, a fair
value of each of the Company's reporting units with assigned goodwill
must be calculated using either market comparables or a discounted cash
flow approach, or a combination thereof. Once the fair value of the
reporting unit has been determined, the fair value of net assets,
including intangibles, of that reporting unit must be compared to the
total market value derived in the first step to determine impairment.
The Company adopted SFAS No. 142 as of January 1, 2002. Accordingly,
the Company has stopped amortization of goodwill effective January 1,
2002.
6
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
In completing the impairment test required under SFAS No. 142, the
Company determined the estimated fair value of its various reporting
units and compared that amount to their respective carrying values.
Based on this calculation, the Company determined that an impairment
existed primarily related to insulated wire operations obtained through
the acquisition of Wirekraft Industries, Inc. in 1992 and the
acquisition of a group of affiliated companies collectively referred to
as Dekko Wire Technology Group in 1996. To determine the amount of the
impairment, the Company calculated the "implied fair value" of goodwill
for each impaired reporting unit in the same manner as the amount of
goodwill recognized in a business combination is determined. The
Company then recognized an impairment charge to write-off goodwill in
the amount of $54,504, net of tax benefit of $19,408, representing the
excess of the "implied fair value" of goodwill over the carrying amount
of goodwill for the impaired reporting units. The impairment loss is
recognized in the statement of operations under the caption "change in
accounting for goodwill."
Had amortization of goodwill and other intangible assets been accounted
for as prescribed under SFAS No. 142 for all periods reported, the
Company's income (loss) before change in accounting principle would
have been as follows:
Three Months
Ended March 31,
--------------------
2002 2001
-------- --------
(In thousands)
As reported...................... $ (1,327) $ (2,050)
Pro forma........................ $ (1,327) $ (544)
3. IMPAIRMENT, UNUSUAL AND PLANT CLOSING CHARGES
During the first quarter of 2001, the Company recorded its first of a
series of impairment, unusual and plant closing charges related to its
plan which called for the realignment of capacity, a consolidation of
production facilities and a reorganization of selling, general and
administrative functions. The charge in the first quarter of 2001 was
taken in conjunction with the announcement to close three plants
located in Alabama and Indiana. In total, the Company announced the
closure of seven facilities in 2001 as well as certain selling, general
and administrative consolidations and a corporate reorganization. The
Company completed the closure of six of the facilities by the end of
2001, with one facility in Alabama expected to remain open through mid
2002. The production capacity from the closed locations was primarily
transferred and consolidated into the Company's existing manufacturing
facilities in Indiana, Texas and New York locations, which were
expanded, as necessary, to accommodate the production transfer. In
addition to the plant consolidations announced during 2001, the Company
purchased an existing plant site for a "greenfield" insulated wire
operation in Mexico. This plant is located in Durango, Mexico, which is
approximately 600 miles south of the U.S./Mexican border. The startup
of this Mexican facility began in the third quarter of 2001, and the
Company anticipates that the plant will begin production by mid 2002.
As a result of these actions, 205 employees have been terminated and
the Company anticipates an additional 37 will be terminated upon
completion of the restructuring plan, all of whom have been notified by
the Company. The one-time unusual charges from plant closures that were
charged to impairment, unusual and plant closing costs for the three
months ended March 31, 2001 were $3,100. There were no such charges
during the three months ended March 31, 2002.
7
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
A summary of activity related to plant closings is as follows:
INSULATED
WIRE BARE WIRE
CORPORATE PRODUCTS PRODUCTS CONSOLIDATED
--------- --------- --------- ------------
THREE MONTHS ENDED MARCH 31, 2002
Balance, beginning of period .......... $ 1,920 $ 1,240 $ 1,368 $ 4,528
Charges to operations:
Facility shut-down costs .......... -- -- -- --
Personnel and severance costs ..... -- -- -- --
--------- --------- --------- ------------
Cash payments:
Facility shut-down costs .......... (20) (175) (327) (522)
Personnel and severance costs ..... (333) (129) -- (462)
--------- --------- --------- ------------
(353) (304) (327) (984)
--------- --------- --------- ------------
Balance, end of period ................ $ 1,567 $ 936 $ 1,041 $ 3,544
========= ========= ========= ============
INSULATED
WIRE BARE WIRE
CORPORATE PRODUCTS PRODUCTS CONSOLIDATED
--------- --------- --------- ------------
THREE MONTHS ENDED MARCH 31, 2001
Balance, beginning of period .......... $ 626 $ -- $ -- $ 626
Charges to operations:
Facility shut-down costs .......... -- 859 -- 859
Personnel and severance costs ..... -- 2,241 -- 2,241
--------- --------- --------- ------------
-- 3,100 -- 3,100
Cash payments:
Facility shut-down costs .......... -- (720) -- (720)
Personnel and severance costs ..... (83) (263) -- (346)
--------- --------- --------- ------------
(83) (983) -- (1,066)
--------- --------- --------- ------------
Balance, end of period ................ $ 543 $ 2,117 $ -- $ 2,660
========= ========= ========= ============
4. INVENTORIES
The composition of inventories at March 31, 2002 and December 31, 2001
is as follows:
MARCH 31, DECEMBER 31,
2002 2001
----------- ------------
Raw materials ...... $ 8,308 $ 12,814
Work-in-process .... 22,411 18,667
Finished goods ..... 26,203 26,720
----------- ------------
Total ............. $ 56,922 $ 58,201
=========== ============
The carrying value of inventories on a last-in, first-out basis, at
March 31, 2002 and December 31, 2001, approximates their current cost.
8
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
5. LONG-TERM OBLIGATIONS
The composition of long-term obligations at March 31, 2002 and December
31, 2001 is as follows:
MARCH 31, DECEMBER 31,
2002 2001
------------ -----------
Second Amended and Restated Credit Agreement .. $ -- $ --
Senior Subordinated Notes ..................... 150,000 150,000
Series B Senior Subordinated Notes ............ 150,000 150,000
Series B Senior Subordinated Notes Premium .... 6,483 6,912
Industrial revenue bonds ...................... 15,500 15,500
Other ......................................... 8,958 9,380
------------ -----------
330,941 331,792
Less, current maturities ...................... 3,152 3,049
------------ -----------
$ 327,789 $ 328,743
============ ===========
The schedule of principal payments for long-term obligations, excluding
premium, at March 31, 2002 is as follows:
2002 ....................................... $ 954
2003........................................ 1,274
2004........................................ 336
2005........................................ 314,137
2006........................................ 187
Thereafter.................................. 7,570
----------
Total..................................... $ 324,458
==========
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
The Second Amended and Restated Credit Agreement (the "Credit
Agreement") consists of a $70,000 revolving credit facility, subject to
certain borrowing base requirements that will mature on January 15,
2005. The Credit Agreement provides that a portion of the Credit
Agreement, not in excess of $35,000, is available for the issuance of
letters of credit. At March 31, 2002, the Company had no borrowings
outstanding under the Credit Agreement and $26,941 in outstanding
letters of credit.
The Company's obligations under the Credit Agreement 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 2.25% or
(b) the Eurodollar Rate (as defined in the Credit Agreement) plus
3.25%. The Alternate Base Rate and Eurodollar Rate margins are
established quarterly based on a formula as defined in the Credit
Agreement. Interest payment dates vary depending on the interest rate
option to which the Credit Agreement is 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.
9
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
SENIOR SUBORDINATED NOTES AND SERIES B SENIOR SUBORDINATED NOTES
The Senior Subordinated Notes issued in connection with the formation
of the Company and the Series B Notes issued in connection with the
refinancing of the Company's credit facility in 1997 (collectively, the
"Senior Notes") were issued under similar indentures (the "Indentures")
dated June 12, 1995 and June 17, 1997, respectively. The Senior Notes
represent unsecured general obligations of the Company and are
subordinated to all Senior Debt (as defined in the Indentures) of the
Company.
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, International
Wire Group SAS, Tresse Metallique J. Forissier, S.A., Cablerie E.
Charbonnet, S.A., IWG Services Co., S de RC de CV, IWG Durango, S de RL
de CV (the "Non-Guarantor Subsidiaries"). Each of the Guarantor
Subsidiaries and Non-Guarantor Subsidiaries is wholly owned by the
Company.
The Senior Notes mature on June 1, 2005. Interest on the Senior Notes
is payable semi-annually on each June 1 and December 1. The Senior
Notes bear interest at the rate of 11.75% per annum. The Senior Notes
are redeemable, at the Company's option, at the redemption price of
103.9% at March 31, 2002. The redemption price decreases gradually to
100% at June 1, 2003, and thereafter, with accrued interest.
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
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.
6. BUSINESS SEGMENT INFORMATION
The Company operates its business as one business segment.
7. RELATED PARTY TRANSACTIONS
In connection with the sale of the Company's former Wire Harness
business to Viasystems International, Inc., ("Viasystems"), a party
with common ownership, the Company entered into an agreement to supply
substantially all of their insulated wire requirements through March
2003. For the three months ended March 31, 2002 and 2001, the Company
had sales to Viasystems of $8,258 and $7,974, respectively. The
outstanding trade receivables were $8,506 and $12,017 at March 31, 2002
and December 31, 2001, respectively.
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 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.
10
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
--------- --------- --------- ------------ ---------
BALANCE SHEET
AS OF MARCH 31, 2002
ASSETS
Cash ......................................... $ -- $ 6,276 $ 3,378 $ -- $ 9,654
Accounts receivable .......................... -- 58,911 13,423 -- 72,334
Inventories .................................. -- 48,182 8,740 -- 56,922
Other current assets ......................... -- 27,684 979 -- 28,663
--------- --------- --------- ------------ ---------
Total current assets ......................... -- 141,053 26,520 -- 167,573
Property, plant and equipment, net ........... -- 108,753 25,225 -- 133,978
Investment in subsidiaries ................... 431,960 -- -- (431,960) --
Deferred income taxes ........................ 10,826 19,794 (44) -- 30,576
Intangible assets, net ....................... 1,827 110,860 6,700 -- 119,387
Other assets ................................. 7,629 2,655 699 -- 10,983
--------- --------- --------- ------------ ---------
Total assets ............................ $ 452,242 $ 383,115 $ 59,100 $ (431,960) $ 462,497
========= ========= ========= ============ =========
LIABILITIES AND STOCKHOLDER'S
EQUITY
Current liabilities .......................... $ 13,796 $ 60,879 $ 6,428 $ -- $ 81,103
Long-term obligations, less current
maturities ............................... 309,856 17,933 -- -- 327,789
Other long-term liabilities .................. -- 31,324 954 -- 32,278
Intercompany (receivable) payable ............ 35,583 (71,893) 36,310 -- --
--------- --------- --------- ------------ ---------
Total liabilities ............................ 359,235 38,243 43,692 -- 441,170
Stockholder's equity:
Common stock ................................. 0 0 0 0 0
Contributed capital .......................... 236,331 297,106 11,887 (308,993) 236,331
Carryover of predecessor basis ............... -- (67,762) -- -- (67,762)
Retained earnings (accumulated deficit) ...... (143,324) 115,528 7,439 (122,967) (143,324)
Other comprehensive loss ..................... -- -- (3,918) -- (3,918)
--------- --------- --------- ------------ ---------
Total stockholder's equity ................... 93,007 344,872 15,408 (431,960) 21,327
--------- --------- --------- ------------ ---------
Total liabilities and stockholder's
equity .............................. $ 452,242 $ 383,115 $ 59,100 $ (431,960) $ 462,497
========= ========= ========= ============ =========
11
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, 2001
ASSETS
Cash ......................................... $ -- $ 5,306 $ 2,711 $ -- $ 8,017
Accounts receivable .......................... -- 49,843 12,657 -- 62,500
Inventories .................................. -- 48,722 9,479 -- 58,201
Other current assets ......................... -- 27,468 639 -- 28,107
--------- --------- --------- ------------ ---------
Total current assets ......................... -- 131,339 25,486 -- 156,825
Property, plant and equipment, net ........... -- 113,706 25,078 -- 138,784
Investment in subsidiaries ................... 442,414 -- -- (442,414) --
Deferred income taxes ........................ 10,855 343 -- -- 11,198
Intangible assets, net ....................... 1,971 180,120 11,536 -- 193,627
Other assets ................................. 8,163 2,882 464 -- 11,509
--------- --------- --------- ------------ ---------
Total assets ............................ $ 463,403 $ 428,390 $ 62,564 $ (442,414) $ 511,943
========= ========= ========= ============ =========
LIABILITIES AND STOCKHOLDER'S
EQUITY
Current liabilities .......................... $ 4,539 $ 62,292 $ 5,454 $ -- $ 72,285
Long-term obligations, less current
maturities ............................... 310,285 18,458 -- -- 328,743
Other long-term liabilities .................. -- 32,264 1,070 -- 33,334
Intercompany (receivable) payable ............ (259) (36,407) 36,666 -- --
--------- --------- --------- ------------ ---------
Total liabilities ............................ 314,565 76,607 43,190 -- 434,362
Stockholder's equity (deficit):
Common stock ................................. 0 0 0 0 0
Contributed capital .......................... 236,331 297,106 11,887 (308,993) 236,331
Carryover of predecessor basis ............... -- (67,762) -- -- (67,762)
Retained earnings (accumulated deficit) ...... (87,493) 122,439 10,982 (133,421) (87,493)
Other comprehensive loss ..................... -- -- (3,495) -- (3,495)
--------- --------- --------- ------------ ---------
Total stockholder's equity (deficit) ......... 148,838 351,783 19,374 (442,414) 77,581
--------- --------- --------- ------------ ---------
Total liabilities and stockholder's
equity (deficit) .................... $ 463,403 $ 428,390 $ 62,564 $ (442,414) $ 511,943
========= ========= ========= ============ =========
12
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
MARCH 31, 2002
Net sales ........................................ $ -- $ 85,562 $ 14,881 $ -- $ 100,443
Operating expenses:
Cost of goods sold ........................... -- 68,560 11,455 -- 80,015
Selling, general and administrative
expenses ................................... -- 7,216 1,018 -- 8,234
Depreciation and amortization ................ 180 5,805 868 -- 6,853
--------- --------- --------- ------------- ---------
Operating income ................................. (180) 3,981 1,540 -- 5,341
Other income (expense):
Interest expense ............................. (8,504) (164) (352) -- (9,020)
Amortization of deferred financing costs ..... (534) -- -- -- (534)
Equity in net income of subsidiaries ......... (46,613) -- 46,613
--------- --------- --------- ------------- ---------
Income (loss) before tax provision (benefit)
and change in accounting principle ............. (55,831) 3,817 1,188 46,613 (4,213)
Income tax provision (benefit) ................... -- (2,907) 21 -- (2,886)
--------- --------- --------- ------------- ---------
Income (loss) before change in accounting
principle for goodwill, net of tax benefit ..... (55,831) 6,724 1,167 46,613 (1,327)
Change in accounting principle ................... -- (49,794) (4,710) -- (54,504)
--------- --------- --------- ------------- ---------
Net income (loss) ................................ $ (55,831) $ (43,070) $ (3,543) $ 46,613 $ (55,831)
========= ========= ========= ============= =========
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
--------- --------- --------- ------------ ---------
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 2001
Net sales ........................................ $ -- $ 109,132 $ 15,617 $ -- $ 124,749
Operating expenses:
Cost of goods sold ........................... -- 84,476 12,007 -- 96,483
Selling, general and administrative
expenses .................................. -- 9,881 1,141 -- 11,022
Depreciation and amortization ................ 144 7,773 1,034 -- 8,951
Impairment, unusual and plant
closing charges ........................... -- 3,100 -- -- 3,100
--------- --------- --------- ------------- ---------
Operating income ................................. (144) 3,902 1,435 -- 5,193
Other income (expense):
Interest expense ............................. (7,834) (244) (372) -- (8,450)
Amortization of deferred financing costs ..... (339) -- -- -- (339)
Equity in net income of subsidiaries ......... 6,267 -- -- (6,267)
--------- --------- --------- ------------- ---------
Income (loss) before tax provision (benefit) ..... (2,050) 3,658 1,063 (6,267) (3,596)
Income tax provision (benefit) ................... -- (1,692) 146 -- (1,546)
--------- --------- --------- ------------- ---------
Net income (loss) ................................ $ (2,050) $ 5,350 $ 917 $ (6,267) $ (2,050)
========= ========= ========= ============= =========
13
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 THREE MONTHS ENDED
MARCH 31, 2002
Net cash provided by operating activities ........ $ -- $ 1,738 $ 1,756 $ -- $ 3,494
--------- --------- --------- ------------- ---------
Cash flows used in investing activities for
capital expenditures ........................... -- (346) (1,026) -- (1,372)
--------- --------- --------- ------------- ---------
Cash flows used in financing activities for
repayment of long-term obligations ............ -- (422) -- -- (422)
--------- --------- --------- ------------- ---------
Effect of exchange rate changes
on cash and cash equivalents .................. -- -- (63) -- (63)
--------- --------- --------- ------------- ---------
Net change in cash and cash equivalents .......... $ -- $ 970 $ 667 $ -- $ 1,637
========= ========= ========= ============= =========
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
--------- --------- --------- ------------ ---------
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 2001
Net cash used in operating activities ............ $ -- $ (637) $ (348) $ -- $ (985)
--------- --------- --------- ------------- ---------
Cash flows used in investing activities for
capital expenditures ........................... -- (2,914) (314) -- (3,228)
--------- --------- --------- ------------- ---------
Cash flows used in financing activities for
repayment of long-term obligations ............. -- (623) -- -- (623)
--------- --------- --------- ------------- ---------
Effect of exchange rate changes on cash and
cash equivalents ............................... -- -- (99) -- (99)
--------- --------- --------- ------------- ---------
Net change in cash and cash equivalents .......... $ -- $ (4,174) $ (761) $ -- $ (4,935)
========= ========= ========= ============= =========
14
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 months ended March 31, 2002, compared to the three months ended March 31,
2001.
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 MARCH 31,
-------------------------
2002 2001
---------- ----------
(In thousands)
Net sales ........................................... $ 100,443 $ 124,749
Operating expenses:
Cost of goods sold ................................ 80,015 96,483
Selling, general and administrative expenses ...... 8,234 11,022
Depreciation and amortization ..................... 6,853 8,951
Impairment, unusual and plant closing charges ..... -- 3,100
---------- ----------
Operating income .................................... $ 5,341 $ 5,193
========== ==========
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001
Net sales for the quarter were $100.4 million, a decrease of $24.3 million, or
19.5%, compared to the three months ended March 31, 2001. This decrease in sales
was primarily the result of reduced demand from customers supplying the
electronics / data communications and industrial / energy markets and lower
copper prices. 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") decreased to $0.72 per pound during the
quarter ended March 31, 2002 from $0.82 per pound in the quarter ended March 31,
2001.
Cost of goods sold as a percentage of sales increased to 79.7% for the three
months ended March 31, 2002, from 77.3% for the three months ended March 31,
2001. This change was due primarily to product mix, competitive pricing
pressures and operating inefficiencies associated with lower production levels
partially offset by favorable effects of the 2001 plant consolidation and
realignment actions.
Selling, general and administrative expenses decreased $2.8 million, or 25.3%,
to $8.2 million for the three months ended March 31, 2002, compared to $11.0
million for the same period in 2001 due to the favorable impact of actions taken
in 2001 including headcount reductions, administrative and corporate
reorganizations and volume related items.
15
Depreciation and amortization was $6.9 million for the three months ended March
31, 2002, compared to $9.0 million for the same period in 2001. This decrease of
$2.1 million was due to the elimination of amortizing intangible assets in 2002
as required under SFAS No. 142 and to the closure and consolidation of certain
production facilities in 2001.
During the first quarter of 2001, the Company recorded its first of a series of
impairment, unusual and plant closing charges related to its plan which called
for the realignment of capacity, a consolidation of production facilities and a
reorganization of selling, general and administrative functions. The charge of
$3.1 million in the first quarter of 2001 was taken in conjunction with the
announcement to close three plants located in Alabama and Indiana. In total, the
Company announced the closure of seven facilities in 2001 as well as certain
selling, general and administrative consolidations and a corporate
reorganization. The Company completed the closure of six of the facilities by
the end of 2001, with one facility in Alabama expected to remain open through
mid 2002. The production capacity from the closed locations was primarily
transferred and consolidated into the Company's existing manufacturing
facilities in Indiana, Texas and New York locations, which were expanded, as
necessary, to accommodate the production transfer. In addition to the plant
consolidations announced during 2001, the Company purchased an existing plant
site for a "greenfield" insulated wire operation in Mexico. This plant is
located in Durango, Mexico, which is approximately 600 miles south of the
U.S./Mexican border. The startup of this Mexican facility began in the third
quarter of 2001, and the Company anticipates that the plant will begin
production by mid 2002. There were no such charges during the three months ended
March 31, 2002.
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, the principle raw material
used by the Company, have not, nor are expected to have, a material impact on
the Company's profitability. The Company is subject to normal inflationary
pressures with its other raw materials purchased as well as its general
operating expenses, such as salaries, employee benefits and facilities costs.
Working Capital and Cash Flows
Net cash provided by operating activities was $3.5 million for the three months
ended March 31, 2002 compared to net cash used in operating activities of $1.0
million for the three months ended March 31, 2001. This change was primarily due
to improved working capital requirements and the favorable impact of tax refunds
received in March 2002.
Net cash used in investing activities, representing capital expenditures, was
$1.4 million for the three months ended March 31, 2002, compared to $3.2 million
for the three months ended March 31, 2001.
Net cash used in financing activities, representing repayment of long-term
obligations, was $0.4 million and $0.6 million for the three months ended March
31, 2002 and 2001, respectively.
Financing Arrangements
On December 20, 2001, the Company entered into a Second Amended and Restated
Credit Agreement (the "Credit Agreement") with certain financial institutions
that replaced the Company's previous credit agreement. All outstanding letters
of credit from the prior credit agreement were incorporated into the Credit
Agreement. Borrowings under the Credit Agreement are collateralized by first
priority mortgages and liens on all domestic assets of the Company.
The Credit Agreement consists of a $70.0 million revolving credit facility,
subject to certain borrowing base requirements, that will mature on January 15,
2005. The Credit Agreement provides that a portion of the Credit Agreement, not
in excess of $35.0 million, is available for the issuance of letters of credit.
Based on the March 31, 2002 borrowing base calculation, the Company had
available borrowing capacity under the Credit Agreement of $58.7 million, of
which $26.9 million was subject to outstanding letters of credit and of which
$31.8 million was available for borrowing. At March 31, 2002, the Company had no
borrowings outstanding under the Credit Agreement. The Company's obligations
under the Credit Agreement bear interest at floating rates and require interest
payments on varying dates depending on the interest rate option selected by the
Company.
The Company has outstanding $150.0 million principal amount of $11.75% Senior
Subordinated Notes due 2005 under an Indenture dated June 12, 1995, $150.0
million of 11.75% Series B Senior Subordinated Notes due June 2005 under an
Indenture dated June 17, 1997, priced at 108.75% for an effective interest rate
of 10.15% (collectively, the 11 3/4% Notes") and $5.0 million of 14% Senior
Subordinated Notes (the "14% Notes") due June 1, 2005 (collectively, the "Senior
Subordinated Notes"). The 11 3/4% Notes bear interest at the rate of 11.75% per
annum, requiring semi-annual
16
interest payments of $17.6 million on each June 1 and December 1. The 14% Notes
bear interest at the rate of 14% per annum, requiring a semi-annual interest
payment of $0.4 million on each June 1 and December 1. Neither the 11 3/4% nor
the 14% Notes are subject to any sinking fund requirements.
The schedule below reconciles "EBITDA, as adjusted," to operating income as
determined in accordance with generally accepted accounting principles ("GAAP")
for all periods presented in the financial statements. EBITDA, as adjusted, is
defined as operating income plus depreciation, amortization of intangible
assets, impairment, unusual and plant closing charges, one-time unusual items
and other non-cash expense (income) items. EBITDA, as adjusted, is presented
because (i) it is a widely accepted indicator of a company's ability to incur
and service debt and (ii) it is the basis on which the Company's compliance with
certain financial covenants contained in the Credit Agreement is principally
determined. However, EBITDA, as adjusted, does not purport to represent cash
provided by operating activities as reflected in the Company's consolidated
statements of cash flow, is not a measure of financial performance under GAAP
and should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with GAAP. Also, the measure of EBITDA, as
adjusted, may not be comparable to similar measures reported by other companies.
THREE MONTHS
ENDED MARCH 31,
-------------------------
2002 2001
---------- ----------
(In thousands)
EBITDA, as adjusted .............................. $ 12,194 $ 17,244
Depreciation and amortization .................... (6,853) (8,951)
Impairment, unusual and plant closing charges .... -- (3,100)
---------- ----------
Operating income ................................. $ 5,341 $ 5,193
========== ==========
Liquidity
The principal raw material used in the Company's products is copper. The market
price of copper is subject to significant fluctuations. Working capital needs
change whenever the Company experiences a significant change in copper prices. A
$0.10 per pound change in the price of copper changes the Company's working
capital by approximately $3.3 million. The Company enters into contractual
relationships with most of its customers to adjust its prices based upon the
prevailing market prices on the COMEX. This approach is patterned after the
Company's arrangement with its copper suppliers and is designed to remove the
risk associated with fluctuating copper prices.
The Company's primary sources of liquidity are cash flows from operations and
borrowings under the Credit Agreement, which are subject to a borrowing base
calculation. As of March 31, 2002, the excess availability of funds under the
borrowing base calculation is $31.8 million. The major uses of cash in 2002 are
expected to be for debt service requirements and capital expenditures.
Management believes that cash from operating activities, together with available
borrowings under the Credit Agreement, if necessary, should be sufficient to
permit the Company to meet these financial obligations.
RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets," which 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
adopted SFAS No. 142 as of January 1, 2002. Upon adoption of SFAS 142, the
Company recorded an impairment to goodwill of $54.5 million, net of tax benefit
of $19.4 million.
17
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-lived Assets." SFAS No. 144 supercedes SFAS No. 121,
"Accounting for the Impairment of Long-lived Assets and Assets to be Disposed
of" and the accounting and reporting provisions of APB No. 30, "Reporting the
Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." SFAS No. 144 also amends Accounting Research Bulletin No. 51,
"Consolidated Financial Statements," to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. The provisions of
SFAS No. 144 will be effective for fiscal years beginning after December 15,
2001. The most significant changes made by SFAS No. 144 are: (1) removes
goodwill from its scope and, therefore, eliminates the requirements of SFAS No.
121 to allocate goodwill to long-lived assets to be tested for impairment, and
(2) describes a probability-weighted cash flow estimation approach to deal with
situations in which alternative courses of action to recover the carrying amount
of long-lived assets are under consideration or a range is estimated for the
amount of possible future cash flows. The Company adopted SFAS No. 144 as of
January 1, 2002. The adoption of this statement did not have an impact on the
Company's consolidated financial position.
18
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, 2001. 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, 2001.
19
PART II. OTHER INFORMATION
None.
20
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: May 14, 2002 By: /s/ GLENN HOLLER
----------------------------------
Name: Glenn J. Holler
Title: Senior Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
21