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, 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 JULY 31, 2002
----- --------------
Common Stock 1,000
1
INTERNATIONAL WIRE GROUP, INC.
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001 ................. 3
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2002
and 2001 ................................................................................... 4
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 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 ........ 17
Item 3. Quantitative and Qualitative Disclosure About Market Risk .................................... 22
PART II - OTHER INFORMATION ........................................................................... 23
SIGNATURES ............................................................................................ 24
CERTIFICATIONS ........................................................................................ 25
2
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL WIRE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
2002 2001
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ........................... $ 5,879 $ 8,017
Accounts receivable trade, less allowance of $5,357
and $4,065, respectively .......................... 74,311 62,500
Inventories ......................................... 57,794 58,201
Other current assets ................................ 26,843 28,107
------------- -------------
Total current assets .............................. 164,827 156,825
Property, plant and equipment, net .................. 132,946 138,784
Deferred income taxes ............................... 31,200 11,198
Intangible assets, net .............................. 119,816 193,627
Other assets ........................................ 11,278 11,509
------------- -------------
Total assets ...................................... $ 460,067 $ 511,943
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term obligations ......... $ 10,490 $ 3,049
Accounts payable .................................... 26,590 23,382
Accrued and other liabilities ....................... 38,393 42,917
Accrued interest .................................... 3,190 2,937
------------- -------------
Total current liabilities ......................... 78,663 72,285
Long-term obligations, less current maturities ........ 326,981 328,743
Other long-term liabilities ........................... 32,479 33,334
------------- -------------
Total liabilities ................................. 438,123 434,362
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 ................................. (145,098) (87,493)
Accumulated other comprehensive loss ................ (1,527) (3,495)
------------- -------------
Total stockholder's equity ........................ 21,944 77,581
------------- -------------
Total liabilities and stockholder's equity ........ $ 460,067 $ 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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------------- --------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net sales ........................................ $ 107,579 $ 115,671 $ 208,022 $ 240,420
Operating expenses:
Cost of goods sold ............................. 84,706 89,073 164,721 185,556
Selling, general and administrative expenses ... 8,636 9,673 16,870 20,695
Depreciation ................................... 6,245 6,925 12,366 13,603
Amortization ................................... 755 2,289 1,487 4,562
Impairment, unusual and plant closing charges .. -- 837 -- 3,937
---------- ---------- ---------- ----------
Operating income ................................. 7,237 6,874 12,578 12,067
Other income (expense):
Interest expense ............................... (9,034) (8,825) (18,054) (17,275)
Amortization of deferred financing costs ....... (534) (338) (1,068) (677)
---------- ---------- ---------- ----------
Loss before income tax benefit and
change in accounting principle ................. (2,331) (2,289) (6,544) (5,885)
Income tax benefit ............................... (557) (985) (3,443) (2,531)
---------- ---------- ---------- ----------
Loss before change in accounting principle ....... (1,774) (1,304) (3,101) (3,354)
Change in accounting for goodwill, net of
$19,408 tax benefit ............................ -- -- (54,504) --
---------- ---------- ---------- ----------
Net loss ......................................... $ (1,774) $ (1,304) $ (57,605) $ (3,354)
========== ========== ========== ==========
See accompanying notes to the condensed consolidated financial statements.
4
INTERNATIONAL WIRE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
SIX MONTHS
ENDED JUNE 30,
------------------------------
2002 2001
------------ ------------
Cash flows provided by (used in) operating activities:
Net loss ........................................................ $ (57,605) $ (3,354)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization ............................... 14,919 18,842
Deferred income taxes ....................................... (570) 233
Change in accounting for goodwill ........................... 54,504 --
Changes of assets and liabilities of continuing operations .. (14,329) (19,207)
------------ ------------
Net cash used in continuing operations .......................... (3,081) (3,486)
Net cash provided by (used in) discontinued operations ....... 412 (684)
------------ ------------
Net cash used in operating activities ........................... (2,669) (4,170)
Net cash used in investing activities for capital expenditures .. (5,878) (10,570)
Net cash provided by (used in) financing activities from/for
borrowings/(repayment) of long-term obligations ............... 6,548 (1,292)
Effects of exchange rate changes on cash
and cash equivalents .......................................... (139) (168)
------------ ------------
Net change in cash and cash equivalents ......................... (2,138) (16,200)
Cash at beginning of the period ................................. 8,017 32,244
------------ ------------
Cash at end of the period ....................................... $ 5,879 $ 16,044
============ ============
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 and six months ended June 30, 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 are 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.
In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." The statement rescinds FASB No. 4, "Reporting
Gains and Losses from Extinguishment of Debt," and an amendment of that
statement, FASB No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements." As a result, gains and losses from
extinguishment of debt will no longer be aggregated and classified as
an extraordinary item, net of related income tax effect, on the
statement of earnings. Instead, such gains and losses will be
classified as extraordinary items only if they meet the criteria of
unusual or infrequently occurring items. SFAS No. 145 also requires
that the gains and losses from debt extinguishments, which were
classified as extraordinary items in prior periods, should be
reclassified to continuing operations if they do not meet the criteria
for extraordinary items. The provisions related to this portion of the
statement are required to be applied in fiscal years beginning after
May 15, 2002, with earlier application encouraged.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." The statement requires
that costs associated with exit or disposal activities must be
recognized when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Such costs include lease
termination costs and certain employee severance costs associated with
a restructuring, discontinued operation or other exit or disposal
activity. The Company is currently reviewing SFAS No. 146, which is
effective for exit or disposal activities initiated after December 31,
2002.
6
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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.
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 loss before change in accounting principle would have been as
follows:
SIX MONTHS
ENDED JUNE 30,
---------------------------
2002 2001
----------- -----------
(In thousands)
As reported ............. $ (3,101) $ (3,354)
Pro forma ............... $ (3,101) $ (827)
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. 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 now expected to remain open through
late 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 now anticipates that the plant will begin
production in the third quarter of 2002.
7
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
As a result of these actions, 205 employees have been terminated, and
the Company anticipates an additional 25 will be terminated upon
completion of the restructuring plan, all of whom have been notified by
the Company. The related charges to impairment, unusual and plant
closing costs for the three and six months ended June 30, 2001 were
$837 and $3,937, respectively. There were no such charges for the three
and six months ended June 30, 2002.
A summary of activity related to plant closings is as follows:
INSULATED
WIRE BARE WIRE
CORPORATE PRODUCTS PRODUCTS CONSOLIDATED
----------- ----------- ----------- ------------
SIX MONTHS ENDED JUNE 30, 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 ...... (36) (271) (437) (744)
Personnel and severance costs . (769) (194) -- (963)
----------- ----------- ----------- -----------
(805) (465) (437) (1,707)
----------- ----------- ----------- -----------
Balance, end of period ............ $ 1,115 $ 775 $ 931 $ 2,821
=========== =========== =========== ===========
INSULATED
WIRE BARE WIRE
CORPORATE PRODUCTS PRODUCTS CONSOLIDATED
----------- ----------- ----------- ------------
SIX MONTHS ENDED JUNE 30, 2001
Balance, beginning of period ...... $ 626 $ -- $ -- $ 626
Charges to operations:
Facility shut-down costs ...... -- 1,286 -- 1,286
Personnel and severance costs . -- 2,651 -- 2,651
----------- ----------- ----------- -----------
-- 3,937 -- 3,937
----------- ----------- ----------- -----------
Cash payments:
Facility shut-down costs ...... -- (527) -- (527)
Personnel and severance costs . (180) (1,651) -- (1,831)
----------- ----------- ----------- -----------
(180) (2,178) -- (2,358)
----------- ----------- ----------- -----------
Balance, end of period ............ $ 446 $ 1,759 $ -- $ 2,205
=========== =========== =========== ===========
In addition to the accruals for plant closings in the first and second
quarters of 2001, 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.
There were no such charges in 2002.
8
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
4. INVENTORIES
The composition of inventories at June 30, 2002 and December 31, 2001
is as follows:
JUNE 30, DECEMBER 31,
2002 2001
------------ ------------
Raw materials ............................... $ 12,644 $ 12,814
Work-in-process ............................. 18,732 18,667
Finished goods .............................. 26,418 26,720
------------ ------------
Total ...................................... $ 57,794 $ 58,201
============ ============
The carrying value of inventories on a last-in, first-out basis, at
June 30, 2002 and December 31, 2001, approximates their current cost.
5. LONG-TERM OBLIGATIONS
The composition of long-term obligations at June 30, 2002 and December
31, 2001 is as follows:
JUNE 30, DECEMBER 31,
2002 2001
------------ ------------
Second Amended and Restated Credit Agreement $ 7,300 $ --
Senior Subordinated Notes ................... 150,000 150,000
Series B Senior Subordinated Notes .......... 150,000 150,000
Series B Senior Subordinated Notes Premium .. 6,043 6,912
Industrial revenue bonds .................... 15,500 15,500
Other ....................................... 8,628 9,380
------------ ------------
337,471 331,792
Less, current maturities .................... 10,490 3,049
------------ ------------
$ 326,981 $ 328,743
============ ============
The schedule of principal payments for long-term obligations, excluding
premium, at June 30, 2002 is as follows:
2002......................................... $ 7,926
2003......................................... 1,275
2004......................................... 336
2005......................................... 309,637
2006......................................... 4,656
Thereafter................................... 7,598
------------
Total...................................... $ 331,428
============
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 June 30, 2002, the Company had $7,300 outstanding
under the Credit Agreement and $29,439 in outstanding letters of
credit.
9
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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.
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
102.0% at June 30, 2002. The redemption price decreases 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. The Company had sales to Viasystems of $10,578 and $8,269 for the
three months ended June 30, 2002 and 2001 and $18,836 and $16,243 for
the six months ended June 30, 2002 and 2001, respectively. The
outstanding trade receivables were $11,398 and $12,017 at June 30, 2002
and December 31, 2001, respectively.
10
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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.
11
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, 2002
ASSETS
Cash ...................................... $ -- $ 4,624 $ 1,255 $ -- $ 5,879
Accounts receivable ....................... -- 59,849 14,462 -- 74,311
Inventories ............................... -- 48,047 9,747 -- 57,794
Other current assets ...................... -- 25,553 1,290 -- 26,843
------------ ------------ ------------ ------------ ------------
Total current assets ............. -- 138,073 26,754 -- 164,827
Property, plant and equipment, net ...... -- 105,881 27,065 -- 132,946
Investment in subsidiaries ................ 422,012 -- -- (422,012) --
Deferred income taxes ..................... 11,450 19,794 (44) -- 31,200
Intangible assets, net .................... 1,682 110,758 7,376 -- 119,816
Other assets .............................. 7,097 2,861 1,320 -- 11,278
------------ ------------ ------------ ------------ ------------
Total assets ......................... $ 442,241 $ 377,367 $ 62,471 $ (422,012) $ 460,067
============ ============ ============ ============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities ....................... $ 4,817 $ 66,482 $ 7,364 $ -- $ 78,663
Long-term obligations, less current
maturities ............................ 316,716 10,265 -- -- 326,981
Other long-term liabilities ............... -- 31,142 1,337 -- 32,479
Intercompany (receivable) payable ......... 29,475 (63,897) 34,422 -- --
------------ ------------ ------------ ------------ ------------
Total liabilities .................... 351,008 43,992 43,123 -- 438,123
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) (145,098) 104,031 8,988 (113,019) (145,098)
Other comprehensive loss ............... -- -- (1,527) -- (1,527)
------------ ------------ ------------ ------------ ------------
Total stockholder's equity ................ 91,233 333,375 19,348 (422,012) 21,944
------------ ------------ ------------ ------------ ------------
Total liabilities and stockholder's
equity ............................. $ 442,241 $ 377,367 $ 62,471 $ (422,012) $ 460,067
============ ============ ============ ============ ============
12
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 ................ 148,838 351,783 19,374 (442,414) 77,581
------------ ------------ ------------ ------------ ------------
Total liabilities and stockholder's
equity ............................ $ 463,403 $ 428,390 $ 62,564 $ (442,414) $ 511,943
============ ============ ============ ============ ============
13
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, 2002
Net sales ..................................... $ -- $ 93,603 $ 13,976 $ -- $ 107,579
Operating expenses:
Cost of goods sold ........................ -- 74,639 10,067 -- 84,706
Selling, general and administrative
expenses ............................... -- 7,599 1,037 -- 8,636
Depreciation and amortization ............. 177 5,924 899 -- 7,000
------------ ------------ ------------ ------------ ------------
Operating income (loss) ....................... (177) 5,441 1,973 -- 7,237
Other income (expense):
Interest income (expense) ................. 8,885 (17,562) (357) -- (9,034)
Amortization of deferred financing costs .. (534) -- -- -- (534)
Equity in net income (loss) of
subsidiaries ........................... (9,948) -- -- 9,948 --
------------ ------------ ------------ ------------ ------------
Income (loss) before tax provision (benefit)
and change in accounting principle ......... (1,774) (12,121) 1,616 9,948 (2,331)
Income tax provision (benefit) ................ -- (624) 67 -- (557)
------------ ------------ ------------ ------------ ------------
Net income (loss) ............................. $ (1,774) $ (11,497) $ 1,549 $ 9,948 $ (1,774)
============ ============ ============ ============ ============
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 ........................ -- 77,507 11,566 -- 89,073
Selling, general and administrative
expenses ............................... -- 8,487 1,186 -- 9,673
Depreciation and amortization ............. 144 7,981 1,089 -- 9,214
Impairment, unusual and plant closing
charges ............................. -- 837 -- -- 837
------------ ------------ ------------ ------------ ------------
Operating income (loss) ....................... (144) 4,939 2,079 -- 6,874
Other income (expense):
Interest income (expense) ................. 9,226 (17,681) (370) -- (8,825)
Amortization of deferred financing costs .. (338) -- -- -- (338)
Equity in net income (loss) 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)
============ ============ ============ ============ ============
14
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, 2002
Net sales ..................................... $ -- $ 179,165 $ 28,857 $ -- $ 208,022
Operating expenses:
Cost of goods sold ....................... -- 143,199 21,522 -- 164,721
Selling, general and administrative
expenses............................... -- 14,815 2,055 -- 16,870
Depreciation and amortization ............ 357 11,729 1,767 -- 13,853
------------ ------------ ------------ ------------ ------------
Operating income (loss) ....................... (357) 9,422 3,513 -- 12,578
Other income (expense):
Interest income (expense) ................ 381 (17,726) (709) -- (18,054)
Amortization of deferred financing costs.. (1,068) -- -- -- (1,068)
Equity in net income (loss) of
subsidiaries........................... (56,561) -- -- 56,561 --
------------ ------------ ------------ ------------ ------------
Income (loss) before tax provision (benefit)
and change in accounting principle ......... (57,605) (8,304) 2,804 56,561 (6,544)
Income tax provision (benefit) ................ -- (3,531) 88 -- (3,443)
------------ ------------ ------------ ------------ ------------
Income (loss) before change in accounting
principle for goodwill, net of tax benefit.. (57,605) (4,773) 2,716 56,561 (3,101)
Change in accounting principle ................ -- (49,794) (4,710) -- (54,504)
------------ ------------ ------------ ------------ ------------
Net income (loss) ............................. $ (57,605) $ (54,567) $ (1,994) $ 56,561 $ (57,605)
============ ============ ============ ============ ============
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 ....................... -- 161,983 23,573 -- 185,556
Selling, general and administrative
expenses............................... -- 18,368 2,327 -- 20,695
Depreciation and amortization ............ 288 15,754 2,123 -- 18,165
Impairment, unusual and plant
closing charges ....................... -- 3,937 -- -- 3,937
------------ ------------ ------------ ------------ ------------
Operating income (loss) ....................... (288) 8,841 3,514 -- 12,067
Other income (expense):
Interest income (expense) ................ 1,392 (17,925) (742) -- (17,275)
Amortization of deferred financing costs.. (677) -- -- -- (677)
Equity in net income (loss) 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)
============ ============ ============ ============ ============
15
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, 2002
Net cash provided by (used in) operating
activities .................................. $ (7,300) $ 2,941 $ 1,690 $ -- $ (2,669)
------------ ------------ ------------ ------------ ------------
Cash flows used in investing activities for
capital expenditures ........................ -- (2,871) (3,007) -- (5,878)
------------ ------------ ------------ ------------ ------------
Cash flows provided by (used in) financing
activities for borrowing/(repayment) of
long-term obligations ....................... 7,300 (752) -- -- 6,548
------------ ------------ ------------ ------------ ------------
Effect of exchange rate changes
on cash and cash equivalents ............... -- -- (139) -- (139)
------------ ------------ ------------ ------------ ------------
Net change in cash and cash equivalents ....... $ -- $ (682) $ (1,456) $ -- $ (2,138)
============ ============ ============ ============ ============
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
------------ ------------ ------------ ------------ ------------
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30, 2001
Net cash provided by (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 provided by (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)
============ ============ ============ ============ ============
16
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, 2002 compared to the three and six months
ended June 30, 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 JUNE 30,
-----------------------------
2002 2001
------------ ------------
(In thousands)
Net sales ..................................... $ 107,579 $ 115,671
Operating expenses:
Cost of goods before item below ............. 84,706 87,359
Unusual costs related to plant consolidations -- 1,714
------------ ------------
Total cost of goods sold .................... 84,706 89,073
Selling, general and administrative expenses 8,636 9,673
Depreciation and amortization ............... 7,000 9,214
Impairment, unusual and plant closing charges -- 837
------------ ------------
Operating income .............................. $ 7,237 $ 6,874
============ ============
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001
Net sales for the quarter were $107.6 million, a decrease of $8.1 million, or
7.0%, compared to the three months ended June 30, 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, which were partially offset by higher sales to the appliance
market. 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 $0.74 per pound during the
quarter ended June 30, 2002 from $0.75 per pound in the quarter ended June 30,
2001.
Cost of goods sold excluding unusual costs related to plant consolidations as a
percentage of sales increased to 78.7% for the three months ended June 30, 2002,
from 75.5% for the three months ended June 30, 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 $1.0 million, or 10.7%,
to $8.6 million for the three months ended June 30, 2002, compared to $9.7
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.
17
Depreciation and amortization was $7.0 million for the three months ended June
30, 2002, compared to $9.2 million for the same period in 2001. This decrease of
$2.2 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. 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
late 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 in the third quarter of 2002. The related charge to impairment,
unusual and plant closings cost for the three months ended June 30, 2001 was
$0.8 million. There was no such charge during the three months ended June 30,
2002.
RESULTS OF OPERATIONS
SIX MONTHS
ENDED JUNE 30,
-----------------------------
2002 2001
------------ ------------
(In thousands)
Net sales ..................................... $ 208,022 $ 240,420
Operating expenses:
Cost of goods excluding item below .......... 164,721 183,842
Unusual costs related to plant consolidations -- 1,714
------------ ------------
Total cost of goods sold .................... 164,721 185,556
Selling, general and administrative expenses 16,870 20,695
Depreciation and amortization ............... 13,853 18,165
Impairment, unusual and plant closing charges -- 3,937
------------ ------------
Operating income .............................. $ 12,578 $ 12,067
============ ============
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001
Net sales for the six months ended June 30, 2002 were $208.0 million, a decrease
of $32.4 million, or 13.5%, compared to the six months ended June 30, 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, which were partially offset by higher sales to the
appliance market. 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 $0.73 per pound during the
six months ended June 30, 2002 from $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 79.2% for the six months ended June 30, 2002,
from 76.5% for the six months ended June 30, 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 $3.8 million, or 18.5%,
to $16.9 million for the six months ended June 30, 2002, compared to $20.7
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.
18
Depreciation and amortization was $13.9 million for the six months ended June
30, 2002, compared to $18.2 million for the same period in 2001. This decrease
of $4.3 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. 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
late 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 in the third quarter of 2002. The related charges to impairment,
unusual and plant closings cost for the six months ended June 30, 2001 were $3.9
million. There were no such charges during the six months ended June 30, 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 used in operating activities was $2.7 million for the six months ended
June 30, 2002 compared to net cash used in operating activities of $4.2 million
for the six months ended June 30, 2001. This change was primarily due to lower
working capital requirements.
Net cash used in investing activities, representing capital expenditures, was
$5.9 million for the six months ended June 30, 2002, compared to $10.6 million
for the six months ended June 30, 2001.
Net cash provided by financing activities, representing net borrowing of
long-term obligations, was $6.5 million for the six months ended June 30, 2002,
compared to net cash used in financing activities, representing net repayment of
long-term obligations, of $1.3 million for the six months ended June 30, 2001.
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 June 30, 2002 borrowing base calculation, the Company had available
borrowing capacity under the Credit Agreement of $60.3 million, of which $29.4
million was subject to outstanding letters of credit and of which $23.6 million
was available for borrowing. At June 30, 2002, the Company had $7.3 million in
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.
19
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 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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------------ ------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
(In thousands)
EBITDA, as adjusted .......................... $ 14,237 $ 18,639 $ 26,431 $ 35,883
Depreciation and amortization ................ (7,000) (9,214) (13,853) (18,165)
Impairment, unusual and plant closing
charges ...................................... -- (2,551) -- (5,651)
------------ ------------ ------------ ------------
Operating income ............................. $ 7,237 $ 6,874 $ 12,578 $ 12,067
============ ============ ============ ============
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 $3.2 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 June 30, 2002, the excess availability of funds under the
borrowing base calculation is $23.6 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 are 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
20
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.
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.
In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4,
44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections." The
statement rescinds FASB No. 4, "Reporting Gains and Losses from Extinguishment
of Debt," and an amendment of that statement, FASB No. 64, "Extinguishments of
Debt Made to Satisfy Sinking-Fund Requirements." As a result, gains and losses
from extinguishment of debt will no longer be aggregated and classified as an
extraordinary item, net of related income tax effect, on the statement of
earnings. Instead, such gains and losses will be classified as extraordinary
items only if they meet the criteria of unusual or infrequently occurring items.
SFAS No. 145 also requires that the gains and losses from debt extinguishments,
which were classified as extraordinary items in prior periods, should be
reclassified to continuing operations if they do not meet the criteria for
extraordinary items. The provisions related to this portion of the statement are
required to be applied in fiscal years beginning after May 15, 2002, with
earlier application encouraged.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." The statement requires that costs associated
with exit or disposal activities must be recognized when they are incurred
rather than at the date of a commitment to an exit or disposal plan. Such costs
include lease termination costs and certain employee severance costs associated
with a restructuring, discontinued operation or other exit or disposal activity.
The Company is currently reviewing SFAS No. 146, which is effective for exit or
disposal activities initiated after December 31, 2002.
21
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.
22
PART II. OTHER INFORMATION
None.
23
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, 2002 By: /s/ GLENN HOLLER
------------------------------------------
Name: Glenn J. Holler
Title: Senior Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
24
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, David M. Sindelar, as Chief Executive Officer of International Wire Group,
Inc., (the "Company") certify, pursuant to 18 U.S.C. Section 1350, as adopted by
Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the accompanying Form 10-Q report for the period ending June
30, 2002 as filed with the U.S. Securities and Exchange
Commission (the "Report") fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
(2) the information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
INTERNATIONAL WIRE GROUP, INC.
Dated: August 14, 2002 By: /s/ DAVID M. SINDELAR
--------------------------------
Name: David M. Sindelar
Title: Chief Executive Officer
25
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Glenn J. Holler, as Chief Financial Officer of International Wire Group,
Inc., (the "Company") certify, pursuant to 18 U.S.C. Section 1350, as adopted by
Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(3) the accompanying Form 10-Q report for the period ending June
30, 2002 as filed with the U.S. Securities and Exchange
Commission (the "Report") fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
(4) the information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
INTERNATIONAL WIRE GROUP, INC.
Dated: August 14, 2002 By: /s/ GLENN J. HOLLER
----------------------------------------------
Name: Glenn J. Holler
Title: Senior Vice President and Chief Financial
Officer (Principal Financial and Accounting
Officer)
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