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 SEPTEMBER 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 by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES [ ] NO [X]
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 OCTOBER 31, 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 September 30, 2002 and December 31, 2001.................. 3
Condensed Consolidated Statements of Operations for the three and nine months ended
September 30, 2002 and 2001 ..................................................................... 4
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 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
Item 4. Controls and Procedures......................................................................... 23
PART II - OTHER INFORMATION................................................................................. 24
SIGNATURES.................................................................................................. 25
CERTIFICATIONS.............................................................................................. 26
2
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL WIRE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ...................................................... $ 10,738 $ 8,017
Accounts receivable trade, less allowance of $5,348
and $4,065, respectively ..................................................... 68,748 62,500
Inventories .................................................................... 60,602 58,201
Other current assets ........................................................... 26,541 28,107
------------ ------------
Total current assets ......................................................... 166,629 156,825
Property, plant and equipment, net ............................................. 129,458 138,784
Deferred income taxes .......................................................... 34,379 11,198
Intangible assets, net ......................................................... 119,135 193,627
Other assets ................................................................... 10,599 11,509
------------ ------------
Total assets ................................................................. $ 460,200 $ 511,943
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term obligations .................................... $ 3,197 $ 3,049
Accounts payable ............................................................... 30,443 23,382
Accrued and other liabilities .................................................. 35,309 42,917
Accrued interest ............................................................... 11,943 2,937
------------ ------------
Total current liabilities .................................................... 80,892 72,285
Long-term obligations, less current maturities ................................... 326,136 328,743
Other long-term liabilities ...................................................... 32,910 33,334
------------ ------------
Total liabilities ............................................................ 439,938 434,362
------------ ------------
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 ............................................................ (146,780) (87,493)
Accumulated other comprehensive loss ........................................... (1,527) (3,495)
------------ ------------
Total stockholder's equity ................................................... 20,262 77,581
------------ ------------
Total liabilities and stockholder's equity ................................... $ 460,200 $ 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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------ ------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net sales ............................................ $ 99,635 $ 96,867 $ 307,657 $ 337,287
Operating expenses:
Cost of goods sold ................................. 79,571 78,309 244,292 263,865
Selling, general and administrative expenses ....... 7,993 7,994 24,863 28,689
Depreciation ....................................... 6,294 6,683 18,660 20,286
Amortization ....................................... 821 2,292 2,308 6,854
Impairment, unusual and plant closing charges ...... -- 2,760 -- 6,697
------------ ------------ ------------ ------------
Operating income (loss) .............................. 4,956 (1,171) 17,534 10,896
Other income (expense):
Interest expense ................................... (9,167) (8,950) (27,221) (26,225)
Amortization of deferred financing costs ........... (534) (336) (1,602) (1,013)
Other .............................................. 17 -- 17 --
------------ ------------ ------------ ------------
Loss before income tax benefit and
change in accounting principle ..................... (4,728) (10,457) (11,272) (16,342)
Income tax benefit ................................... (3,046) (4,507) (6,489) (7,038)
------------ ------------ ------------ ------------
Loss before change in accounting principle ........... (1,682) (5,950) (4,783) (9,304)
Change in accounting for goodwill, net of
$19,408 tax benefit ................................ -- -- (54,504) --
------------ ------------ ------------ ------------
Net loss ............................................. $ (1,682) $ (5,950) $ (59,287) $ (9,304)
============ ============ ============ ============
See accompanying notes to the condensed consolidated financial statements.
4
INTERNATIONAL WIRE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
NINE MONTHS
ENDED SEPTEMBER 30,
------------------------------
2002 2001
------------ ------------
Cash flows provided by (used in) operating activities:
Net loss ........................................................... $ (59,287) $ (9,304)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization .................................... 22,563 28,152
Deferred income taxes ............................................ (3,749) (6,305)
Change in accounting for goodwill ................................ 54,504 --
Changes of assets and liabilities of continuing operations ....... 738 (2,960)
------------ ------------
Net cash provided by continuing operations ........................... 14,769 9,583
Net cash used in discontinued operations .......................... (2,559) (1,545)
------------ ------------
Net cash provided by operating activities ............................ 12,210 8,038
Net cash used in investing activities for capital expenditures ....... (8,706) (20,470)
Net cash provided by (used in) financing activities from/for
borrowings/(repayment) of long-term obligations .................... (1,139) 46
Effects of exchange rate changes on cash
and cash equivalents ............................................... 356 (23)
------------ ------------
Net change in cash and cash equivalents .............................. 2,721 (12,409)
Cash at beginning of the period ...................................... 8,017 32,244
------------ ------------
Cash at end of the period ............................................ $ 10,738 $ 19,835
============ ============
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 nine months ended September 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 April 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 the 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:
NINE MONTHS
ENDED SEPTEMBER 30,
------------------------
2002 2001
--------- ---------
(In thousands)
As reported ................................................. $ (4,783) $ (9,304)
Pro forma ................................................... $ (4,783) $ (5,515)
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
the first quarter of 2003. 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 production and shipments to customers began
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 28 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 nine months ended September 30, 2001
were $2,760 and $6,697, respectively. There were no such charges for
the three and nine months ended September 30, 2002.
A summary of activity related to plant closings is as follows:
INSULATED
WIRE BARE WIRE
CORPORATE PRODUCTS PRODUCTS CONSOLIDATED
--------- ---------- --------- ------------
NINE MONTHS ENDED SEPTEMBER 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 ............................. (52) (306) (874) (1,232)
Personnel and severance costs ........................ (1,173) (289) (73) (1,535)
--------- --------- --------- ---------
(1,225) (595) (947) (2,767)
--------- --------- --------- ---------
Balance, end of period ................................... $ 695 $ 645 $ 421 $ 1,761
========= ========= ========= =========
INSULATED
WIRE BARE WIRE
CORPORATE PRODUCTS PRODUCTS CONSOLIDATED
--------- ---------- --------- ------------
NINE MONTHS ENDED SEPTEMBER 30, 2001
Balance, beginning of period ............................. $ 626 $ -- $ -- $ 626
Charges to operations:
Facility shut-down costs ............................. -- 1,682 -- 1,682
Personnel and severance costs ........................ -- 5,015 -- 5,015
--------- --------- --------- ---------
-- 6,697 -- 6,697
--------- --------- --------- ---------
Cash payments:
Facility shut-down costs ............................. -- (539) -- (539)
Personnel and severance costs ........................ (280) (2,861) -- (3,141)
--------- --------- --------- ---------
(280) (3,400) -- (3,680)
--------- --------- --------- ---------
Balance, end of period ................................... $ 346 $ 3,297 $ -- $ 3,643
========= ========= ========= =========
In addition to the accruals for plant closings for the three and nine
months ended September 30, 2001, the Company also incurred additional
expenses of $2,028 and $3,742, respectively, 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 nine months ended September 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 September 30, 2002 and December 31,
2001 is as follows:
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- -----------
Raw materials ....................... $ 13,697 $ 12,814
Work-in-process ..................... 21,265 18,667
Finished goods ...................... 25,640 26,720
--------- ---------
Total .............................. $ 60,602 $ 58,201
========= =========
The carrying value of inventories on a last-in, first-out basis, at
September 30, 2002 and December 31, 2001, approximates their current
cost.
5. LONG-TERM OBLIGATIONS
The composition of long-term obligations at September 30, 2002 and
December 31, 2001 is as follows:
SEPTEMBER 30, 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 ......... 5,592 6,912
Industrial revenue bonds ........................... 15,500 15,500
Other .............................................. 8,241 9,380
------------ ------------
329,333 331,792
Less, current maturities ........................... 3,197 3,049
------------ ------------
$ 326,136 $ 328,743
============ ============
The schedule of principal payments for long-term obligations, excluding
premium, at September 30, 2002 is as follows:
2002................................................................ $ 239
2003................................................................ 1,275
2004................................................................ 336
2005................................................................ 309,637
2006................................................................ 4,656
Thereafter.......................................................... 7,598
----------
Total............................................................. $ 323,741
==========
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 September 30, 2002, the Company had no borrowings
under the Credit Agreement and $29,431 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. As of
September 30, 2002, the Company was in compliance with all related
covenants.
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 $8,907 and $8,852 for the
three months ended September 30, 2002 and 2001 and $27,743 and $25,285
for the nine months ended September 30, 2002 and 2001, respectively.
The outstanding trade receivables were $8,258 and $12,017 at September
30, 2002 and December 31, 2001, respectively.
In October 2002, Viasystems Group, Inc., ("Viasystems") the parent
company of Viasystems International, Inc., filed a voluntary petition
for reorganization under Chapter 11 of the U.S. Bankruptcy Code in
order to
10
achieve final approval for the recapitalization. The recapitalization
involves the exchange of approximately $740,000 of debt into common and
preferred stock. Viasystems will continue business as usual through its
operating subsidiaries, including Viasystems International, Inc., which
were not party to the reorganization. As a result, the Company's sales
and accounts receivable are not expected to be affected by Viasystems'
restructuring.
In September 2002, the Company began selling a portion of its
production scrap to Prime Materials Recovery, Inc. ("Prime"). Prime is
a closely held company and its majority shareholder is the President
and Chief Operating Officer of the Company. In addition, the Vice
President - Finance of the Company holds a minority ownership interest.
Sales to Prime for the three and nine months ended September 30, 2002
were $318 and the amounts due from Prime as of September 30, 2002 was
$182. Sales to Prime were made under arms-length prices and terms
comparable to those of other companies in the industry.
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 SEPTEMBER 30, 2002
ASSETS
Cash ............................................. $ -- $ 6,276 $ 4,462 $ -- $ 10,738
Accounts receivable .............................. -- 54,000 14,748 -- 68,748
Inventories ...................................... -- 49,889 10,713 -- 60,602
Other current assets ............................. -- 25,066 1,475 -- 26,541
---------- ---------- ---------- ---------- ----------
Total current assets .................... -- 135,231 31,398 -- 166,629
Property, plant and equipment, net ............... -- 101,155 28,303 -- 129,458
Investment in subsidiaries ....................... 421,003 -- -- (421,003) --
Deferred income taxes ............................ 14,629 19,794 (44) -- 34,379
Intangible assets, net ........................... 1,538 110,656 6,941 -- 119,135
Other assets ..................................... 6,568 2,891 1,140 -- 10,599
---------- ---------- ---------- ---------- ----------
Total assets ................................ $ 443,738 $ 369,727 $ 67,738 $ (421,003) $ 460,200
========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities .............................. $ 5,092 $ 66,959 $ 8,841 $ -- $ 80,892
Long-term obligations, less current
maturities ................................... 308,669 17,467 -- -- 326,136
Other long-term liabilities ...................... -- 32,108 802 -- 32,910
Intercompany (receivable) payable ................ 40,426 (77,872) 37,446 -- --
---------- ---------- ---------- ---------- ----------
Total liabilities ....................... 354,187 38,662 47,089 -- 439,938
---------- ---------- ---------- ---------- ----------
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) ....... (146,780) 101,721 10,289 (112,010) (146,780)
Other comprehensive loss ...................... -- -- (1,527) -- (1,527)
---------- ---------- ---------- ---------- ----------
Total stockholder's equity ....................... 89,551 331,065 20,649 (421,003) 20,262
---------- ---------- ---------- ---------- ----------
Total liabilities and stockholder's
equity .............................. $ 443,738 $ 369,727 $ 67,738 $ (421,003) $ 460,200
========== ========== ========== ========== ==========
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
SEPTEMBER 30, 2002
Net sales .......................................... $ -- $ 83,410 $ 16,225 $ -- $ 99,635
Operating expenses:
Cost of goods sold ............................. -- 66,963 12,608 -- 79,571
Selling, general and administrative expenses ... -- 7,056 937 -- 7,993
Depreciation and amortization .................. 174 5,999 942 -- 7,115
---------- ---------- ---------- ---------- ----------
Operating income (loss) ............................ (174) 3,392 1,738 -- 4,956
Other income (expense):
Interest income (expense) ...................... 35 (8,877) (325) -- (9,167)
Amortization of deferred financing costs ....... (534) -- -- -- (534)
Equity in net income (loss) of subsidiaries .... (1,009) -- -- 1,009 --
Other, net ..................................... -- -- 17 -- 17
---------- ---------- ---------- ---------- ----------
Income (loss) before tax provision (benefit)
and change in accounting principle ............... (1,682) (5,485) 1,430 1,009 (4,728)
Income tax provision (benefit) ..................... -- (3,175) 129 -- (3,046)
---------- ---------- ---------- ---------- ----------
Net income (loss) .................................. $ (1,682) $ (2,310) $ 1,301 $ 1,009 $ (1,682)
========== ========== ========== ========== ==========
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
---------- ---------- ---------- ------------ ----------
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2001
Net sales .......................................... $ -- $ 82,374 $ 14,493 $ -- $ 96,867
Operating expenses:
Cost of goods sold ............................. -- 67,473 10,836 -- 78,309
Selling, general and administrative expenses ... -- 6,942 1,052 -- 7,994
Depreciation and amortization .................. 144 7,756 1,075 -- 8,975
Impairment, unusual and plant
closing charges .......................... -- 2,760 -- -- 2,760
---------- ---------- ---------- ---------- ----------
Operating income (loss) ............................ (144) (2,557) 1,530 -- (1,171)
Other income (expense):
Interest income (expense) ...................... 370 (8,941) (379) -- (8,950)
Amortization of deferred financing costs ....... (336) -- -- -- (336)
Equity in net income (loss) of subsidiaries .... (5,840) -- -- 5,840 --
---------- ---------- ---------- ---------- ----------
Income (loss) before tax provision (benefit) ....... (5,950) (11,498) 1,151 5,840 (10,457)
Income tax benefit ................................. -- (4,502) (5) -- (4,507)
---------- ---------- ---------- ---------- ----------
Net income (loss) .................................. $ (5,950) $ (6,996) $ 1,156 $ 5,840 $ (5,950)
========== ========== ========== ========== ==========
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 NINE MONTHS ENDED
SEPTEMBER 30, 2002
Net sales ......................................... $ -- $ 262,575 $ 45,082 $ -- $ 307,657
Operating expenses:
Cost of goods sold ............................ -- 210,162 34,130 -- 244,292
Selling, general and administrative expenses .. -- 21,871 2,992 -- 24,863
Depreciation and amortization ................. 531 17,728 2,709 -- 20,968
------------ ------------ ------------ ------------ ------------
Operating income (loss) ........................... (531) 12,814 5,251 -- 17,534
Other income (expense):
Interest income (expense) ..................... 416 (26,603) (1,034) -- (27,221)
Amortization of deferred financing costs ...... (1,602) -- -- -- (1,602)
Equity in net income (loss) of subsidiaries ... (57,570) -- -- 57,570 --
Other, net .................................... -- -- 17 -- 17
------------ ------------ ------------ ------------ ------------
Income (loss) before tax provision (benefit)
and change in accounting principle .............. (59,287) (13,789) 4,234 57,570 (11,272)
Income tax provision (benefit) .................... -- (6,706) 217 -- (6,489)
------------ ------------ ------------ ------------ ------------
Income (loss) before change in accounting
principle for goodwill, net of tax benefit ..... (59,287) (7,083) 4,017 57,570 (4,783)
Change in accounting principle .................... -- (49,794) (4,710) -- (54,504)
------------ ------------ ------------ ------------ ------------
Net income (loss) ................................. $ (59,287) $ (56,877) $ (693) $ 57,570 $ (59,287)
============ ============ ============ ============ ============
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
------------ ------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001
Net sales ......................................... $ -- $ 291,257 $ 46,030 $ -- $ 337,287
Operating expenses:
Cost of goods sold ............................ -- 229,456 34,409 -- 263,865
Selling, general and administrative expenses .. -- 25,310 3,379 -- 28,689
Depreciation and amortization ................. 432 23,510 3,198 -- 27,140
Impairment, unusual and plant
closing charges ......................... -- 6,697 -- -- 6,697
------------ ------------ ------------ ------------ ------------
Operating income (loss) ........................... (432) 6,284 5,044 -- 10,896
Other income (expense):
Interest income (expense) ..................... 1,762 (26,866) (1,121) -- (26,225)
Amortization of deferred financing costs ...... (1,013) -- -- -- (1,013)
Equity in net income (loss) of subsidiaries ... (9,621) -- -- 9,621 --
------------ ------------ ------------ ------------ ------------
Income (loss) before tax provision (benefit) ...... (9,304) (20,582) 3,923 9,621 (16,342)
Income tax provision (benefit) .................... -- (7,252) 214 -- (7,038)
------------ ------------ ------------ ------------ ------------
Net income (loss) ................................. $ (9,304) $ (13,330) $ 3,709 $ 9,621 $ (9,304)
============ ============ ============ ============ ============
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 NINE MONTHS ENDED
SEPTEMBER 30, 2002
Net cash provided by operating activities .... $ -- $ 5,680 $ 6,530 $ -- $ 12,210
-------------- -------------- -------------- -------------- -------------
Cash flows used in investing activities for
capital expenditures ....................... -- (3,571) (5,135) -- (8,706)
-------------- -------------- -------------- -------------- -------------
Cash flows used in financing activities for
borrowing/(repayment) of long-term
obligations .............................. -- (1,139) -- -- (1,139)
-------------- -------------- -------------- -------------- -------------
Effect of exchange rate changes
on cash and cash equivalents .............. -- -- 356 -- 356
-------------- -------------- -------------- -------------- -------------
Net change in cash and cash equivalents ...... $ -- $ 970 $ 1,751 $ -- $ 2,721
============== ============== ============== ============== =============
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
-------------- -------------- -------------- -------------- -------------
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001
Net cash provided by operating activities .... $ 568 $ 1,479 $ 5,991 $ -- $ 8,038
-------------- -------------- -------------- -------------- -------------
Cash flows used in investing activities for
capital expenditures ....................... -- (13,169) (7,301) -- (20,470)
-------------- -------------- -------------- -------------- -------------
Cash flows provided by (used in) financing
activities for repayment of long-term
obligations ................................ (568) 614 -- -- 46
-------------- -------------- -------------- -------------- -------------
Effect of exchange rate changes on cash and
cash equivalents ........................... -- -- (23) -- (23)
-------------- -------------- -------------- -------------- -------------
Net change in cash and cash equivalents ...... $ -- $ (11,076) $ (1,333) $ -- $ (12,409)
============== ============== ============== ============== =============
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 nine months ended September 30, 2002 compared to the three and nine
months ended September 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 SEPTEMBER 30,
-------------------------
2002 2001
---------- ----------
(In thousands)
Net sales ................................................................. $ 99,635 $ 96,867
Operating expenses:
Cost of goods before item below ......................................... 79,571 76,281
Unusual costs related to plant consolidations ........................... -- 2,028
---------- ----------
Total cost of goods sold ................................................ 79,571 78,309
Selling, general and administrative expenses ............................ 7,993 7,994
Depreciation and amortization ........................................... 7,115 8,975
Impairment, unusual and plant closing charges ........................... -- 2,760
---------- ----------
Operating income (loss) ................................................... $ 4,956 $ (1,171)
========== ==========
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2001
Net sales for the quarter were $99.6 million, an increase of $2.8 million, or
2.9%, compared to the three months ended September 30, 2001 resulting from
increased demand in the automotive and appliance markets and slightly higher
copper prices. This increase in sales was partially offset by reduced demand
from customers supplying the industrial/energy market. In general, the Company
prices its wire products based on a spread over the cost of copper, which
results in an increased dollar value of sales when copper costs increase. The
average price of copper based on the New York Mercantile Exchange, Inc.
("COMEX") increased to $0.69 per pound during the quarter ended September 30,
2002 from $0.67 per pound in the quarter ended September 30, 2001.
Cost of goods sold excluding unusual costs related to plant consolidations as a
percentage of sales increased to 79.9% for the three months ended September 30,
2002, from 78.8% for the three months ended September 30, 2001. This change was
due primarily to product mix and competitive pricing pressures, partially offset
by favorable effects of the 2001 plant consolidation and realignment actions.
Selling, general and administrative expenses for the three months ended
September 30, 2002, remained constant with the three months ended September 30,
2001 at $8.0 million as the favorable impacts of the actions taken in 2001,
including headcount reductions, administrative and corporate reorganizations,
were offset by higher insurance and bad debt costs.
17
Depreciation and amortization was $7.1 million for the three months ended
September 30, 2002, compared to $9.0 million for the same period in 2001. This
decrease of $1.9 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
the first quarter of 2003. 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 production and shipments to customers began in the third
quarter of 2002. The related charge to impairment, unusual and plant closings
cost for the three months ended September 30, 2001 was $2.8 million. There was
no such charge during the three months ended September 30, 2002.
RESULTS OF OPERATIONS
NINE MONTHS
ENDED SEPTEMBER 30,
-------------------------
2002 2001
---------- ----------
(In thousands)
Net sales ....................................................... $ 307,657 $ 337,287
Operating expenses:
Cost of goods excluding item below ............................ 244,292 260,123
Unusual costs related to plant consolidations ................. -- 3,742
---------- ----------
Total cost of goods sold ...................................... 244,292 263,865
Selling, general and administrative expenses .................. 24,863 28,689
Depreciation and amortization ................................. 20,968 27,140
Impairment, unusual and plant closing charges ................. -- 6,697
---------- ----------
Operating income ................................................ $ 17,534 $ 10,896
========== ==========
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2001
Net sales for the nine months ended September 30, 2002 were $307.7 million, a
decrease of $29.6 million, or 8.8%, compared to the nine months ended September
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 industry. 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 nine months ended September 30, 2002 from $0.75 per pound
during the nine months ended September 30, 2001.
Cost of goods sold excluding unusual costs related to plant consolidations as a
percentage of sales increased to 79.4% for the nine months ended September 30,
2002, from 77.1% for the nine months ended September 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 13.3%,
to $24.9 million for the nine months ended September 30, 2002, compared to $28.7
million for the same period in 2001 due to the favorable impact of
18
actions taken in 2001 including headcount reductions, administrative and
corporate reorganizations and volume related items.
Depreciation and amortization was $21.0 million for the nine months ended
September 30, 2002, compared to $27.1 million for the same period in 2001. This
decrease of $6.1 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. 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
the first quarter of 2003. 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 production and shipments to customers began in the third
quarter of 2002. The related charges to impairment, unusual and plant closings
cost for the nine months ended September 30, 2001 were $6.7 million. There were
no such charges during the nine months ended September 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 provided by operating activities was $12.2 million for the nine months
ended September 30, 2002 compared to $8.0 million for the nine months ended
September 30, 2001 resulting from increased operating income.
Net cash used in investing activities for capital expenditures, was $8.7 million
for the nine months ended September 30, 2002, compared to $20.5 million for the
nine months ended September 30, 2001.
Net cash used in financing activities, representing repayment of long-term
obligations, was $1.1 million for the nine months ended September 30, 2002,
compared to net cash provided by financing activities, representing net
borrowings of long-term obligations, of $0.05 million for the nine months ended
September 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 September 30, 2002 borrowing base calculation, the Company had
available borrowing capacity under the Credit Agreement of $55.2 million, of
which $29.4 million was subject to outstanding letters of credit and of which
$25.7 million was available for borrowing. At September 30, 2002, the Company
had no borrowings under the Credit Agreement. The Company's
19
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 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 (loss)
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 (loss) 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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------------- --------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
(In thousands)
EBITDA, as adjusted ....................................... $ 12,071 $ 12,592 $ 38,502 $ 48,475
Depreciation and amortization ............................. (7,115) (8,975) (20,968) (27,140)
Impairment, unusual and plant closing
charges ................................................... -- (4,788) -- (10,439)
---------- ---------- ---------- ----------
Operating income (loss) ................................... $ 4,956 $ (1,171) $ 17,534 $ 10,896
========== ========== ========== ==========
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 September 30, 2002, the excess availability of funds under
the borrowing base calculation was $25.7 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
20
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 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 April 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
ITEM 4. CONTROLS AND PROCEDURES
Based on their most recent evaluation, which was completed within the past 90
days, the Company's Chief Executive Officer and Chief Financial Officer believe
the Company's disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) are effective. There were not any significant changes
in internal controls or other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
23
PART II. OTHER INFORMATION
None.
24
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: November 14, 2002 By: /s/ GLENN HOLLER
-------------------------------------------
Name: Glenn J. Holler
Title: Senior Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
25
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
September 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: November 14, 2002 By: /s/ DAVID M. SINDELAR
----------------------------------
Name: David M. Sindelar
Title: Chief Executive Officer
26
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of International Wire Group,
Inc. (the "Company") on Form 10-Q for the period ended September 30, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, David M. Sindelar, as Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, that:
(1) I have reviewed this quarterly report on Form 10-Q of
International Wire Group, Inc.;
(2) Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrants as of, and for, the periods presented in this
quarterly report;
(4) The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by other within those entities,
particularly during the period in which the periodic
reports are being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of date within
90 days prior to the filing of this quarterly report
(the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
(5) The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls;
(6) The registrant' other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
INTERNATIONAL WIRE GROUP, INC.
Dated: November 14, 2002 By: /s/ DAVID M. SINDELAR
-------------------------------
Name: David M. Sindelar
Title: Chief Executive Officer
27
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:
(1) the accompanying Form 10-Q report for the period ending
September 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: November 14, 2002 By: /s/ GLENN J. HOLLER
---------------------------------------
Name: Glenn J. Holler
Title: Senior Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
28
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of International Wire Group,
Inc. (the "Company") on Form 10-Q for the period ended September 30, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, David M. Sindelar, as Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, that:
(1) I have reviewed this quarterly report on Form 10-Q of
International Wire Group, Inc.;
(2) Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrants as of, and for, the periods presented in this
quarterly report;
(4) The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by other within those entities,
particularly during the period in which the periodic
reports are being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of date within
90 days prior to the filing of this quarterly report
(the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
(5) The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls;
(6) The registrant' other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
INTERNATIONAL WIRE GROUP, INC.
Dated: November 14, 2002 By: /s/ GLENN J. HOLLER
---------------------------------------
Name: Glenn J. Holler
Title: Senior Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
29