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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
Amendment No. 1 to Form
10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2005 |
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or |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to |
Commission file number: 000-51043
International Wire Group, Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
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43-1705942 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
12 Masonic Ave.
Camden, NY
(Address of principal executive offices) |
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13316
(Zip Code) |
(315) 245-3800
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, par value $0.01 per share
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K is
not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any
amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2 of the
Exchange Act.
Large accelerated
filer o Accelerated
filer o Non-accelerated
filer þ
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2 of the
Exchange
Act). Yes o No þ
As of June 30, 2005, the aggregate market value of the
registrants common stock held by non-affiliates of the
registrant was $37,443,274 based on the closing sale price as
reported on the OTC Pink Sheets. Shares of Common Stock held by
each executive officer, director, and shareholders with
beneficial ownership of greater than 10% of the outstanding
Common Stock of the registrant and persons or entities known to
the Company to be affiliates of the foregoing have been excluded
in that such persons may be deemed to be affiliates. This
assumption regarding affiliate status is not necessarily a
conclusive determination for other purposes.
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12,
13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a
court. Yes o No þ
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
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Class |
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Outstanding at March 1, 2006 |
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Common Stock, $0.01 par value per share |
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10,000,002 shares |
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement relating to the registrants
2006 annual meeting of stockholders is incorporated by reference
in Part III.
TABLE OF CONTENTS
1
Explanatory Note
International Wire Group, Inc. (the Company,
we or our) is amending its annual report
on Form 10-K for
the year ended December 31, 2005. The Company is restating
its consolidated financial statements to correct errors in
accounting for deferred income tax assets/liabilities, goodwill
and the provision for income tax as the result of the findings
of remediation actions taken in connection with a material
weakness related to deferred income tax accounting identified in
2005. This amended
Form 10-K/A
reflects the restatement of the Companys consolidated
financial statements as of December 31, 2005 and for the
year then ended, as previously reported in the original
Form 10-K filing.
The Company has also included under Item 6, Selected
Financial Data and Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations restated financial information as of and for
the year ended December 31, 2005.
As previously disclosed, the management of the Company concluded
that as of December 31, 2005, the Company did not maintain
effective control over the evaluation and completeness of its
deferred tax assets and liabilities, the associated valuation
allowances established in previous years to reflect the
likelihood of the recoverability of net deferred tax assets and
the income tax provision/(benefit) for continuing and
discontinued operations. Specifically, the Company did not have
effective controls in place to identify the differences between
book and tax accounting for fixed assets, certain inventory
reserves and LIFO inventories, certain intangibles and net
operating losses. In addition, the Company previously disclosed
that this control deficiency could result in a material
misstatement to the aforementioned accounts that would result in
a material misstatement to the Companys annual or interim
consolidated financial statements that would not be prevented or
detected. Accordingly, management determined that this control
deficiency constitutes a material weakness.
On April 11, 2006, the Company set forth its remediation plan to
address this material weakness, which included a special project
staffed with qualified outside tax and accounting consultants.
This work with the outside consultants together with internal
staff began in the second quarter of 2006.
On November 14, 2006, the Company reported that in
connection with its remediation of a control deficiency related
to the identification of differences between book and tax
accounting for fixed assets, certain inventory reserves and LIFO
inventories, the Company was in the process of determining
whether the deferred tax asset related to net operating loss
carryforwards reflected on the Companys balance sheet as
of December 31, 2005 may have been understated.
On March 16, 2007, the Company announced that its audit
committee, after consulting with senior management, determined
that the consolidated financial statements and related financial
information contained in its Annual Report on
Form 10-K for the
year ended December 31, 2005 should no longer be relied
upon.
Based on the findings from the remediation plan, the Company has
concluded that the Companys consolidated financial
statements as of December 31, 2005 and for the year then
ended, the selected financial information as of and for the year
ended December 31, 2005 and managements discussion
and analysis of financial condition and results of operations
should be restated to record additional net deferred tax assets,
reduce goodwill, and record additional income tax benefit from
continuing operations. In addition the Company has restated
deferred taxes and associated valuation allowance at
December 31, 2004. See Note 1A to the consolidated
financial statements included in this
Form 10-K/A for
further discussion.
Amendment to
Form 10-K
The following sections of the
Form 10-K have
been revised to reflect the restatement: Item 6 (Selected
Financial Data), Item 7 (Managements Discussion and
Analysis of Financial Condition and Results of Operations) and
Item 8 (Financial Statements and Supplementary Data).
Additionally, Item 9A (Controls and Procedures) has been
updated. In addition, in accordance with applicable SEC rules,
this amended Annual Report on
Form 10-K/ A
includes updated certifications from our Chief
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Executive Officer and Chief Financial Officer. Except to the
extent relating to the restatement of our financial statements,
other financial information described above and the discussion
of controls and procedures in Item 9A, the financial
statements and other disclosures in this
Form 10-K/ A do
not reflect any events that have occurred after the
Form 10-K was
initially filed on April 11, 2006.
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CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING
STATEMENTS
We make forward-looking statements in this
Form 10-K that are
based on managements beliefs and assumptions and on
information currently available to management. Forward-looking
statements include the information concerning our possible or
assumed future results of operations, business strategies,
financing plans, competitive position, potential growth
opportunities, the effects of competition, outlook, objectives,
plans, intentions and goals. For those statements, we claim the
protection of the safe harbor for forward-looking statements
provided for by Section 21E of the Securities Exchange Act
of 1934, as amended. Forward-looking statements include all
statements that are not historical facts and can be identified
by the use of forward-looking terminology such as the words
believes, expects, may,
will, should, seeks,
pro forma, anticipates,
intends, plans, estimates,
or the negative of any thereof or other variations thereof or
comparable terminology, or by discussions of strategy or
intentions.
Forward-looking statements involve risks, uncertainties and
assumptions. Actual results may differ materially from those
expressed in these forward-looking statements. Undue reliance
should not be placed on any forward-looking statements. We do
not have any intention or obligation to update forward-looking
statements after we file this
Form 10-K. See
Item 1A. Risk Factors and Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations.
PART I
Overview
We, together with our subsidiaries, manufacture and market wire
products, including bare and tin-plated copper wire and
insulated copper wire products, for other wire suppliers and
original equipment manufacturers or OEMs. Our
products include a broad spectrum of copper wire configurations
and gauges with a variety of electrical and conductive
characteristics and are utilized by a wide variety of customers
primarily in the appliance, automotive, electronics and data
communications, and general industrial/energy industries. We
manufacture and distribute our products at 15 facilities located
in the United States, Mexico, France, Italy and the Philippines.
We operate our business in the following three segments:
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Bare Wire Products. Our bare and tin-plated copper wire
products (or conductors) are used to transmit digital, video and
audio signals or conduct electricity and are sold to a diverse
customer base of over 1,000 insulated wire manufacturers and
various industrial OEMs for use in computer and data
communications products, general industrial, energy, appliances,
automobiles and other applications. See Item 1.
Business Acquisition for more information
about our announced acquisition. |
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Engineered Wire Products Europe. Our bare
copper wire products are engineered and used to conduct
electricity either for power or for grounding purposes and are
sold to a diverse customer base of various OEMs for use in
electrical appliances, power supply, aircraft and railway and
automotive. |
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Insulated Wire Products. Our insulated wire products
(copper conductors insulated with plastic or other polymeric
compounds) are primarily manufactured for the automotive and
appliance end-user markets. Our insulated wire products are used
in the assembly of wire harnesses that are installed in both
automobiles and appliances. A wire harness is comprised of an
assembly of wires with connectors and terminals that transmit
electricity between two or more end points. See
Item 1. Business U.S. Insulated Wire
Business Sale for information about our recent sale and
plans for the remainder of the segment. |
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We were organized in 1995 as Omega Wire Corp. and subsequently
changed our name to International Wire Group, Inc. We are
incorporated in the state of Delaware. Our principal executive
offices are located at 12 Masonic Ave, Camden, New York, and our
telephone number at such address is (315) 245-3800.
U.S. Insulated Wire Business Sale
On November 30, 2005, we entered into an Asset Purchase
Agreement with Copperfield, LLC. Pursuant to that agreement, on
November 30, 2005, we:
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sold the inventory, equipment, spare parts and certain other
assets located at our Avilla, Indiana facility and three
facilities located in El Paso, Texas; |
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sold our Avilla, Indiana facility, transferred leases for two of
our El Paso, Texas facilities and leased a third
El Paso, Texas facility to Copperfield (the third facility
was subsequently sold to Copperfield on February 21, 2006
for $2 million); and |
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transferred certain contracts related to these facilities. |
Under the agreement, we received net proceeds of
$15 million after the working capital adjustment. We
retained our accounts receivable, accounts payable and all other
liabilities which were $17.2 million, net at
November 30, 2005.
We continue to explore strategic alternatives for the remainder
of our insulated wire business, which comprises operations in
Cebu, Philippines and Durango, Mexico, and that may include
their sale or closure. The Durango plant ceased producing
insulated wire at the end of January, 2006.
Acquisition
On March 4, 2006, we entered into a Stock Purchase
Agreement (Purchase Agreement) to acquire Phelps
Dodge High Performance Conductors of SC & GA, Inc.
(HPC) from Phelps Dodge Corporation
(PD). HPC is a manufacturer of specialty high
performance conductors which are plated copper and copper alloy
conductors offering both high and low temperature standard and
customized conductors as well as specialty film insulated
conductors and miniature tubing products. The conductors
manufactured are tin, nickel and silver plated, including some
proprietary products. High temperature products are generally
used where high thermal stability and good solderability are
required for certain military and commercial aerospace
applications. The medical products include ultra fine alloys,
which are used in medical electronics such as ultrasound
equipment and portable defibrillators. The tubing products are
used in a variety of medical devices in medicine delivery and
coronary procedures. These products are sold to harness assembly
manufacturers, distributors and OEMs in the United States,
Europe and Asia primarily serving the aerospace, medical
automotive, computer, telecommunications, mass transportation,
geophysical and electronics markets. HPC has manufacturing
operations in Inman, South Carolina and Trenton, Georgia. For
the fiscal year ended December 31, 2005, HPCs
unaudited sales were $85.5 million.
On March 31, 2006, we completed the acquisition of all of
the outstanding common stock of HPC for $42 million plus a
working capital adjustment estimated at closing to be
$2 million. We funded the acquisition with borrowings under
our revolving credit facility. Additionally, we purchased the
copper inventory held on consignment by HPC from PD for
approximately $5 million. In addition, pursuant to the
Purchase Agreement, we have agreed to a contingency payment in
an amount equal to 4.88 multiplied by the amount that HPCs
2006 EBITDA (as defined in the Purchase Agreement) exceeds
$9.4 million. The contingency payment is capped at
$3 million In connection with the closing of the
transaction, Phelps Dodge High Performance Conductors of
SC & GA, Inc. changed its name to IWG High Performance
Conductors, Inc. This acquisition continues the execution of our
strategy to expand our product offerings with silver and nickel
plated products and to sell into new markets, including
aerospace and medical, as we wind-down and exit the insulated
wire business.
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Bankruptcy and Other Changes
On March 24, 2004, we filed a voluntary petition for
reorganization under Chapter 11 of the United States
Bankruptcy Code. Our Chapter 11 bankruptcy petition was
directly related to the significant downturn in the
industrial/energy and electronics/data communications markets
and by increased competitive pricing pressures in the automotive
market that accelerated in 2001 and continued to increase
through the filing date. Additionally, increasing copper prices
had negatively impacted our liquidity because, although we have
copper price pass-through arrangements without our customers,
there is a lag between the time of our purchase of copper and
the time at which we receive cash payments after selling end
products to customers reflecting the increased price. We emerged
from bankruptcy on October 20, 2004.
In December 2004, we announced the closing of the plant located
in Beynost, France. Production ceased in March 2005.
On November 30, 2005, we sold certain assets of our
U.S. Insulated Wire Business to Copperfield LLC and ceased
our insulated wire business in the U.S. See
Item 1. Business U.S. Insulated Wire
Business Sale for information about our recent sale and
plans for the remainder of the segment. Accordingly, the results
of operations for the U.S. Insulated Wire Business have
been shown as discontinued operations in the
accompanying consolidated statements of operations.
On January 17, 2006, we consolidated our bare wire
subsidiaries and merged Camden Wire Co, Inc., OWI Corporation
and International Wire Rome Operations, Inc. into Omega Wire,
Inc.
For more information about our plans to expand our bare wire
segment, see Item 1. Business
Acquisition.
Products and Markets
We conduct our operations through three segments, the
manufacture and marketing of bare and tin-plated copper wire
products domestically (the Bare Wire Segment),
engineered wire in Europe (Engineered Wire
Europe Segment) and the manufacture and marketing of
insulated copper wire products (the Insulated Wire
Segment). See Note 16 to our Consolidated Financial
Statements for segment reporting. The following is a description
of our primary products and markets served:
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Bare Wire Segment (72% of 2005 Consolidated Net Sales from
Continuing Operations) |
Our external sales of bare wire products in the U.S. are
primarily to wire insulators, who apply insulating materials to
the bare wire through an extrusion process. These wire
insulators sell the insulated wire to a variety of customers in
the following markets:
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appliance (approximately 18% of total 2005 bare wire net sales); |
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automotive (approximately 21% of total 2005 bare wire net sales); |
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electronics and data communications (approximately 28% of total
2005 bare wire net sales) including cable television, safety and
security control, and local area network (LAN) and
computer systems; and |
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industrial/energy (approximately 33% of total 2005 bare wire net
sales) including heating, ventilating and air conditioning
(HVAC) systems, circuit protection, digital and
cellular phone towers, elevator cables, mining and oil
exploration, mass transit and utility power distribution
applications. |
We manufacture a broad array of bare and tin-plated copper
conductors including the following:
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Single End Wire. Single end wire is an individual wire
drawn to the customers size requirements ranging from .16
to .00157 inches in diameter (6 American Wire Gauge
(awg) to 46 awg). Single end wire is capable of
transmitting signals or electrical currents between two points
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used to transmit digital, video and audio signals or low voltage
current in a variety of wire products used in motor controls,
local area networks, security systems, television or telephone
connections and water sprinkler systems. Single end wire is
generally the least expensive form of wire to produce due to its
simple configuration. |
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Stranded Wire. Stranded wire is comprised of a number of
single end wires twisted together in a specific geometric
pattern that preserves each individual wires relative
position for the length of the wire. Stranded wire, like single
end wire, transmits digital, video and audio signals or low
voltage current. However, stranded wire is more flexible and
capable of connecting multiple terminals allowing greater
application. Stranded wire is generally used in products that
connect peripherals to the personal computer (PC),
connect the internal components of the PC, and control HVAC,
security and other functions inside buildings. In addition,
stranded wire is used in antilock braking systems, airbag
systems, utility power distribution and circuit breakers. |
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Bunched Wire. Bunched wire is formed by twisting a number
of single end wires in a random pattern. Bunched wire allows
increased flexibility while maintaining conductivity. This type
of wire is the primary wire used in appliance wire harnesses. In
addition, bunched wire is commonly used for transmission of
electrical current in lighting fixture cords, extension cords
and power cords for portable, power hand tools. |
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Cabled Wire and Braided Wire. Cabled wire and braided
wire are combinations of single, bunched or stranded wire
twisted together in various patterns and thickness. These wires
transmit electrical current and are typically used in mining,
mass transportation, automotive, utility power distribution, and
other industrial applications. |
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Shielding Wire. Shielding wire is comprised of varying
numbers of single end wires that are wound together in parallel
construction around a bobbin. Shielding wire does not transmit
signals or voltage but rather shields the signal traveling
through the core conductor from outside interference. This type
of wire is primarily used in data communication applications,
telecommunications equipment, cable television equipment and
security systems. |
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Engineered Wire-Europe Segment (7% of 2005 Consolidated
Net Sales from Continuing Operations) |
Our sales of engineered wire products in Europe are primarily
specialty braids, ropes, connections and flexible bars. These
products are sold to OEMs who use our products as
component parts in items such as circuit breakers, panel boards,
transformers, power generating systems and transportation
equipment. Our sales are to a variety of customers in the
following markets:
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electrical appliances (approximately 34% of total 2005
engineered wire Europe net sales); |
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power supply (approximately 30% of total 2005 engineered
wire Europe net sales); |
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aircraft and railway (approximately 19% of total 2005 engineered
wire Europe net sales); and |
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automotive (approximately 17% of total 2005 engineered
wire Europe net sales). |
We manufacture specialty braids, ropes, connections and flexible
bars using copper as the primary raw material with either
insulating material, strips or terminals. In addition, we
manufacture braided wire which is sold as a component part or we
apply either insulating material and/or types of terminals to
meet customers specifications.
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Insulated Wire Segment (21% of 2005 Consolidated Net Sales
from Continuing Operations) |
Our sales of insulated wire products are primarily to
independent wire harness fabricators for use in the automotive
(approximately 72% of total 2005 insulated wire net sales from
continuing operations) and
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appliance (approximately 28% of total 2005 insulated wire net
sales from continuing operations) markets. We divide our
customers who manufacture wire harnesses into three broad groups:
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Tier 1 suppliers to Ford Motor Company and Chrysler
Corporation. General Motors Corporation (GM)
continues to purchase the majority of their wire and wire
harness products from Delphi Corporation, formerly a division of
GM that has in-house wire and wire harness manufacturing
capability; |
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suppliers to the North American facilities of Japanese
automakers, which utilize thin-wall insulated wire
that complies with Japanese Industrial Standards
(JIS); and |
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suppliers to appliance OEMs. |
Following the cessation of manufacturing insulated wire products
in Durango, Mexico in January, 2006, we manufacture a diverse
array of insulated wire products from our Cebu, Philippines
plant, including the following:
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PVC Lead Wire and Cable. PVC lead wire and cable is
copper wire that has been insulated with polyvinyl chloride
(PVC). This product is used primarily in automotive
wire harnesses located behind the instrument panel or in the
vehicle body that control certain functions including turn
signals and air bags. |
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JIS Wire. JIS wire is copper wire insulated with PVC that
is produced according to Japanese Industrial Standards. The
primary difference between domestic PVC wire and JIS wire is
that JIS wire is manufactured to metric dimensions and generally
has thinner insulation than products manufactured according to
U.S. Society of Automotive Engineers Standards. JIS wire is
used primarily in automotive wire harnesses located behind the
instrument panel or in the vehicle body. |
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XLPE Insulated Wire. Cross-linked polyethylene
(XLPE) wire is copper wire insulated with
polyethylene that is subjected to heat and steam pressure
(cross-linking) to make the wire resistant to high
temperatures. This products primary application includes
use in high temperature environments such as the engine
compartment of vehicles and in electric ranges. |
See U.S. Insulated Wire Business Sale for
information about our recent sale and plans for the remainder of
the segment.
Marketing
We sell our products through a combination of direct (company
employed) sales people and manufacturers representatives.
Our sales organization is supported by an internal marketing
staff and customer service groups. Collectively, these
departments act as a bridge between our customers and our
production and engineering staff. Our engineers work directly
with customers in manufacturing the wire products to the
customers exact specifications. In addition, engineers
work closely with our production managers, quality supervisors
and customer service representatives to ensure the timely
delivery of quality products.
Key Customers
We sell our products primarily to copper wire insulators who
then sell to a diverse array of end users and to major
automotive wire harness manufacturers. For the year ended
December 31, 2005, we had significant sales to General
Cable Corporation, which represented 18% of our consolidated net
sales from continuing operations.
We also had significant sales to Yazaki Corp. and its
affiliates, which represented 10% of our consolidated net sales
from continuing operations for the year ended December 31,
2005. We have extended the contract with Yazaki to supply
insulated wire from our Cebu, Philippines plant until
December 31, 2006. Sales to Yazaki from our Cebu,
Philippines plant represented $50 million, or 9%, of our
consolidated net sales from continuing operations for the year
ended December 31, 2005. Our
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remaining business with Yazaki was done through our
U.S. Insulated Wire Business, which was sold to
Copperfield, LLC.
International Operations
We currently have operations in Mexico, France, Italy and the
Philippines. For the years ended December 31, 2005, 2004
and 2003, approximately 28%, 30% and 31% of our consolidated net
sales from continuing operations originated from these foreign
operations. A portion of these sales were to Tier I
automotive suppliers whose products were sold back into the
United States. We have a manufacturing facility in Durango,
Mexico, a manufacturing facility in Cebu, Philippines, a
manufacturing facility in Vinovo, Italy and two facilities in
Saint-Chamond, France. See Note 16 to our
Consolidated Financial Statements included herein for further
information about our international operations.
We are subject to risks generally associated with international
operations, including price and exchange controls and other
restrictive actions. In addition, fluctuations in currency
exchange rates may affect our results of operations. See
Item 1A. Risk Factors and
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk for further discussion about our foreign
currency risk.
Raw Materials
The principal raw material we use is copper, which is primarily
purchased in the form of
5/16-inch
rod from the major copper producers in North America, Europe and
Asia. Copper rod prices are based on market prices, which are
generally established by reference to the New York Mercantile
Exchange, Inc. (COMEX) prices, plus a premium
charged to convert copper cathode to copper rod and deliver it
to the required location. As a world traded commodity copper
prices have historically been subject to fluctuations. While
fluctuations in the price of copper may directly affect the per
unit prices of our products, these fluctuations have not had,
nor are expected to have, a material impact on our profitability
due to copper price pass-through arrangements that we have with
our 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. These formulas for our insulated
wire customers do not, however, include adjustments for the
fluctuations in premiums charged to convert copper cathode to
copper rod and deliver it to the required location. From
January 1, 2005 to December 31, 2005, the premium to
convert copper cathode to copper rod for insulated wire
continuing operations increased by 25.4%. A severe increase in
the price of copper could, however, negatively impact our short
term liquidity because of the period of time between our
purchase of copper at an increased price and the time at which
we receive cash payments after selling end products to customers
reflecting the increased price.
Other major raw materials we consume include PVC compounds, XLPE
compounds, color concentrate, tin and other metals. We enter
into long-term supply agreements on a wide variety of materials
consumed. Supplies on all critical materials are currently
adequate to meet our needs. The prices of a majority of these
products are affected by world oil prices and world-wide supply
and demand and have increased significantly in 2004 and 2005.
Our contracts with customers for insulated wire do not include
adjustments for fluctuations in the price of oil, PVC compounds
or XLPE compounds. From January 1, 2005 to
December 31, 2005, the price increases for PVC compounds
and XLPE compounds for insulated wire continuing operations were
19.2% and 9.8%, respectively.
We order material based on purchase orders received and accepted
and seek to minimize the inventory of material not identified
for specific orders. We work with our suppliers to develop
just-in-time supply
systems which reduce inventory carrying costs.
Manufacturing and Distribution
We are committed to the highest quality standards for our
products, a standard maintained in part by continuous
improvements to our production processes and upgrades and
investments to our manufacturing equipment. Our equipment can be
adapted to satisfy the changing needs of our customers. We
maintain
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advanced quality assurance and testing equipment to ensure the
products we manufacture will consistently meet customer quality
requirements. The following is a description of our
manufacturing and distribution facilities and processes for our
major product lines.
As of December 31, 2005, we had ten facilities dedicated to
the production and distribution of bare wire products in the
U.S. Six of these facilities are located in New York, one
in Indiana, two in Texas and one distribution facility is
located in California. The manufacturing of bare wire consists
of one or more of the following four processes: wire drawing;
plating; bunching and stranding; and cabling.
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Wire Drawing Process. Wire drawing is a multi-step
process in which raw copper material,
primarily
5/16-inch
copper rod, is drawn through a series of dies of decreasing
diameter. |
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Plating Process. After being drawn, our wire products may
be plated through an electroplating process. We have the
capability to plate copper wire with tin. Approximately 28% of
our bare wire products are plated with tin. The plating process
prevents the bare copper from oxidizing and also allows the wire
to be soldered, which is an important quality in many electrical
applications. |
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Bunching and Stranding Process. Bunching and stranding is
the process of twisting together single strand wires to form a
construction ranging from seven to over 200 strands. If the
wire is bunched, the individual strands of wire are twisted
together in a random pattern. Stranded wire is composed of a
number of single end wires twisted together in a specific
geometric pattern where each strands relative position is
maintained throughout the length of the wire. |
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Cabling Process. Cabling is the process of twisting
bunched wire to form a construction ranging from 49 to
47,000 strands. |
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Engineered Wire Products Europe |
As of December 31, 2005, we had three facilities dedicated
to the production and distribution of specialty wire products in
Europe. Two are in France and one is in Italy. The manufacturing
of the specialty wire engineered products in Europe consists of
obtaining copper stranding or strips and applying either
insulating material and/or types of terminals to meet the
customers specifications.
As of December 31, 2005, we had two manufacturing
facilities used to produce and distribute insulated wire. One
manufacturing facility is located in Mexico and one in the
Philippines. The production of insulated wire starts with bare
wire (primarily manufactured internally) and involves insulating
the wire products with various polymeric insulating compounds
through an extrusion process. Extrusion involves the feeding,
melting and pumping of insulating compounds through a die to
shape it into its final form on the wire. In order to enhance
the insulation properties of some products, certain polymeric
compounds can be chemically cross-linked after the extrusion
process.
As of December 31, 2005, under the terms of the Asset
Purchase Agreement, we also leased a facility to Copperfield,
LLC that we had previously used as a manufacturing facility for
insulated wire. On February 21, 2006, this facility was
sold to Copperfield, LLC. See U.S. Insulated Wire
Business Sale. The Durango, Mexico facility ceased
producing insulated wire at the end of January, 2006.
Competition
As a result of the diversity of our product offerings, we
believe that no single competitor competes with us across the
entire spectrum of our product lines. However, in each market
served, we experience competition from at least one major
competitor. We compete primarily on the basis of quality,
reliability, price, reputation, customer service and delivery
time. Several customers we serve have in-house or
captive wire production facilities. However, these
captive facilities do not compete with us for sales to
10
other customers. We also sell our products to customers with
captive production to meet needs in excess of their internal
production capacity.
Backlog
Due to the manner in which we process orders, we have no
significant order backlog. We follow the industry practice of
producing our products on an ongoing basis to meet customer
demand without significant delay. Management believes the
ability to supply orders in a timely fashion is a competitive
factor in its market, and therefore, attempts to minimize order
backlog to the extent practicable.
Patents and Trademarks
We have no patents and five registered trademarks. We do not
believe that our competitive position or operations are
dependent on any individual trademark or group of trademarks.
Employees
As of December 31, 2005, we employed approximately 1,650
full time employees. We believe that we have a good relationship
with our employees. None of our employees are represented by a
union.
Seasonality
We do not believe that our business is subject to significant
seasonal fluctuations.
Environmental Matters
We are subject to a number of federal, state, local and foreign
environmental laws and regulations relating to the storage,
handling, use, emission, discharge, release or disposal of
materials into the environment and the investigation and
remediation of contamination associated with such materials.
These laws include, but are not limited to, the Comprehensive
Environmental Response Compensation and Liability Act
(CERCLA), the Water Pollution Control Act, the Clean
Air Act and the Resource Conservation and Recovery Act, the
regulations promulgated thereunder, and any state and foreign
analogs. Our operations also are governed by laws and
regulations relating to employee health and safety. We believe
that we are in material compliance with such applicable laws and
regulations and that our existing environmental controls are
adequate. Further, we have no current plans for substantial
capital expenditures in this area.
As is the case with most manufacturers, we could incur costs
relating to environmental compliance, including remediation
costs related to historical hazardous materials handling and
disposal practices at certain facilities, although we do not
believe that such costs would materially and adversely affect
us. In the past, we have undertaken remedial activities to
address on-site soil
contamination caused by historic operations. None of these
activities have resulted in any material liability.
We currently do not anticipate that compliance with
environmental laws or regulations or the costs to remediate the
sites discussed above will have a material adverse effect on us.
As mentioned above, however, the risk of environmental liability
and remediation costs is inherent in the nature of our business
and, therefore, there can be no assurance that material
environmental costs, including remediation costs, will not arise
in the future. In addition, it is possible that future
developments (e.g., new regulations or stricter regulatory
requirements) could cause us to incur material costs to comply
with applicable environmental laws and regulations.
11
Executive Officers of the Registrant
Set forth below are the names and positions executive officers
of our company as of December 31, 2005.
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Name |
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Age | |
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Position(s) |
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Rodney D. Kent
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58 |
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Director; Chief Executive Officer |
Glenn J. Holler
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58 |
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Senior Vice President, Chief Financial Officer and Secretary |
Donald F. DeKay
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51 |
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Vice President Finance |
Chrysant E. Makarushka
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65 |
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Vice President Purchasing and Logistics |
Daris W. Foster
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48 |
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Vice President Business Process Control |
Rodney D. Kent is Chief Executive Officer of our company and has
held such positions since June 1, 2005. Previously,
Mr. Kent served as our President and Chief Operating
Officer and he held that position from May 2000 to June 1,
2005. Mr. Kent also serves as a director of our company and
has been a director since June, 1995. He served as a director
when we filed for bankruptcy under Chapter 11 of the United
States Bankruptcy Code and throughout the bankruptcy
proceedings. Prior to being named as President and Chief
Operating Officer, Mr. Kent served as President of our Bare
Wire segment since April 1995. Mr. Kent also serves as
director of Oneida Financial Corp and Chairman of the Board and
director of Prime Materials Recovery, Inc.
Glenn J. Holler was named Senior Vice President & Chief
Financial Officer of our company in July 2001, and Secretary of
our company in October 2004. He also served as Vice
President Finance from August 1996 through July
2001. Prior to joining our company, Mr. Holler was employed
by Vigoro Industries, Inc. as Vice President, Finance from 1994
to 1996. From 1983 to 1994, Mr. Holler held several
positions at Moog Automotive, Inc. including Vice
President Finance and Senior Vice
President Finance.
Donald F. DeKay is Vice President Finance of our
company and has held such position since July 2001. Prior to
being named Vice President Finance of our company,
Mr. DeKay served as Vice President Finance of
our Bare Wire segment since April 1995. Mr. DeKay served as
Vice President Finance of Omega from 1988 to 1995
and Controller of Omega from 1983 to 1988. Prior to joining our
company, Mr. DeKay was employed by Price Waterhouse from
1978 to 1983. Mr. DeKay also serves as director of Prime
Materials Recovery, Inc.
Chrysant E. Makarushka is Vice President Purchasing
and Logistics and has held such position since July 2000. Prior
to being named Vice President Purchasing and
Logistics, Mr. Makarushka served as Director of Metals
Management for the Company from 1995 to 2000.
Mr. Makarushka served as Director of Procurement and Human
Resources for Omega from 1989 to 1995. Prior to joining the
Company, Mr. Makarushka was employed by Rome Cable from
1981 to 1989.
Daris W. Foster was Vice President Business Process
Control of the company from January 2004 to February 2006. He
resigned effective February 28, 2006. From October 2003 to
January 2004, he was our Director of Supply Chain.
Mr. Foster was Director Process Management of LLS Corp.
from August 2000 to September 2003. He was our Director of
Information Systems from April 1998 to August 2000.
Risks Related to Our Financial Position
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We have a history of losses, and we may not be able to
achieve profitability. |
We incurred net losses of $10.8 million, $2.3 million,
$46.7 million, $133.3 million and $17.5 million
for the five fiscal years ended December 31, 2005, 2004
(pro forma), 2003, 2002 and 2001, respectively. We may not
achieve profitability in the near future, or at all. Our sales
for continuing operations for the years ended December 31,
2005 and 2004 increased by $107.9 million and
$162.1 million, respectively,
12
however, $95.3 million and $86.4 million of the
increase resulted from the increased average cost and selling
price of copper and a lower proportion of tolled copper. See
Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations. Our net
sales from continuing operations from 2001 through 2003 totaled
$269.3 million, $252.3 million and $263.3 million
for 2003, 2002 and 2001, respectively. We sought protection
under Chapter 11 of the United States Bankruptcy Code in
March 2004, and our equity ownership changed and a majority of
our board of directors was replaced in connection with our
reorganization.
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Our historical financial information is not comparable to
our current financial condition and results of
operations. |
As a result of our emergence from bankruptcy on October 20,
2004, we are operating our business with a new capital
structure. In addition, we became subject to fresh-start
reporting upon emerging from bankruptcy under Statement of
Position 90-7,
Financial Reporting by Entities in Reorganization under the
Bankruptcy Code. Accordingly, our financial condition and
results of operations for the periods subsequent to
October 20, 2004 will not be comparable to the financial
condition and results of operations reflected in our historical
financial statements for periods prior to the fresh-start date,
making it difficult to assess our future prospects based on
historical performance.
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Our substantial indebtedness may limit cash flow available
to invest in the ongoing needs of our business to generate
future cash flow. |
Our outstanding debt at December 31, 2005 was approximately
$135.4 million, excluding amounts under letters of credit.
We may also incur additional debt from time to time to finance
working capital, acquisitions, capital expenditures and other
general corporate purposes. Our substantial indebtedness could
have important consequences to holders of our common stock. For
example, it could:
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require us to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness, reducing the
availability of our cash flow to fund working capital, capital
expenditures and other general corporate purposes; |
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increase the amount of interest expense that we have to pay,
because certain of our borrowings are at variable rates of
interest, which, if interest rates increase, could result in
higher interest expense; |
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increase our vulnerability to adverse general economic or
industry conditions; |
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limit our flexibility in planning for, or reacting to, changes
in our business or the industry in which we operate; or |
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place us at a competitive disadvantage compared to our
competitors that have less debt. |
See Item 7. Managements Discussion and
Analysis of Financial Condition and Results of
Operation Liquidity and Capital Resources.
Risks Related to Our Business
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The price of copper, the principal raw material used in
our products, is subject to price fluctuations and may
negatively impact our liquidity or cause our customers to
decrease their orders. |
The principal raw material used in our products is copper, which
is purchased in the form of
5/16-inch
rod from the major copper producers in North America, Europe and
Asia. Copper rod prices are based on market prices, which are
generally established by reference to the New York Mercantile
Exchange, Inc. (COMEX) prices. As a world traded
commodity, copper prices have historically been subject to
fluctuations. For the year 2005, the average price of copper
increased by 30.4% over the average price for the year 2004.
Although we have copper price pass-through arrangements with our
customers, a severe increase in the price of copper could
negatively impact our short-term liquidity because of the period
of time between our purchase of copper at an increased price and
the time at which we receive cash payments after selling end
products to customers reflecting the increased price. High
copper prices may
13
also reduce demand from our customers. Since we generally do not
obtain long-term purchase commitments (as discussed further
below), our customers may cancel, reduce or delay their orders
in response to higher copper prices.
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Increases in the prices of compounds and copper premiums
could increase the losses of our insulated wire segment. |
Our insulated wire segment uses polyvinyl chloride
(PVC) compounds and cross-linked polyethylene
(XLPE) compounds. The prices of a majority of these
products are affected by world oil prices, which increased by
41.9% in 2005, and world-wide supply and demand. Our contracts
with customers for insulated wire do not include adjustments for
fluctuations in the price of oil, PVC compounds or XLPE
compounds. From January 1, 2005 to December 31, 2005,
the price increases for PVC compounds and XLPE compounds for
insulated wire continuing operations were 19.2% and 9.8%,
respectively.
In addition, customer contracts for our insulated wire segment
do not include adjustments for the fluctuations in premiums
charged to convert copper cathode to copper rod. For the year
ended December 31, 2005, the premium to convert copper
cathode to copper rod for insulated wire continuing operations
increased by 25.4%. We believe that higher component costs and
premiums may continue and that we may be unable to pass-through
these costs to our customers for the foreseeable future.
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We generally do not obtain long-term volume purchase
commitments from customers, and, therefore, cancellations,
reductions in production quantities and delays in production by
our customers could adversely affect our operating
results. |
We generally do not obtain firm, long-term purchase commitments
from our customers and we continue to experience reduced
lead-times in customer orders. Customers may cancel, reduce or
delay their orders. Order cancellations, reductions or delays by
a significant customer or by a group of customers have and could
continue to harm our operating results. Furthermore, our
customers and potential customers could decide to manufacture
in-house the products we offer. To be successful, we must excel
in terms of service, product quality and price not only compared
to our direct competitors but also compared to our
customers internal manufacturing capabilities.
In addition, we make significant decisions, including
determinations regarding the level of business we will seek and
accept, production schedules, component procurement commitments,
personnel needs and other resource requirements based on our
estimates of customer requirements. The short-term nature of our
customers commitments and the possibility of rapid changes
in demand for their products impairs our ability to estimate our
future customer requirements accurately. As a consequence of the
above factors, many of which are beyond our control, our
quarterly results may vary significantly.
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Demand for a portion of our products is highly dependent
on the automobile and appliance markets. |
The demand for our products depends, in part, upon the general
economic conditions of the automobile and appliance markets in
which our customers compete. To the extent these industries
experience weakened demand, our revenues and profitability could
suffer. Downward economic cycles may result in lower sales,
which may reduce our ability to make payments on our financial
obligations or impact the value of our common stock.
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The wire manufacturing industry is highly competitive and
we face substantial domestic and foreign competition in each of
our business segments. |
The results of vigorous competition could result in price
compression, reduced sales, margin pressure or loss of market
share thereby affecting our future earnings. Moreover, wire
manufacturers must provide increasingly rapid product turnaround
for their customers. On occasion, customers may require rapid
increases in production, which can stress our resources and
reduce operating margins. Although we have available
manufacturing capacity, we may not have sufficient capacity at
any given time to meet all of our
14
customers demands concurrently. In addition, because many
of our operating expenses are relatively fixed, a reduction in
customer demand can dramatically harm our gross margins and
operating results on a short term basis. Customers often expect
decreased prices over time.
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Our acquisition and expansion plans may fail to perform as
expected. |
We have evaluated, and expect to continue to evaluate, a wide
array of potential strategic transactions. From time to time, we
may engage in discussions regarding potential acquisitions or
expansion projects. Any of these transactions could be material
to our financial condition and results of operations. The
process of integrating our acquisitions or expanding our
business may create unforeseen operating difficulties and
expenditures and is risky. The areas where we face risks include:
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We may not be able to integrate the new acquisition and
expansion into our existing operations successfully. |
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Our estimate of the costs of improving, repositioning or
redeveloping an acquired property or asset may prove to be too
low, and, as a result, the property or asset may fail to meet
our estimate of profitability, either temporarily or for a
longer time. |
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Our managements time and focus will be diverted from
operating our existing business. |
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We may experience cultural challenges associated within
integrating employees from the acquired company into our
organization. |
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We may be unable to retain key employees from the acquired
business. |
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The loss of a significant customer could significantly
reduce our sales and impact our long-lived intangible assets as
well. |
General Cable Corporation represented 18% of our consolidated
net sales from continuing operations for the year ended
December 31, 2005. Yazaki Corp. and its affiliates
represented 10% of our consolidated net sales from continuing
operations for the year ended December 31, 2005. The loss
of General Cable Corporation, Yazaki Corp. or any material
reduction in their orders or in their orders from their
customers, would reduce our revenues and may result in the
impairment of property, plant and equipment, goodwill or
identifiable intangibles. See Item 1.
Business Key Customers regarding changes with
respect to Yazaki.
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We depend heavily on our key employees, and the loss of
key employees could harm our business. |
Our ability to provide high-quality products and level of
services depends in part on our ability to retain our skilled
personnel in the areas of product engineering, manufacturing and
sales. Our success is also dependent on the management and
leadership skills of our senior management team. The loss of any
of these individuals or an inability to attract, retain and
maintain additional personnel could prevent us from implementing
our business strategy.
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If our relationship with our employees were to
deteriorate, our business could suffer. |
Currently, in our U.S. operations and in our foreign
operations, we have maintained a positive working environment.
Although we focus on maintaining a productive relationship with
our employees, we cannot ensure that unions will not attempt to
organize our employees or that we will not be subject to work
stoppages, strikes or other types of conflicts with our
employees or organized labor in the future. Any such event could
result in increased costs, delay or reduce our production,
distract management from operating our business and harm our
relationships with key customers and suppliers, which could
damage our business, results of operations and financial
condition.
15
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A significant portion of our business depends on sales
outside the U.S. |
Approximately 28.4% of our net sales for the year ended
December 31, 2005 were attributable to production
facilities located outside of the U.S. Because we have
broad geographic coverage, we have exposure to political and
economic risks. Along with the risks associated with rapid
growth discussed above, international operations pose special,
additional risks, including:
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economic or political instability; |
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foreign exchange rate fluctuations; |
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difficulties in staffing and managing foreign personnel; and |
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cultural differences. |
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We are subject to foreign currency fluctuations. |
We have operations in Mexico, France, Italy and the Philippines.
Our operations may, therefore, be subject to volatility because
of currency fluctuations. Sales and expenses are denominated in
local currencies for the French and Italian operations and the
U.S. Dollar is the functional currency for Mexico and the
Philippines operations. As a result, these operations are
subject to market risk with respect to fluctuations in the
relative value of currencies. We evaluate from
time-to-time various
currency hedging programs that could reduce the risk, but we
currently do not have any currency hedging programs in place.
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As a U.S. corporation with international operations,
we are subject to the Foreign Corrupt Practices Act and a
determination that we violated this act may subject us to
significant fines and other penalties and damage our
reputation. |
As a U.S. corporation, we and our subsidiaries are subject
to the regulations imposed by the Foreign Corrupt Practices Act,
or the FCPA, which generally prohibits U.S. companies and
their intermediaries from making improper payments to foreign
officials for the purpose of obtaining or keeping business. Any
determination that we or any of our subsidiaries have violated
the FCPA could subject us to significant fines and other
penalties and damage our reputation.
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We are subject to litigation claims that could adversely
affect us. |
We are party to numerous lawsuits and have product liability
claims made against us involving water inlet hoses previously
supplied by a former subsidiary of our company to various OEMs.
We have legal obligations to defend and indemnify certain OEMs
supplied such products, as well as Viasystems International,
Inc. in connection with the sale of our wire harness business.
See Note 10 to our Consolidated Financial
Statements. In previous years, we entered into numerous
settlement and release agreements, claim and litigation
management agreements, claim resolution agreements, and related
and/or similar agreements, whereby we and homeowner insurance
providers settled prospective and/or historical product
liability claims arising out of the alleged failure of water
inlet hoses. While we have insurance coverage for a substantial
portion of these product liability claims, and while we estimate
that any remaining uninsured liability for such claims will not
exceed an amount we will be able to pay as hose claims against
us are resolved, such expectation cannot be ensured.
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We are subject to environmental laws and regulations that
expose us to potential financial liability. |
Our operations are regulated under a number of federal, state,
local and foreign environmental laws and regulations, which
govern, among other things, the discharge of hazardous materials
into the air and water as well as the handling, storage and
disposal of, or exposure to, hazardous materials and
occupational health and safety. Violations of these laws can
lead to material liability, fines or penalties. In addition, it
is possible that in the future new or more stringent
requirements could be imposed. Various federal, state, local and
foreign laws and regulations impose liability on current or
previous real property owners or operators for the cost of
investigating, cleaning up or removing contamination caused by
hazardous or toxic
16
substances at the property. In addition, because we are a
generator of hazardous wastes, we, along with any other person
who arranges for the disposal of those wastes, may be subject to
potential financial exposure for costs associated with the
investigation and remediation of sites at which such hazardous
waste has been disposed, if those sites become contaminated.
Liability may be imposed without regard to legality of the
original actions and without regard to whether we knew of, or
were responsible for, the presence of such hazardous or toxic
substances, and we could be responsible for payment of the full
amount of the liability, whether or not any other responsible
party is also liable.
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General economic factors that are beyond our control may
harm our business by causing demand for our products to decline
or increasing our costs. |
A number of factors beyond our control could decrease the demand
of our existing customers and impair our ability to attract new
customers. These include recessionary economic cycles and
cyclical downturns in our customers businesses.
Furthermore, customers encountering adverse economic conditions
may have difficulty paying for our products. Additionally,
terrorist activities, anti-terrorist efforts, war or other armed
conflicts involving the United States or its interests abroad
may have a material adverse effect on the U.S. and global
economies and on our business, results of operations or
financial condition. Finally, economic conditions can also cause
fluctuations in our expenses. The cost of raw materials, labor
and utilities are determined in part by general economic
conditions and demand.
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Anti-takeover provisions of our amended and restated
certificate of incorporation, as well as Delaware law, may
reduce the likelihood of any potential change of control or
unsolicited acquisition proposal that you might consider
favorable. |
The anti-takeover provisions of Delaware law may impose various
impediments to the ability of a third-party to acquire control
of us, even if a change in control would be beneficial to our
existing stockholders. Additionally, provisions of our amended
and restated certificate of incorporation and our amended and
restated bylaws could deter, delay or prevent a third-party from
acquiring us, even if doing so would benefit our stockholders.
The amended and restated certificate of incorporation includes a
provision that divides the board of directors in two classes
until the 2006 annual meeting of stockholders. The amended and
restated bylaws have limitations as to who may call a special
meeting of stockholders.
Risks Related to Our Common Stock
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We expect to experience volatility in our stock price,
which could negatively affect your investment. |
An investment in our common stock involves substantial risks.
The stock market generally and the market for stocks of
companies with lower market capitalizations, like us, in
particular have from time to time experienced and likely will
again experience significant price and volume fluctuations that
are unrelated to the operating performance of a particular
company.
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Our stock is traded on the Pink Sheets, which
may make it make it difficult for you to sell your stock and the
liquidity of our stock could decrease further if we deregister
our securities. |
Our common stock is currently traded on the Pink Sheets.
Broker-dealers often decline to trade in Pink Sheet stocks given
that the market for such securities is often limited, the stocks
are more volatile, and the risk to investors are greater. These
factors may reduce the potential market for our common stock by
reducing the number of potential investors. This may make it
more difficult for investors in our common stock to sell shares
to third parties or to otherwise dispose of them. This could
cause our stock price to decline. Additionally, there can be no
assurance that our stock will continue to trade on the pink
sheets.
In addition, since we have fewer than 300 record holders of our
stock, we have the ability to suspend registration of our stock
without shareholder approval. If we did so, the liquidity of our
stock could be impaired further.
17
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Our principal stockholders could exercise their influence
over us to your detriment. |
Substantially all of our company is owned by a few shareholders.
The interests of those shareholders may differ from your
interests, and, as such, they may take actions which may not be
in your interest because, among other reasons, they may hold a
significant portions of our 10 percent Secured Senior
Subordinated Notes due 2011 (Notes).
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We have not paid any dividends on our common stock and do
not anticipate doing so in the foreseeable future. |
We currently anticipate that all of our earnings, if any, will
be retained for repayment of our outstanding debt and for
development and expansion of our business. We do not anticipate
paying any cash dividends on our common stock in the foreseeable
future. In addition, our senior credit facility and the
indenture governing the Notes contains covenants that restrict
payment of cash dividends. See Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations Liquidity and Capital
Resources.
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All or substantially all of our assets are subject to
security interests, and if we default under our obligations, our
creditors could foreclose on our assets. |
All or substantially all of our assets serve as collateral for
our senior credit facilities and the Notes. If we default in our
agreements with these secured parties, they would have the right
to foreclose upon and sell, or otherwise transfer, the
collateral subject to their security interest. Accordingly, our
secured creditors would be entitled to have the debt owed to
them satisfied from our assets before we could make any
distribution to you.
We use owned or leased properties as manufacturing and
distribution facilities, warehouses and offices throughout the
United States, Mexico, France, Italy and the Philippines. Our
principal executive offices are located in Camden, New York. All
of our domestic owned properties are pledged to secure our
indebtedness under our senior credit facilities and the Notes.
Listed below are the principal manufacturing and distribution
facilities we operated as of December 31, 2005:
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Owned/ |
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Location |
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Square Feet | |
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Leased |
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Primary Products/End Use |
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BARE WIRE SEGMENT
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Camden, New York
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408,000 |
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Owned |
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Single end, bunched, stranded, cabled and electroplated wire |
Williamstown, New York
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183,000 |
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Owned |
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Single end, bunched, stranded and cabled wire |
Bremen, Indiana
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153,000 |
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Owned |
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Bunched wire |
Camden, New York
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159,000 |
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Leased(1) |
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Single end, bunched, stranded and cabled wire |
Jordan, New York
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|
|
117,000 |
|
|
Leased(1) |
|
Single end, bunched, stranded, shielding and cabled wire |
Rome, New York
|
|
|
107,000 |
|
|
Owned |
|
Bunched, stranded, cabled and electroplated wire |
Cazenovia, New York
|
|
|
54,000 |
|
|
Owned |
|
Braided wire |
El Paso, Texas
|
|
|
100,000 |
|
|
Owned |
|
Bunched wire |
El Paso, Texas
|
|
|
60,000 |
|
|
Owned |
|
Bunched wire |
18
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned/ |
|
|
Location |
|
Square Feet | |
|
Leased |
|
Primary Products/End Use |
|
|
| |
|
|
|
|
La Mirada, California
|
|
|
19,000 |
|
|
Leased(2) |
|
Distribution |
ENGINEERED WIRE EUROPE SEGMENT
|
|
|
|
|
|
|
|
|
Saint-Chamond, France
|
|
|
60,000 |
|
|
Owned |
|
Specialty braids, rope and cable products |
Saint-Chamond, France
|
|
|
30,000 |
|
|
Owned |
|
Specialty braids, rope and cable products |
Vinovo, Italy
|
|
|
25,000 |
|
|
Owned |
|
Braided wire |
INSULATED WIRE SEGMENT:
|
|
|
|
|
|
|
|
|
Durango, Mexico
|
|
|
155,000 |
|
|
Owned |
|
PVC, XLPE, bare wire |
Cebu, Philippines
|
|
|
135,000 |
|
|
Owned |
|
PVC, XLPE, bare wire |
El Paso, Texas
|
|
|
101,000 |
|
|
Owned(3) |
|
|
|
|
(1) |
The leases on our Camden, New York and Jordan, New York
facilities have remaining terms of approximately 6 years.
During 1997, we purchased the notes that were collateralized by
the Camden and Jordan properties from an unrelated creditor. We
negotiated a payment schedule with the lessor which allows the
lessor to retain title to the property until the termination of
the lease, at which time we will have the option to purchase the
properties for a nominal purchase price. |
|
(2) |
The lease expires April 30, 2007. |
|
(3) |
As of December 31, 2005, this facility was no longer being
used in our operations but instead was being leased to
Copperfield, LLC. On February 21, 2006, ownership of this
property was transferred to Copperfield, LLC pursuant to the
Asset Purchase Agreement. |
We believe our property and equipment include
state-of-the-art
technology and are well maintained. We believe that our property
and equipment are suitable for their present and intended
purposes and adequate for our current level of operations and
expected demand for our products.
|
|
Item 3. |
Legal Proceedings. |
We are party to numerous lawsuits and have product liability
claims made against us involving water inlet hoses previously
assembled and supplied by one of our former subsidiaries to
various OEMs and other distributors. We have legal obligations
to defend and indemnify certain OEMs supplied with such products
and to Viasystems International, Inc. in connection with the
sale of the Wire Harness business (the Hose
Indemnification Agreements). In previous years, we entered
into numerous settlement and release agreements, claim and
litigation management agreements, claim resolution agreements,
and related and/or similar agreements, whereby we and homeowner
insurance providers settled prospective and/or historical
product liability claims arising out of the alleged failure of
such water inlet hoses (the CRA and Settlement
Agreements). We have entered into CRA and Settlement
Agreements with homeowner insurance providers with an aggregate
market share of approximately 72% of the domestic homeowner
insurance market.
We have insurance coverage for a substantial portion of these
product liability claims that arose prior to April 1, 2002.
Following one excess insurance carriers decision to
disclaim coverage for such hose claims in February 2002, we
initiated an action in Illinois state court (the State
Court Action) against that excess liability insurance
carrier and other parties alleging, among other things, that the
excess carrier was obligated to defend and indemnify and provide
insurance coverage to us and various OEMs for claims for damages
and defense costs related to water inlet hoses supplied by and
through our former subsidiary pursuant to two $25 million
excess insurance policies covering the one year periods from
April 1, 2000 to April 1, 2002. In July 2003, judgment
was entered in the State Court Action in our favor, which
judgment was appealed by the insurance carrier. Following entry
of the judgment, we and International Wire
19
Holding Company, our former parent company, sued the excess
insurance carrier for damages arising out of such carriers
wrongful denial of coverage. Thereafter, we and certain of our
affiliates and the excess carrier entered into settlement
negotiations and, in December 2003, reached an agreement
whereby, among other things, the excess insurance carrier agreed
to provide us and parties we had agreed to indemnify coverage
and defense costs for the hose claims in accordance with the
terms of the policies. In addition, pursuant to Hose
Indemnification Agreements, certain OEMs whose indemnification
claims are covered by such insurance coverage have agreed to
provide limited financial contributions to fund a portion of the
uninsured payments that we have made and will make pursuant to
the CRA and Settlement Agreements. As a result of the foregoing,
our exposure on account of such claims is diminished, and we
estimate that any remaining uninsured liability for such claims
will not have a material affect on our financial position or
results of operations.
In addition, we are a party to various other legal proceedings
and administrative actions, all of which are of an ordinary or
routine nature incidental to our operations. We do not believe
that such proceedings and actions would materially affect us.
|
|
Item 4. |
Submission of Matters to a Vote of Security
Holders. |
Not applicable.
PART II
|
|
Item 5. |
Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity. |
Our stock is currently being quoted under the symbol
ITWG.PK on the Pink Sheet Electronic Quotation
Service (Pink Sheets) maintained by Pink Sheets LLC.
The following table sets forth high and low closing sales prices
for our stock, as reported on the Pink Sheets. The prices shown
represent
over-the-counter market
quotations reflecting inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily
represent actual transactions. There are no results from the
first three quarters of 2004 since we emerged from bankruptcy on
October 20, 2004.
|
|
|
|
|
|
|
|
|
|
|
High | |
|
Low | |
|
|
| |
|
| |
2005
|
|
|
|
|
|
|
|
|
Fourth quarter
|
|
$ |
10.50 |
|
|
$ |
6.15 |
|
Third quarter
|
|
|
10.50 |
|
|
|
5.00 |
|
Second quarter
|
|
|
15.50 |
|
|
|
10.75 |
|
First quarter
|
|
|
17.03 |
|
|
|
15.50 |
|
2004
|
|
|
|
|
|
|
|
|
Fourth quarter
|
|
$ |
15.69 |
|
|
$ |
15.17 |
|
As of January 23, 2006, the approximate number of holders
of record of our stock was 50.
The Company has not declared or paid any dividends on its
capital stock since emerging from bankruptcy on October 20,
2004. We currently anticipate that all of our earnings, if any,
will be retained for repayment of our outstanding debt and for
development and expansion of our business. We do not anticipate
paying any cash dividends on our stock in the foreseeable
future. In addition, our senior credit facility and the
indenture governing the notes contains covenants that restrict
payment of cash dividends.
20
The following table summarizes securities authorized for
issuance under our equity compensation plans as of
December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities | |
|
|
|
|
|
|
Remaining Available for | |
|
|
Number of Securities to Be | |
|
Weight-average | |
|
Future Issuance Under | |
|
|
Issued upon Exercise of | |
|
Exercise Price of | |
|
Equity Compensation Plans | |
|
|
Outstanding Options, | |
|
Outstanding Options, | |
|
(Excluding Securities | |
|
|
Warrants and Rights | |
|
Warrants and Rights | |
|
Reflected in Column (a)) | |
Plan Category |
|
(a) | |
|
(b) | |
|
(c) | |
|
|
| |
|
| |
|
| |
Equity compensation plans approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders(1)
|
|
|
25,000 |
|
|
$ |
11.00 |
|
|
|
0 |
|
Total
|
|
|
25,000 |
|
|
$ |
11.00 |
|
|
|
0 |
|
|
|
(1) |
On August 1, 2005, William Lane Pennington, Vice-Chairman
of the Board of Directors, was granted an option to
purchase 25,000 shares at an exercise price of
$11.00 per share. One-third of the shares underlying the
option became exercisable on August 1, 2005, the
second-third becomes exercisable on August 1, 2006, and the
remaining third becomes exercisable on August 1, 2007. The
option expires on August 1, 2015. |
We filed a registration statement on Amendment No. 4 to
Form S-1 (File
No. 333-120736)
for the account of certain selling shareholders. The
registration statement was declared effective on August 9,
2005. As of March 1, 2006, no shares have been sold under
the registration statement. Since the registration statement
related to the account of certain selling shareholders, we did
not receive any proceeds.
|
|
Item 6. |
Selected Financial Data |
The following table sets forth selected consolidated financial
data and other operating information of our company. The
following data should be read in conjunction with our
consolidated financial statements and related notes and
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations. The
historical results are not necessary indicative of results to be
expected in any future period.
In connection with our emergence from bankruptcy on
October 20, 2004, we adopted fresh-start
reporting in accordance with Statement of Position
(SOP) 90-7, Financial Reporting by Entities in
Reorganization under the Bankruptcy Code. Under
fresh-start reporting, the reorganization value of
our company is allocated to our specific tangible and identified
intangible net assets based on their fair value. Excess
reorganization value is reported as goodwill. As a
result of the adoption of such fresh-start
reporting, our post-emergence financial statements
(Successor Company) are not comparable with our
pre-emergence financial statements (Predecessor
Company).
21
On November 30, 2005, we sold and leased certain assets of
our U.S. Insulated Wire Business to Copperfield LLC and
ceased our insulated wire business in the U.S. See
Item 1. Business U.S. Insulated Wire
Business Sale for information about our recent sale.
Accordingly, the results of operations for the
U.S. Insulated Wire Business have been shown as
discontinued operations in the selected financial
data.
The Company has restated its consolidated financial statements
as of and for the year ended December 31, 2005, and
deferred taxes and associated valuation allowance at
December 31, 2004, to correct errors in accounting for
deferred income tax assets/liabilities, goodwill and the
provision for income tax. See Note 1A to the consolidated
financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company | |
|
|
Predecessor Company | |
|
|
| |
|
|
| |
|
|
|
|
For the Period | |
|
|
For the Period | |
|
|
|
|
Year Ended | |
|
October 20 | |
|
|
January 1 | |
|
|
|
|
December 31, | |
|
through | |
|
|
through | |
|
Year Ended December 31, | |
|
|
2005 | |
|
December 31, | |
|
|
October 19, | |
|
| |
|
|
Restated | |
|
2004 | |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
|
| |
|
| |
|
| |
|
| |
Consolidated Statements of Operations Data (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
539,285 |
|
|
$ |
85,103 |
|
|
|
$ |
346,310 |
|
|
$ |
269,313 |
|
|
$ |
252,304 |
|
|
$ |
263,266 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of goods sold, exclusive of depreciation expense shown
below
|
|
|
472,581 |
|
|
|
71,336 |
|
|
|
|
288,901 |
|
|
|
204,974 |
|
|
|
180,967 |
|
|
|
190,349 |
|
|
Selling, general and administrative expenses(1)
|
|
|
34,222 |
|
|
|
6,006 |
|
|
|
|
21,027 |
|
|
|
24,093 |
|
|
|
25,409 |
|
|
|
16,428 |
|
|
Depreciation
|
|
|
9,347 |
|
|
|
2,934 |
|
|
|
|
11,387 |
|
|
|
14,217 |
|
|
|
14,933 |
|
|
|
16,208 |
|
|
Amortization
|
|
|
3,709 |
|
|
|
825 |
|
|
|
|
1,751 |
|
|
|
2,498 |
|
|
|
2,370 |
|
|
|
5,732 |
|
|
Impairment, unusual and plant closing charges(2)
|
|
|
3,529 |
|
|
|
1,632 |
|
|
|
|
262 |
|
|
|
1,188 |
|
|
|
|
|
|
|
7,938 |
|
|
Reorganization expenses(3)
|
|
|
|
|
|
|
|
|
|
|
|
3,062 |
|
|
|
2,172 |
|
|
|
|
|
|
|
|
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,973 |
|
|
|
3,853 |
|
|
|
|
|
|
Gain on sale of property, plant and equipment
|
|
|
(721 |
) |
|
|
(8 |
) |
|
|
|
(158 |
) |
|
|
|
|
|
|
(8 |
) |
|
|
(149 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
16,618 |
|
|
|
2,378 |
|
|
|
|
20,078 |
|
|
|
17,198 |
|
|
|
24,780 |
|
|
|
26,760 |
|
Bankruptcy reorganization items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankruptcy reorganization expenses(3)
|
|
|
|
|
|
|
|
|
|
|
|
(12,710 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from debt forgiveness(4)
|
|
|
|
|
|
|
|
|
|
|
|
259,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income/(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (excluding interest of $20,959 on liabilities
subject to compromise at October 19, 2004)
|
|
|
(13,350 |
) |
|
|
(2,586 |
) |
|
|
|
(14,625 |
) |
|
|
(39,722 |
) |
|
|
(34,259 |
) |
|
|
(33,603 |
) |
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company | |
|
|
Predecessor Company | |
|
|
| |
|
|
| |
|
|
|
|
For the Period | |
|
|
For the Period | |
|
|
|
|
Year Ended | |
|
October 20 | |
|
|
January 1 | |
|
|
|
|
December 31, | |
|
through | |
|
|
through | |
|
Year Ended December 31, | |
|
|
2005 | |
|
December 31, | |
|
|
October 19, | |
|
| |
|
|
Restated | |
|
2004 | |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
|
| |
|
| |
|
| |
|
| |
|
Amortization of deferred financing costs
|
|
|
(646 |
) |
|
|
(127 |
) |
|
|
|
(6,813 |
) |
|
|
(4,873 |
) |
|
|
(2,123 |
) |
|
|
(1,346 |
) |
|
Other, net
|
|
|
(137 |
) |
|
|
39 |
|
|
|
|
(182 |
) |
|
|
(49 |
) |
|
|
(250 |
) |
|
|
(318 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations before income tax
provision/(benefit) and cumulative effect of change in
accounting principle
|
|
|
2,485 |
|
|
|
(296 |
) |
|
|
|
245,000 |
|
|
|
(27,446 |
) |
|
|
(11,852 |
) |
|
|
(8,507 |
) |
Income tax provision/(benefit)
|
|
|
3,762 |
|
|
|
(34 |
) |
|
|
|
666 |
|
|
|
291 |
|
|
|
33,955 |
|
|
|
(18,710 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations before cumulative
effect of change in accounting principle
|
|
|
(1,277 |
) |
|
|
(262 |
) |
|
|
|
244,334 |
|
|
|
(27,737 |
) |
|
|
(45,807 |
) |
|
|
10,203 |
|
Income/(loss) from discontinued operations, net of income taxes
of $(6,348), $0, $0, $0, $0 and ($2,150), respectively(5)
|
|
|
(9,542 |
) |
|
|
(10,500 |
) |
|
|
|
(7,026 |
) |
|
|
(19,001 |
) |
|
|
(32,987 |
) |
|
|
(27,707 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before cumulative effect of change in accounting
principle
|
|
|
(10,819 |
) |
|
|
(10,762 |
) |
|
|
|
237,308 |
|
|
|
(46,738 |
) |
|
|
(78,794 |
) |
|
|
(17,504 |
) |
Cumulative effect of change in accounting for goodwill net of
tax benefit of $19,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54,504 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$ |
(10,819 |
) |
|
$ |
(10,762 |
) |
|
|
$ |
237,308 |
|
|
$ |
(46,738 |
) |
|
$ |
(133,298 |
) |
|
$ |
(17,504 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$ |
(0.13 |
) |
|
$ |
(0.03 |
) |
|
|
$ |
244,334 |
|
|
$ |
(27,737 |
) |
|
$ |
(45,807 |
) |
|
$ |
10,203 |
|
|
|
|
Loss from discontinued operations
|
|
|
(0.95 |
) |
|
|
(1.05 |
) |
|
|
|
(7,026 |
) |
|
|
(19,001 |
) |
|
|
(32,987 |
) |
|
|
(27,707 |
) |
|
|
|
Cumulative effect of accounting change
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
|
0 |
|
|
|
0 |
|
|
|
(54,504 |
) |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$ |
(1.08 |
) |
|
$ |
(1.08 |
) |
|
|
$ |
237,308 |
|
|
$ |
(46,738 |
) |
|
$ |
(133,298 |
) |
|
$ |
(17,504 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company | |
|
|
Predecessor Company | |
|
|
| |
|
|
| |
|
|
As of | |
|
|
|
|
|
|
|
December 31, | |
|
As of | |
|
|
As of December 31, | |
|
|
2005 | |
|
December 31, | |
|
|
| |
|
|
Restated | |
|
2004 | |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
|
| |
|
| |
|
| |
Consolidated Balance Data Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
5,422 |
|
|
$ |
15,192 |
|
|
|
$ |
25,981 |
|
|
$ |
2,546 |
|
|
$ |
8,017 |
|
Working capital
|
|
|
123,540 |
|
|
|
122,503 |
|
|
|
|
(298,649 |
) |
|
|
66,299 |
|
|
|
84,540 |
|
Total assets
|
|
|
368,686 |
|
|
|
394,207 |
|
|
|
|
392,335 |
|
|
|
363,510 |
|
|
|
511,943 |
|
Total debt
|
|
|
135,416 |
|
|
|
166,649 |
|
|
|
|
397,135 |
|
|
|
335,521 |
|
|
|
331,792 |
|
Total shareholders equity/(deficit)
|
|
|
152,813 |
|
|
|
166,381 |
|
|
|
|
(88,628 |
) |
|
|
(52,353 |
) |
|
|
77,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company | |
|
|
Predecessor Company | |
|
|
| |
|
|
| |
|
|
|
|
For the Period | |
|
|
For the Period | |
|
|
|
|
|
|
October 20 | |
|
|
January 1 | |
|
|
|
|
Year Ended | |
|
through | |
|
|
through | |
|
Year Ended December 31, | |
|
|
December 31, | |
|
December 31, | |
|
|
October 19, | |
|
| |
|
|
2005 | |
|
2004 | |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
|
| |
|
| |
|
| |
|
| |
Other Financial Data(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$ |
15,144 |
|
|
$ |
3,594 |
|
|
|
$ |
18,786 |
|
|
$ |
25,138 |
|
|
$ |
27,645 |
|
|
$ |
36,475 |
|
|
Capital expenditures
|
|
|
6,973 |
|
|
|
2,088 |
|
|
|
|
7,775 |
|
|
|
13,970 |
|
|
|
11,505 |
|
|
|
25,968 |
|
|
|
(a) |
Information based on total cash flows. |
|
(1) |
Includes non-cash compensation expense income related to stock
appreciation of Holding Class A Common Stock (as defined
herein) in the amount of $(10,393) for the year ended
December 31, 2001. |
|
(2) |
Consists of charges related to the closure and consolidation of
certain facilities and administrative and corporate
reorganizations and impairment of fixed assets related to the
plant consolidations of $3,529 for the year ended
December 31, 2005, $1,632 in the period from October 20
through December 31, 2004, $262 in the period from January
1 through October 19, 2004, $1,188 in 2003, and $7,938 in
2001. (See Note 13 to our Consolidated Financial
Statements included herein.) |
|
(3) |
Reorganization expenses consist primarily of legal and
consulting fees, and Bankruptcy reorganization expenses consist
of legal and consulting fees, key employee retention expenses,
deferred financing fees offset by the premium on the 11.75%
Series B Senior Subordinated Notes. |
|
(4) |
In connection with the reorganization plan, we recorded a gain
from debt forgiveness in respect of the exchange of our
11.75% Senior Subordinated Notes of $150,000, 11.75%
Series B Senior Subordinated Notes of $150,000 and
14% Senior Subordinated Notes of $5,000 plus accrued
interest at the time of filing bankruptcy (March 24, 2004)
on these debt instruments of $29,359 for the 10% Secured Senior
Subordinated Notes of $75,000. |
|
(5) |
Includes loss on discontinued operations from the
U.S. Insulated Wire Business of $9,542, $10,500, $7,026,
$12,072, $28,987 and $24,857 for the year ended
December 31, 2005, the period October 20 through
December 31, 2004, the period January 1 through
October 19, 2004, the years ended December 31, 2003,
2002 and 2001, respectively. Includes loss for the Wire Harness
Product Liability (see Notes 9 and 17) claims of
$6,929, $4,000 and $2,850 in the years ended December 31,
2003, 2002 and 2001, respectively. |
|
|
Item 7. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
The following discussion and analysis should be read in
conjunction with Item 6. Selected Financial
Data and Item 8. Financial Statements and
Supplementary Data. This discussion contains
forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of
certain factors, including the risks discussed in
Item 1A. Risk Factors and elsewhere in this
Form 10-K.
24
The Company has restated its consolidated financial statements
as of and for the year ended December 31, 2005, and
deferred taxes and associated valuation allowance at
December 31, 2004, to correct errors in accounting for
deferred income tax assets/liabilities, goodwill and the
provision for income tax. See Note 1A to the consolidated
financial statements.
Overview
We, together with our subsidiaries, manufacture and market wire
products, including bare and tin-plated copper wire and
insulated copper wire products, for other wire suppliers and
original equipment manufacturers or OEMs. Our
products include a broad spectrum of copper wire configurations
and gauges with a variety of electrical and conductive
characteristics and are utilized by a wide variety of customers
primarily in the appliance, automotive, electronics and data
communications and general industrial/energy industries. We
manufacture and distribute our products at 15 facilities located
in the United States, Mexico, France, Italy and the Philippines.
We operate our business in the following three segments:
|
|
|
|
|
Bare Wire Products. Our bare and tin-plated copper wire
products (or conductors) are used to transmit digital, video and
audio signals or conduct electricity and are sold to a diverse
customer base of over 1,000 insulated wire manufacturers and
various industrial OEMs for use in computer and data
communications products, general industrial, energy, appliances,
automobiles and other applications. See Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations Acquisition for more
information about our plans to expand our domestic bare wire
segment. |
|
|
|
Engineered Wire Products Europe. Our bare
copper wire products are engineered and used to conduct
electricity either for power or for grounding purposes and are
sold to a diverse customer base of various OEMs for use in
electrical appliances, power supply, aircraft and railway and
automotive. |
|
|
|
Insulated Wire Products. Our insulated wire products
(copper conductors insulated with plastic or other polymeric
compounds) are primarily manufactured for the automotive and
appliance end-user markets. Our insulated wire products are used
in the assembly of wire harnesses that are installed in both
automobiles and appliances. A wire harness is comprised of an
assembly of wires with connectors and terminals that transmit
electricity between two or more end points. See
U.S. Insulated Wire Business Sale for
information about our recent sale and plans for the remainder of
the segment. |
Demand for our products is directly related to two primary
factors:
|
|
|
|
|
demand for the end products in which our products are
incorporated; and |
|
|
|
our ability to compete with other suppliers in the industries we
serve. |
Important indicators of demand for all of our products include a
number of general economic factors such as gross domestic
product, interest rates and consumer confidence. In specific
industries, management also monitors the following factors:
|
|
|
|
|
Electronics/data communications and
industrial/energy While the end user
applications are very diverse, some of the contributing factors
of demand in the markets include technology spending and major
industrial and/or infrastructure projects, including build-out
of computer networks, mining development, oil exploration and
production projects, mass transit and general commercial and
industrial real estate development. |
|
|
|
Automobiles North American industry
production statistics, which are influenced by labor relations
issues, regulatory requirements and trade agreements. For the
year ended December 31, 2005, automotive industry
production volumes were up 0.4% versus the same period for 2004. |
25
|
|
|
|
|
Appliances U.S. industry shipment
statistics for items such as refrigerators, freezers, washers,
dryers, ranges and dishwashers. These statistics are impacted by
replacement rates for existing appliances, housing starts,
existing home sales and mortgage refinancing rates. For the year
ended December 31, 2005, industry shipments increased 2.4%
over the same period for 2004. |
We compete with other suppliers of wire products on the basis of
price, quality, delivery and the ability to provide a sufficient
array of products to meet most of our customers needs. We
believe our state of the art production equipment permits us to
provide a high quality product while also permitting us to
efficiently manufacture our products, which assists in our
ability to provide competitively priced products. Also, we
invest in engineering so that we can continue to provide our
customers with the array of products and features they demand.
Finally, we have located our production facilities near many of
our customers manufacturing facilities which allows us to
meet our customers delivery demands, including assisting
with inventory management for
just-in-time production
techniques.
A portion of our revenues is derived from processing
customer-owned (tolled) copper. The value of tolled
copper is excluded from both our sales and costs of sales, as
title to these materials and the related risks of ownership do
not pass to us at any time.
Our expenses in producing these products fall into three main
categories raw materials, including copper and
insulating material (PVC and XLPE compounds), labor and to a
lesser extent utilities. Copper is the primary raw material
incorporated in all of our products. As a world traded
commodity, copper prices have historically been subject to
fluctuations. Copper prices are affected by a number of factors,
including worldwide demand, mining and transportation capacity
and political instability. Copper supply is generally affected
by the number and capacity of the mines that produce copper. For
instance, production problems at a single major mine can impact
worldwide supply and prices. Copper prices have increased from
2004 levels as a result of a combination of higher demand in
China and disruption in mining production from several factors
including an earthquake in Chile and labor stoppages at certain
mines in Africa, Canada and the U.S. The average price per
pound of copper based upon The New York Mercantile Exchange,
Inc. (COMEX) increased to $1.68 per pound for
the year ended December 31, 2005 from $1.29 per pound
for the year ended December 31, 2004. We attempt, where
possible, to minimize the impact of these fluctuations on our
profitability through pass-through arrangements with our
customers, which are based on similar variations of monthly
copper price formulas. These formulas for our insulated wire
customers do not, however, include adjustments for the
fluctuations in the premiums charged to convert copper cathode
to copper rod and deliver it to the required location. We
believe that higher premiums may continue and that we may be
unable to pass-through these costs to our customers for the
foreseeable future. For the year ended December 31, 2005,
the premium to convert copper cathode to copper rod for
insulated wire continuing operations increased by 25.4%. As
noted below, a severe increase in the price of copper can have a
negative impact on our liquidity.
Other major raw materials we consume include PVC and XLPE
compounds. The prices of these items are generally affected by
world oil prices and world-wide supply and demand and have
increased significantly in 2004 and 2005. World oil prices are
impacted by a number of factors, including seasonal
fluctuations, political instability and meteorological events.
For the year ended December 31, 2005, the price of a barrel
of oil increased 41.9%. Correspondingly, from January 1,
2005 to January 1, 2006, the price of PVC compounds and
XLPE compounds for insulated wire continuing operations
increased 19.2% and 9.8%, respectively. Our contracts with
customers for insulated wire do not include adjustments for
fluctuations in the price of oil, PVC compounds or XLPE
compounds. We believe that higher component costs may continue
and that we may be unable to pass-through these costs to our
customers for the foreseeable future.
Our labor and utility expenses are directly tied to our level of
production. While the number of employees we use in our
operations has fluctuated with sales volume, our cost per
employee continues to rise with increases in wages and the costs
of providing medical coverage, workers compensation and
other fringe benefits to employees. The cost of providing
medical coverage is impacted by continued inflation in medical
products and services. Utility rates vary by season and the
prices for coal, natural gas and other
26
similar commodities which are used in the generation of power.
We attempt to manage our utility rates through usage agreements
which affect our power usage during peak usage hours. We have
recently incurred increased utility costs related to the
increase in natural gas prices and the increased prices are
expected for at least the near future.
U.S. Insulated Wire Business Sale
On November 30, 2005, we entered into an Asset Purchase
Agreement with Copperfield, LLC. Pursuant to that agreement, on
November 30, 2005, we:
|
|
|
|
|
sold the inventory, equipment, spare parts and certain other
assets located at our Avilla, Indiana facility and three
facilities located in El Paso, Texas; |
|
|
|
sold our Avilla, Indiana facility, transferred leases for two of
our El Paso, Texas facilities and leased a third
El Paso, Texas facility to Copperfield (the third facility
was subsequently sold to Copperfield on February 21, 2006
for $2 million); and |
|
|
|
transferred certain contracts related to these facilities. |
Under the agreement, we received net proceeds of
$15 million after the working capital adjustment. We
retained our accounts receivable, accounts payable and all other
liabilities which were $17.2 million, net at
November 30, 2005.
We continue to explore strategic alternatives for the remainder
of our insulated wire business, which comprises operations in
Cebu, Philippines and Durango, Mexico, and that may include
their sale or closure. The Durango plant ceased producing
insulated wire at the end of January 2006.
Acquisition
On March 4, 2006, we entered into a Stock Purchase
Agreement (Purchase Agreement) to acquire Phelps
Dodge High Performance Conductors of SC & GA, Inc.
(HPC) from Phelps Dodge Corporation
(PD). HPC has manufacturing operations in Inman, SC
and Trenton, GA. On March 4, 2006, we entered into a Stock
Purchase Agreement (Purchase Agreement) to acquire
Phelps Dodge High Performance Conductors of SC and GA, Inc.
(HPC) from Phelps Dodge Corporation
(PD). HPC is a manufacturer of specialty high
performance conductors which are plated copper and copper alloy
conductors offering both high and low temperature standard and
customized conductors as well as specialty film insulated
conductors and miniature tubing products. The conductors
manufactured are tin, nickel and silver plated, including some
proprietary products. High temperature products are generally
used where high thermal stability and good solderability are
required for certain military and commercial aerospace
applications. The medical products include ultra fine alloys,
which are used in medical electronics such as ultrasound
equipment and portable defibrillators. The tubing products are
used in a variety of medical devices in medicine delivery and
coronary procedures. These products are sold to harness assembly
manufacturers, distributors and OEMs in the United States,
Europe and Asia primarily serving the aerospace, medical,
automotive, computer, telecommunications, mass transportation,
geophysical and electronics markets. HPC has manufacturing
operations in Inman, South Carolina and Trenton, Georgia. For
the fiscal year ended December 31, 2005, HPCs
unaudited sales were $85.5 million.
On March 31, 2006, we completed the acquisition of all of
the outstanding common stock of HPC for $42 million plus a
working capital adjustment estimated at closing to be
$2 million. We funded the acquisition with borrowings under
our revolving credit facility. Additionally, we purchased the
copper inventory held on consignment by HPC from PD for
approximately $5 million. In addition, pursuant to the
Purchase Agreement, we have agreed to a contingency payment in
an amount equal to 4.88 multiplied by the amount that HPCs
2006 EBITDA (as defined in the Purchase Agreement) exceeds
$9.4 million. The contingency payment is capped at
$3 million. In connection with the closing of the
transaction, Phelps Dodge High Performance Conductors of
SC & GA, Inc. changed its name to IWG High Performance
Conductors, Inc. This acquisition continues the execution of our
strategy to expand our product offerings
27
with silver and nickel plated products and to sell into new
markets, including aerospace and medical, as we wind-down and
exit the insulated wire business.
Bankruptcy and Reorganization
On March 24, 2004, we filed a voluntary petition for
reorganization under Chapter 11 of the United States
Bankruptcy Code. Our Chapter 11 bankruptcy petition was
directly related to the significant downturn in the
industrial/energy and electronics/data communications markets
and by increased competitive pricing pressures in the automotive
market that accelerated in 2001 and continued to increase
through the filing date. The economic downturn and competitive
pricing pressures resulted in lower sales, lower margins, and
weaker cash flows than originally expected. Additionally,
increasing copper prices had negatively impacted our liquidity
because, although we have copper price pass-through arrangements
without our customers, there is a lag between the time of our
purchase of copper and the time at which we receive cash
payments after selling end products to customers reflecting the
increased price. We emerged from bankruptcy on October 20,
2004.
Strategic Initiatives
Upon emergence from bankruptcy, we developed and began executing
various strategic initiatives including evaluating alternatives
for the insulted wire segment, reduction of debt levels and
expansion of bare wire segment.
During 2005, we believe we have made progress towards these
strategic alternatives. The sale of the U.S. Insulated Wire
Business in November 2005 allowed us to exit a business faced
with difficult market conditions and weakening financial results
and cash flows. The proceeds from the sale as well as the
collections of retained accounts receivable were used to pay
down outstanding indebtedness. In addition, we believe that the
sale or closure of the remaining insulated wire segment
operations and assets will further reduce our debt levels and
improve liquidity.
The increased liquidity will be used in part to expand the bare
wire segment with the acquisition of Phelps Dodge High
Performance Conductors of SC and GA, Inc. This acquisition
continues the execution of our strategy to expand our product
offerings with silver and nickel plated products and sell into
new markets, including aerospace and medical, as we wind-down
and exit the insulated wire business.
Results of Operations
As is more fully discussed in Note 3
Fresh-Start Reporting of the Notes to our Consolidated Financial
Statements, we adopted fresh-start reporting pursuant to the
guidance provided by the American Institute of Certified Public
Accountants Statement of
Position 90-7,
Financial Reporting by Entities in Reorganization under the
Bankruptcy Code
(SOP 90-7).
For financial reporting purposes, the effective date of the
reorganization was October 20, 2004 and our results of
operations and cash flows in 2004 have been separated as
pre-October 20 and post-October 20, 2004 due to a change in
basis of accounting in the underlying assets and liabilities. We
refer to our results prior to October 20, 2004 as results
for the Predecessor Company and we refer to our results after
October 20, 2004 as results for the Successor Company.
For the reasons described in Note 3 to our Consolidated
Financial Statements and due to other adjustments, the
Predecessor Companys financial statements for the periods
prior to our emergence from bankruptcy may not be comparable to
the Successor Companys financial statements for the year
ended December 31, 2005 and for the period October 20
through December 31, 2004, and our results of operations
prior to emergence from bankruptcy, including the period from
January 1 through October 19, 2004, are not indicative of
future results. Readers should, therefore, review this material
with caution and not rely on the information concerning the
Predecessor Company as being indicative of our future results or
providing an accurate comparison of financial performance. In
addition, the year ended December 31, 2004 pro forma
information presented below does not comply with
SOP 90-7, which
calls for separate reporting for the Successor Company and the
Predecessor Company.
28
The pro forma information for the year December 31, 2004
reflected adjustments including: the reversal of the net
periodic postretirement benefit cost related to the
Companys self-funded post retirement plan; adjustment to
depreciation relating to the adjustment to the fair market value
and adjusting remaining useful lives of existing property, plant
and equipment; additional amortization of customer contracts,
trade names and trademarks identified as part of the allocation
of reorganization value; elimination of bankruptcy
reorganization expenses; elimination of gain from debt
forgiveness; adjustment of interest for the reduction for the
$230,000 reduction of Senior Subordinated Notes pursuant to the
Plan of Reorganization and interest under the revolving credit
facility and term loan dated October 20, 2004; adjustment
of the amortization of net deferred financing fees for the
revolving credit facility and term loan dated October 20,
2004; and reflects income/(loss) before income taxes at a 40%
effective tax rate and no consideration was given to deferred
taxes, including net operating loss carryforwards, which are
fully offset by a valuation allowance. For further details on
the pro forma adjustments, see the table of pro forma
adjustments on page 34.
The following table sets forth certain statement of operations
data in millions of dollars and percentage of net sales for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
|
|
|
Successor | |
|
|
|
|
|
Company | |
|
|
|
|
|
Company | |
|
|
Predecessor Company | |
|
|
| |
|
|
|
|
|
| |
|
|
| |
|
|
For the Year | |
|
|
|
|
|
For the Period | |
|
|
|
|
|
|
|
Ended | |
|
|
|
|
|
October 20 | |
|
|
For the Period | |
|
|
|
|
December 31, | |
|
|
|
through | |
|
|
January 1 | |
|
For the Year | |
|
|
2005 | |
|
Pro Forma Year | |
|
December 31, | |
|
|
through | |
|
Ended | |
|
|
Restated | |
|
December 31, 2004 | |
|
2004 | |
|
|
October 19, 2004 | |
|
December 31, 2003 | |
|
|
| |
|
| |
|
| |
|
|
| |
|
| |
|
|
|
|
|
|
(Unaudited) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
539.3 |
|
|
|
100 |
% |
|
$ |
431.4 |
|
|
|
100.0 |
% |
|
$ |
85.1 |
|
|
|
100.0 |
% |
|
|
$ |
346.3 |
|
|
|
100.0 |
% |
|
$ |
269.3 |
|
|
|
100.0 |
% |
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold, exclusive of depreciation expense shown below
|
|
|
472.6 |
|
|
|
87.6 |
% |
|
|
360.2 |
|
|
|
83.5 |
% |
|
|
71.3 |
|
|
|
83.8 |
% |
|
|
|
288.9 |
|
|
|
83.4 |
% |
|
|
205.0 |
|
|
|
76.1 |
% |
Selling, general and administrative expenses
|
|
|
34.2 |
|
|
|
6.3 |
% |
|
|
27.5 |
|
|
|
6.4 |
% |
|
|
6.0 |
|
|
|
7.0 |
% |
|
|
|
21.0 |
|
|
|
6.1 |
% |
|
|
24.1 |
|
|
|
9.0 |
% |
Depreciation and amortization
|
|
|
13.1 |
|
|
|
2.4 |
% |
|
|
14.4 |
|
|
|
3.3 |
% |
|
|
3.8 |
|
|
|
4.5 |
% |
|
|
|
13.1 |
|
|
|
3.8 |
% |
|
|
16.7 |
|
|
|
6.2 |
% |
Impairment and plant closing charges
|
|
|
3.5 |
|
|
|
0.7 |
% |
|
|
1.9 |
|
|
|
0.4 |
% |
|
|
1.6 |
|
|
|
1.9 |
% |
|
|
|
0.2 |
|
|
|
0.0 |
% |
|
|
1.2 |
|
|
|
0.4 |
% |
Reorganization expenses
|
|
|
|
|
|
|
|
% |
|
|
3.1 |
|
|
|
0.7 |
% |
|
|
|
|
|
|
|
% |
|
|
|
3.1 |
|
|
|
0.9 |
% |
|
|
2.1 |
|
|
|
0.8 |
% |
Goodwill impairment
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
|
|
3.0 |
|
|
|
1.1 |
% |
Gain on sale of property, plant and equipment
|
|
|
(0.7 |
) |
|
|
(0.1 |
)% |
|
|
(0.2 |
) |
|
|
(0.0 |
)% |
|
|
|
|
|
|
|
% |
|
|
|
(0.1 |
) |
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
16.6 |
|
|
|
3.1 |
% |
|
|
24.5 |
|
|
|
5.7 |
% |
|
|
2.4 |
|
|
|
2.8 |
% |
|
|
|
20.1 |
|
|
|
5.8 |
% |
|
|
17.2 |
|
|
|
6.4 |
% |
Bankruptcy reorganization items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankruptcy reorganization expenses
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
(12.7 |
) |
|
|
(3.7 |
)% |
|
|
|
|
|
|
|
% |
Gain from debt forgiveness
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
259.3 |
|
|
|
74.9 |
% |
|
|
|
|
|
|
|
% |
Other income/(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (excluding interest of $21.0 and $0.8 on
liabilities subject to compromise at October 19, 2004 and
March 31, 2004, respectively)
|
|
|
(13.4 |
) |
|
|
(2.5 |
)% |
|
|
(12.1 |
) |
|
|
(2.8 |
)% |
|
|
(2.6 |
) |
|
|
(3.1 |
)% |
|
|
|
(14.6 |
) |
|
|
(4.2 |
)% |
|
|
(39.7 |
) |
|
|
(14.7 |
)% |
Amortization of deferred financing costs
|
|
|
(0.6 |
) |
|
|
(0.1 |
)% |
|
|
(0.5 |
) |
|
|
(0.1 |
)% |
|
|
(0.1 |
) |
|
|
(0.1 |
)% |
|
|
|
(6.8 |
) |
|
|
(2.0 |
)% |
|
|
(4.8 |
) |
|
|
(1.8 |
)% |
Other, net
|
|
|
(0.1 |
) |
|
|
|
% |
|
|
(0.1 |
) |
|
|
(0.0 |
)% |
|
|
|
|
|
|
|
% |
|
|
|
(0.2 |
) |
|
|
(0.0 |
)% |
|
|
(0.1 |
) |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations before income tax
provision (benefit)
|
|
|
2.5 |
|
|
|
0.5 |
% |
|
|
11.8 |
|
|
|
2.7 |
% |
|
|
(0.3 |
) |
|
|
(0.4 |
)% |
|
|
|
245.1 |
|
|
|
70.8 |
% |
|
|
(27.4 |
) |
|
|
(10.1 |
)% |
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
|
|
|
Successor | |
|
|
|
|
Company | |
|
|
|
|
|
Company | |
|
Predecessor Company | |
|
|
| |
|
|
|
|
|
| |
|
| |
|
|
For the Year | |
|
|
|
|
|
For the Period | |
|
|
|
|
|
|
Ended | |
|
|
|
|
|
October 20 | |
|
For the Period | |
|
|
|
|
December 31, | |
|
|
|
through | |
|
January 1 | |
|
For the Year | |
|
|
2005 | |
|
Pro Forma Year | |
|
December 31, | |
|
through | |
|
Ended | |
|
|
Restated | |
|
December 31, 2004 | |
|
2004 | |
|
October 19, 2004 | |
|
December 31, 2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
(Unaudited) | |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provisions/(benefit)
|
|
|
3.8 |
|
|
|
0.7 |
% |
|
|
4.3 |
|
|
|
1.0 |
% |
|
|
|
|
|
|
|
% |
|
|
0.7 |
|
|
|
0.2 |
% |
|
|
0.3 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations
|
|
|
(1.3 |
) |
|
|
(0.2 |
)% |
|
|
7.5 |
|
|
|
1.7 |
% |
|
|
(0.3 |
) |
|
|
(0.4 |
)% |
|
|
244.4 |
|
|
|
70.6 |
% |
|
|
(27.7 |
) |
|
|
(10.2 |
)% |
Loss from discontinued operations, net of income taxes of
($6.8), $0, $0, $0 and $0, respectively
|
|
|
(9.5 |
) |
|
|
(1.8 |
)% |
|
|
(9.8 |
) |
|
|
(2.3 |
)% |
|
|
(10.5 |
) |
|
|
(12.3 |
)% |
|
|
(7.1 |
) |
|
|
(2.1 |
)% |
|
|
(19.0 |
) |
|
|
(7.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$ |
(10.8 |
) |
|
|
(2.0 |
)% |
|
$ |
(2.3 |
) |
|
|
(0.6 |
)% |
|
$ |
(10.8 |
) |
|
|
(12.7 |
)% |
|
$ |
237.3 |
|
|
|
68.5 |
% |
|
$ |
(46.7 |
) |
|
|
(17.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have three reportable segments: bare wire, engineered
wire Europe and insulated wire. The following table
sets forth net sales and operating income/(loss) for the periods
presented in millions of dollars and percentages of totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
|
|
|
Successor | |
|
|
|
|
|
Company | |
|
|
|
|
|
Company | |
|
|
Predecessor Company | |
|
|
| |
|
|
|
|
|
| |
|
|
| |
|
|
|
|
|
|
|
|
For the Period | |
|
|
|
|
|
|
|
For the Year | |
|
|
|
October 20 | |
|
|
For the Period | |
|
For the Year | |
|
|
Ended | |
|
Pro Forma Year | |
|
through | |
|
|
January 1 | |
|
Ended | |
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
through | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
|
October 19, 2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
| |
|
| |
|
|
|
|
|
|
(Unaudited) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bare Wire
|
|
$ |
391.8 |
|
|
|
73 |
% |
|
$ |
308.8 |
|
|
|
72 |
% |
|
$ |
62.6 |
|
|
|
74 |
% |
|
|
$ |
246.2 |
|
|
|
71 |
% |
|
$ |
190.8 |
|
|
|
71 |
% |
|
Engineered Wire Europe
|
|
|
38.8 |
|
|
|
7 |
% |
|
|
37.6 |
|
|
|
9 |
% |
|
|
7.0 |
|
|
|
8 |
% |
|
|
|
30.6 |
|
|
|
9 |
% |
|
|
30.9 |
|
|
|
11 |
% |
|
Insulated Wire
|
|
|
114.6 |
|
|
|
21 |
% |
|
|
91.8 |
|
|
|
21 |
% |
|
|
16.8 |
|
|
|
20 |
% |
|
|
|
75.0 |
|
|
|
22 |
% |
|
|
52.7 |
|
|
|
20 |
% |
|
Elimination
|
|
|
(5.9 |
) |
|
|
(1 |
)% |
|
|
(6.8 |
) |
|
|
(2 |
)% |
|
|
(1.3 |
) |
|
|
(2 |
)% |
|
|
|
(5.5 |
) |
|
|
(2 |
)% |
|
|
(5.1 |
) |
|
|
(2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
539.3 |
|
|
|
100 |
% |
|
$ |
431.4 |
|
|
|
100 |
% |
|
$ |
85.1 |
|
|
|
100 |
% |
|
|
$ |
346.3 |
|
|
|
100 |
% |
|
$ |
269.3 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bare Wire
|
|
$ |
20.1 |
|
|
|
92 |
% |
|
$ |
15.7 |
|
|
|
58 |
% |
|
$ |
2.8 |
|
|
|
46 |
% |
|
|
$ |
18.1 |
|
|
|
79 |
% |
|
$ |
18.0 |
|
|
|
68 |
% |
|
Engineered Wire Europe
|
|
|
1.4 |
|
|
|
6 |
% |
|
|
2.7 |
|
|
|
10 |
% |
|
|
(2.8 |
) |
|
|
(46 |
)% |
|
|
|
1.8 |
|
|
|
8 |
% |
|
|
1.1 |
|
|
|
5 |
% |
|
Insulated Wire
|
|
|
0.5 |
|
|
|
2 |
% |
|
|
8.8 |
|
|
|
32 |
% |
|
|
2.4 |
|
|
|
100 |
% |
|
|
|
2.9 |
|
|
|
13 |
% |
|
|
7.2 |
|
|
|
27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
22.0 |
|
|
|
100 |
% |
|
|
27.2 |
|
|
|
100 |
% |
|
|
2.4 |
|
|
|
100 |
% |
|
|
|
22.8 |
|
|
|
100 |
% |
|
|
26.3 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
(5.4 |
) |
|
|
|
|
|
|
(2.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.7 |
) |
|
|
|
|
|
|
(9.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
16.6 |
|
|
|
|
|
|
$ |
24.5 |
|
|
|
|
|
|
$ |
2.4 |
|
|
|
|
|
|
|
$ |
20.1 |
|
|
|
|
|
|
$ |
17.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005 versus Pro Forma Year
Ended December 31, 2004 |
Financial results for the year ended December 31, 2005 are
compared to the pro forma financial results for the year ended
December 31, 2004, which represents the consolidated
financial results for the Predecessor Company for the period
January 1, 2004 through October 19, 2004 and the
consolidated results for the Successor Company for the period
from October 20, 2004 through December 31, 2004 after
giving effect to pro forma adjustments. As noted above, the
Successor Company results may not be comparable to the pro forma
results.
Net sales were $539.3 million for the year ended
December 31, 2005 and pro forma sales for the year
December 31, 2004 were $431.4 million. Sales for 2005
were $107.9 million, or 25.0%, greater than 2004 pro forma
sales as the result of a $12.0 million volume increase,
primarily insulated wire sales, a net price increase of
$0.6 million, a $73.6 million increase in the average
selling price of copper in 2005 compared
30
to 2004, and a $21.7 million impact from a lower proportion
of customers tolled copper in 2005 compared to 2004. The
average price of copper based upon the COMEX increased to
$1.68 per pound for the year ended December 31, 2005
from $1.28 per pound for the year ended December 31,
2004.
Bare wire segment net sales for the year ended December 31,
2005 were $391.8 million, or an increase of
$83.0 million, or 26.9%, from pro forma sales of
$308.8 million for the year ended December 31, 2004.
This increase was primarily the result of the previously
mentioned increase in the average cost and selling price of
copper which had an impact of $58.7 million,
$21.7 million from the impact of a lower proportion of
customers tolled copper in 2005 compared to 2004, higher
volume to customers supplying the automotive and
industrial/energy markets of $4.8 million, and
$1.1 million of price increase. These factors were
partially offset by lower volume to customers supplying the
electronics/data communications and appliance markets of
$3.3 million. Of the total pounds processed for the year
ended December 31, 2005 and 2004, respectively, 40.5% and
45.7% were from customers tolled copper.
Engineered wire Europe segment sales for the year
ended December 31, 2005 were $38.8 million compared to
$37.6 million for the year ended December 31, 2004, or
an increase of $1.2 million, or 3.2%. This increase
resulted from a $1.6 million impact of the increase in the
average selling price and cost of copper partially offset by
$0.4 of volume decline.
Insulated wire segment net sales from continuing operations were
$114.6 million for the year ended December 31, 2005
compared to $91.8 million of pro forma net sales for the
year ended December 31, 2004, for an increase of
$22.8 million, or 24.8% from 2004. Higher sales resulted
from the previously mentioned higher cost and selling price of
copper which had an impact of $13.3 million, a volume
increase of $10.0 million primarily from automotive and
appliance customers served from Durango, Mexico, partially
offset by $0.5 million price decrease.
Cost of goods sold, exclusive of depreciation, as a percentage
of sales increased to 87.6% for the year ended December 31,
2005 from 83.5% pro forma for the year ended December 31,
2004. The increase of 4.1 percentage points was primarily
due to: the increase in the average cost and selling price of
copper of 1.6 percentage points; the impact of a lower
percentage of customers tolled copper in 2005 compared to
2004 of 0.7 percentage points; higher insulating compound
material costs and increased copper rod premiums for insulated
wire products of 0.8 percentage points; increased utility
rates in the third and fourth quarters of 0.5 percentage
points; 0.3 percentage points from higher costs in the
European operations and by product mix and other cost increases
of 0.2 percentage points.
Selling, general and administrative expenses were
$34.2 million and $27.5 million for the years ended
December 31, 2005 and 2004, respectively. Included in the
year ended December 31, 2005 were $2.9 million of
expense under the insulated wire division and the bankruptcy
retention plans and other costs associated with the process of
seeking strategic alternatives for the Insulated Wire segment, a
$1.2 million charge for payments to be made to our former
Chief Executive Officer under his employment agreement,
$0.8 million for expenses related to our
S-1 registration
statement; $0.7 million for costs associated with
Sarbanes-Oxley compliance and $0.6 million for severance
costs in Europe. These increases together with increased
professional fees resulted in the higher selling, general and
administrative expenses in 2005 compared to 2004. Selling,
general and administrative expenses, as a percent of sales, were
6.3% in 2005 compared to 6.4% in 2004 as the effect of higher
copper costs and selling prices and a lower proportion of
customers tolled copper in 2005 offset the effect of the
aforementioned increased costs in 2005.
Depreciation and amortization was $13.1 million for the
year ended December 31, 2005, compared to
$14.4 million pro forma for the year ended
December 31, 2004. This decrease of $1.3 million was
primarily due to lower depreciation on property, plant and
equipment as the result of the adoption of
fresh-start reporting under
SOP 90-7 as the
carrying values were adjusted down to fair market values as of
October 20, 2004 partially offset by a shortening of useful
lives. This reduction was partially offset by increased
amortization of identifiable intangibles.
31
Impairment and plant closing charges for the year ended
December 31, 2005 and 2004 were $3.5 million and
$1.9 million, respectively. Included in 2005 is a
$3.5 million impairment charge for property, plant and
equipment located in Durango, Mexico. Included in 2004 is a
$1.7 million charge for the closing of the plant located in
Beynost, France.
Reorganization expenses related to the process preceding the
Chapter 11 bankruptcy filing were $3.1 million for the
year ended December 31, 2004. There were no similar
expenses in 2005.
Operating income for the year ended December 31, 2005 was
$16.6 million compared to $24.5 million pro forma for
the year ended December 31, 2004. This decrease of
$7.9 million was primarily from the higher cost of goods
sold, increased selling, general and administrative expenses and
the impairment charge in 2005 partially offset by lower
reorganization costs and depreciation and amortization. Bare
wires segment operating income for the year ended
December 31, 2005 was $20.1 million compared to
$15.7 million pro forma in 2004, or an increase of
$4.4 million from higher sales volume and pricing and lower
depreciation and amortization partially offset by increased
costs in the utilities. Engineered wire
Europes operating income for the year ended
December 31, 2005 was $1.4 million compared to
$2.7 million for the year 2004. This decrease of
$1.3 million was the result of slightly lower sales volume
and increased production costs. Insulated wires segment
operating income from continuing operations of $0.5 million
for the year ended December 31, 2005 decreased from
$8.8 million pro forma for 2004 as higher sales volume and
lower depreciation and amortization were offset by increased
cost for insulating compounds and copper rod premiums and lower
customer pricing. Operating income for the year ended
December 31, 2005 was lower than pro forma 2004 by
$2.7 million from retention plans expense, other costs
associated with the Insulated Wire segment strategic
alternatives, S-1
expenses and Sarbanes-Oxley costs partially offset by lower
reorganization expenses.
Interest expense was $13.4 million and $12.1 million
for the years ended December 31, 2005 and 2004,
respectively, for an increase of $1.3 million. This
increase was the result of higher interest rates in 2005
compared to 2004, partially offset by lower outstanding
borrowings in 2005 compared to 2004.
Amortization of deferred financing fees increased
$0.1 million in 2005 to $0.6 million.
The income tax provision of $3.8 million for the year ended
December 31, 2005 primarily consists of the recording of
tax liabilities of $7.1 million for the Companys
earnings no longer considered permanently re-invested in the
Cebu, Philippines operation and other items of $0.7 million
net, offset by the reversal of the domestic valuation allowance
of $4.0 million. For the pro forma year ended
December 31, 2004, the tax provision of $4.3 million
represents a 40% effective tax rate and no consideration was
given to our deferred tax assets, including net operating loss
carryforwards in the pro forma calculations.
Loss from discontinued operations was $9.5 million and
$9.8 million for the years ended December 31, 2005 and
2004, respectively. These amounts represent the results of
operations of the U.S. Insulated Wire Business that was
sold in November 2005. The decrease in the loss of
$0.3 million was primarily the result of a
$6.8 million tax benefit in 2005 partially offset by lower
sales volume, increased cost for insulating compound materials
and impairment of identifiable intangibles.
Net loss of $10.8 million was recorded for the year ended
December 31, 2005 compared to a $2.3 million pro forma
net loss for 2004. The increase of net loss by $8.5 million
in 2005 was due to lower operating income, increased income tax
effects related to the pro forma adjustments and the greater
loss from discontinued operations.
|
|
|
Successor Company for the Period from October 20 through
December 31, 2004 versus the Year Ended December 31,
2003 |
Sales in the period ended December 31, 2004 decreased to
$85.1 million from $269.3 million in the year ended
December 31, 2003 as it reflects an operating period that
is 292 days shorter than the year ended December 31,
2003.
32
The Successor Company had no results of operations prior to the
effective date of the plan of reorganization. Accordingly, there
are 292 fewer days in the period, which prevents a meaningful
comparison between the periods.
See the detailed description below of significant items in the
comparison of the pro forma year ended December 31, 2004
versus the year ended December 31, 2003. As noted below,
pro forma net sales increased
year-over-year as the
result of several factors including higher volume, an increase
in the average cost and selling price of copper and the impact
of a lower proportion of customers tolled copper in 2004
compared to 2003. In addition, pro forma cost of goods sold as a
percentage of sales increased to 83.5% for the year ended
December 31, 2004, from 76.1% for the year ended
December 31, 2003, with the primary contributing factors
described below including increases in certain manufacturing
costs such as higher insulating compound, tin and utility costs.
|
|
|
Predecessor Company for the Period from January 1
through October 19, 2004 versus the Year Ended
December 31, 2003 |
Sales in the period ended October 19, 2004 increased to
$346.3 million from $269.3 million in the year ended
December 31, 2003 as it reflects an operating period that
is 73 days shorter than the year ended December 31,
2003 which was more than offset by the impact of higher copper
prices and lower proportion of customers tolled copper in
the 2004 period and a slight increase in volume. The average
price of copper based upon COMEX increased from $.81 per
pound in the 2003 year to $1.25 per pound for the
period ended October 19, 2004.
The Predecessor Company had no results of operations after the
effective date of the plan of reorganization. Accordingly, there
are 73 fewer days in the period, which prevents a meaningful
comparison between the periods.
See the detailed description below of significant items in the
comparison of the pro forma year ended December 31, 2004
versus the year ended December 31, 2003. As noted below,
pro forma net sales increased year-over-year as the result of
several factors including higher volume, an increase in the
average cost and selling price of copper and the impact of a
lower proportion of customers tolled copper in 2004
compared to 2003. In addition, pro forma cost of goods sold as a
percentage of sales increased to 83.5% for the year ended
December 31, 2004, from 76.1% for the year ended
December 31, 2003, with the primary contributing factors
described below including increases in certain manufacturing
costs such as higher insulating compound, tin and utility costs.
|
|
|
Pro Forma Year Ended December 31, 2004 versus Year
Ended December 31, 2003 |
The pro forma financial results for the year ended
December 31, 2004, which represents the consolidated
financial results for the Predecessor Company for the period
January 1 through October 19, 2004 and the consolidated
results for the Successor Company for the period from October 20
through December 31, 2004 after giving effect to pro forma
adjustments are compared with the Predecessor Companys
results for the year ended December 31, 2003. As noted
above, the pro forma results may not be comparable to the
Predecessor Company.
Pro forma net sales were $431.4 million for the year ended
December 31, 2004 and $269.3 million in the year ended
December 31, 2003. Pro forma sales for the year were
$162.1 million, or 60.2%, above 2003 levels as a result of
a $77.3 million volume increase for both bare wire and
insulated wire products to all markets served, and a
$58.3 million increase in the average cost and selling
price of copper and a $28.1 million impact from a lower
proportion of customers tolled copper in 2004 compared to
2003. These increases were partially offset by $1.6 million
of lower customer pricing, primarily in the automotive market.
The average price of copper based upon COMEX increased to
$1.29 per pound for the year ended December 31, 2004
from $.81 per pound for the year ended December 31,
2003.
Bare wire segment pro forma net sales for the year ended
December 31, 2004 were $308.8 million, or an increase
of $118.0 million, or 61.8%, from sales of
$190.8 million for the year 2003. This increase was
33
primarily the result of a $49.6 million increase in volume
from higher sales to customers supplying the electronics/ data
communications, industrial/ energy and appliance markets as the
result of an improving U.S. general economy, increased
sales to General Cable Corporation, a $40.3 million
increase in the average cost and selling price of copper and a
$28.1 million impact from a lower proportion of
customers tolled copper in 2004 compared to 2003. Of the
total pounds processed for the year ended December 31, 2004
and for the year 2003, respectively, 45.7% and 54.2% were from
customers tolled copper.
Engineered wire Europe segment sales for the year
ended December 31, 2004 were $37.6 million compared to
$30.9 million for the year ended December 31, 2003.
This resulted in an increase in 2004 of $6.7 million, or
21.7%, primarily from the impact of higher average selling price
and cost of copper in 2004 compared to 2003.
Insulated wire segment pro forma net sales from continuing
operations for the year ended December 31, 2004 were
$91.8 million compared to $52.7 million in the year
ended December 31, 2003, for an increase of
$39.1 million, or 74.2%. Higher sales resulted from an
overall $29.4 million increase in automotive sales,
primarily through market share gains with one large Tier I
customer (industry-wide automotive production was down slightly
year-over-year) and increased sales from the Durango, Mexico
facility, and a $11.3 million increase in the average cost
and selling price of copper. These increases were partially
offset by $1.6 million of lower customer pricing primarily
in the automotive market.
Pro forma cost of goods sold, exclusive of depreciation, as a
percentage of sales increased to 83.5% for the year ended
December 31, 2004, from 76.1% for the year ended
December 31, 2003 for an increase of 7.4 percentage
points. This change was due to: the impact of higher copper
prices which accounted for 2.6 percentage points; the
impact of a lower proportion of customers tolled copper in
2004 compared to 2003 of 1.6 percentage points; lower
customer pricing for 0.5 percentage points; a settlement
expense with one of our customers in connection with an alleged
defective product during a new manufacturing line
start-up at our Mexican
insulated wire facility for 0.9 percentage points; higher
insulating compounds costs for 0.2 percentage points;
impact of the step up in LIFO inventories for
0.6 percentage points; higher tin and utilities costs of
0.8 percentage points; and product mix and other cost
increases of 0.2 percentage points.
Pro forma selling, general and administrative expenses were
$27.5 million for the year ended December 31, 2004,
compared to $24.1 million for the year ended
December 31, 2003. Selling, general and administrative
expenses increased $3.4 million, which was the result of
$2.5 million increase for payroll and payroll related
items, $2.4 million for volume related freight and
$0.4 million of reversal of the net periodic post
retirement benefit related to the Companys self-financed
post-retirement plan, partially offset by a $0.9 million
decrease in bad debt provisions and the impact of a
$1.0 million charge for payments to be made to David
Sindelar, our former Chief Executive Officer, under his
employment agreement in 2003. These expenses, as a percent of
net sales, decreased from 9.0% for the year ended
December 31, 2003 to 6.4% for the year ended
December 31, 2004, primarily from the effect of increased
sales volume and higher copper costs and selling prices.
Depreciation and amortization was $14.4 million for the
year ended December 31, 2004 compared to $16.7 million
for the year ended December 31, 2003, from lower
depreciation on property, plant and equipment as the result of
the adoption of fresh-start reporting under
SOP 90-7 as the
carrying values were adjusted to fair market value as of
October 20, 2004, partially offset by additional
amortization of customer contracts, trade names and trademarks
identified as part of the allocation of reorganization value.
Pro forma impairment and plant closing charges for the year
ended December 31, 2004 were $1.9 million and
$1.2 million in the year ended December 31, 2003. A
charge of $1.7 million was recorded in the fourth quarter
of 2004 related to the announced closing of the plant in
Beynost, France. The other amounts were charges for previously
closed bare wire plants.
Pro forma reorganization expenses were $3.1 million in the
year compared to $2.1 million in 2003 as a result of
increased professional fees prior to the filing of the
Chapter 11 bankruptcy.
34
Goodwill impairment of $3.0 million was recognized in 2003,
following the January 1, 2002 adoption of
SFAS No. 142 Goodwill and Other Intangible
Assets. This was the result of further declines in the
fair value of certain of the Companys reporting units in
Europe. There was no similar charge in the year 2004.
Pro forma operating income for the year ended December 31,
2004 was $24.5 million compared to $17.2 million for
the 2003 period or an increase of $7.3 million. Most of
this increase was the result of higher sales volume and lower
depreciation and amortization, partially offset by the increase
in the cost of goods percentage, higher selling, general and
administrative expenses and the impairment charges. Bare wire
segment pro forma operating income of $15.7 million for the
year 2004 period decreased by $2.3 million, or 12.8%, as
impact of higher tin, transportation and utility costs, as well
as the impact of the
step-up in LIFO
inventories and increased amortization of identifiable
intangibles offset higher sales volume. Engineered
wire Europe segment pro forma operating income was
$2.7 million for the year ended December 31, 2004 and
increased from 2003 by $1.6 million primarily from plant
efficiencies and cost reduction programs. Insulated wire
segments pro forma operating income from continuing
operations increased to $8.8 million for the year ended
December 31, 2004 from $7.2 million in 2003 as higher
sales volume and lower depreciation offset the impact of
competitive pricing pressures, higher insulating compound costs
and the effects of the
step-up in LIFO
inventories.
Pro forma interest expense was $12.1 million and
$39.7 million for the year ended December 31, 2004 and
2003, respectively, for a decrease of $27.6 million. This
decrease was primarily due to non-recognition of interest
expense on $305 million of our 11.75% and 14% Senior
Subordinated Notes (which are subject to compromise) from
March 24, 2004 (date of filing for Chapter 11
bankruptcy) to October 20, 2004 as well as lower interest
rates on our senior credit facility and DIP compared to the
10.375% Senior Secured Notes.
Pro forma amortization of deferred financing costs decreased
$4.3 million to $0.5 million for the year ended
December 31, 2004 from $4.8 million for the year 2003
period as the result of the write-off of deferred financing fees
related to our 10.375% Senior Secured Notes that were
repaid on March 24, 2004 and before maturity and the 2004
period reflects the amortization of the deferred financing fees
incurred for the new senior credit facility.
Pro forma income tax provisions were $4.3 million and
$0.3 million for the periods ended December 31, 2004
and 2003, respectively. The 2004 pro forma tax provision
reflects the loss before income taxes at a 40% effective rate
and no consideration was given to our deferred income taxes,
including net operating loss carryforwards in the pro forma
calendar. The 2003 tax provision represents certain state and
foreign income taxes only.
The loss from discontinued operations was $9.8 million in
2004 and represented the loss for the U.S. Insulated Wire
Business. The loss from discontinued operation in 2003 was
$19.0 million including $12.1 million from the
U.S. Insulated Wire Business and $6.9 million for
charges related to water inlet hose claims as described in the
Business Legal Proceedings section.
There was no similar pro forma charge for water inlet hose
claims the year ended December 31, 2004. Included in the
year ended December 31, 2004 charge was $4.7 million
for pro forma impairment of intangible assets related to the
insulated wire segment. Upon emergence from bankruptcy, customer
relationships and trade name valuations were established based
primarily on the cash flows from such intangibles. Based on the
changes in the cost structure in the fourth quarter of 2004,
future cash flows were negatively affected and resulted in a
reduction in value to these intangibles.
A pro forma net loss of $2.3 million resulted for the year
ended December 31, 2004. A net loss of $46.7 million
was recorded for the year ended December 31, 2003. The
improvement of $44.4 million in the year ended
December 31, 2004 resulted from increased pro forma
operating income, reduced interest expense, a lower loss from
discontinued operations and a lower income tax provision.
35
The following table presents the pro forma adjustments made to
the Companys historical consolidated statements of
operations for the period October 20 through December 31,
2004 (Successor) and the period January 1 through
October 19, 2004 (Predecessor) to arrive at the year ended
December 31, 2004 pro forma amounts:
INTERNATIONAL WIRE GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
Predecessor | |
|
|
|
|
|
|
Company for | |
|
|
Company for | |
|
|
|
|
|
|
the Period | |
|
|
the Period | |
|
|
|
|
|
|
October 20 | |
|
|
January 1 | |
|
|
|
|
|
|
through | |
|
|
through | |
|
|
|
|
|
|
December 31, | |
|
|
October 19, | |
|
|
|
|
|
|
2004 | |
|
|
2004 | |
|
Adjustments | |
|
Pro Forma | |
|
|
| |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except share and per share data) | |
Net sales
|
|
$ |
85,103 |
|
|
|
$ |
346,310 |
|
|
$ |
|
|
|
$ |
431,413 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of good sold, exclusive of depreciation expense shown below
|
|
|
71,336 |
|
|
|
|
288,901 |
|
|
|
|
|
|
|
360,237 |
|
|
Selling, general and administrative expenses
|
|
|
6,006 |
|
|
|
|
21,027 |
|
|
|
481 |
(1) |
|
|
27,514 |
|
|
Depreciation
|
|
|
2,934 |
|
|
|
|
11,387 |
|
|
|
(3,869 |
)(2) |
|
|
10,452 |
|
|
Amortization
|
|
|
825 |
|
|
|
|
1,751 |
|
|
|
1,285 |
(3) |
|
|
3,861 |
|
|
Reorganization expenses
|
|
|
|
|
|
|
|
3,062 |
|
|
|
|
|
|
|
3,062 |
|
|
Impairment and plant closing charges
|
|
|
1,632 |
|
|
|
|
262 |
|
|
|
|
|
|
|
1,894 |
|
|
Gain on sale of property, plant and equipment
|
|
|
(8 |
) |
|
|
|
(158 |
) |
|
|
|
|
|
|
(166 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss)
|
|
|
2,378 |
|
|
|
|
20,078 |
|
|
|
2,103 |
|
|
|
24,559 |
|
Bankruptcy reorganization items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankruptcy reorganization expenses
|
|
|
|
|
|
|
|
(12,710 |
) |
|
|
12,710 |
(4) |
|
|
|
|
|
Gain from debt forgiveness
|
|
|
|
|
|
|
|
259,252 |
|
|
|
(259,252 |
)(5) |
|
|
|
|
Other income/(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (excluding interest of $20,959 on liabilities
subject to compromise at October 19, 2004)
|
|
|
(2,586 |
) |
|
|
|
(14,625 |
) |
|
|
3,890 |
(6) |
|
|
(13,321 |
) |
|
Amortization of deferred financing fees
|
|
|
(127 |
) |
|
|
|
(6,813 |
) |
|
|
6,429 |
(7) |
|
|
(511 |
) |
|
Other, net
|
|
|
39 |
|
|
|
|
(182 |
) |
|
|
|
|
|
|
(143 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income tax provision
|
|
|
(296 |
) |
|
|
|
245,000 |
|
|
|
(234,120 |
) |
|
|
10,584 |
|
Income tax provision/(benefit)
|
|
|
(34 |
) |
|
|
|
666 |
|
|
|
3,602 |
(8) |
|
|
4,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations
|
|
|
(262 |
) |
|
|
|
244,334 |
|
|
|
(237,722 |
) |
|
|
6,350 |
|
Income/(loss) from discontinued operations
|
|
|
(10,500 |
) |
|
|
|
(7,026 |
) |
|
|
8,854 |
|
|
|
(8,672 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$ |
(10,762 |
) |
|
|
$ |
237,308 |
|
|
$ |
(228,868 |
) |
|
$ |
(2,322 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic and fully diluted net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income/(loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average basic and diluted shares outstanding
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000,002 |
|
|
|
(1) |
Reflects the reversal of the net periodic postretirement benefit
cost related to the Companys self-funded post retirement
plan. |
36
|
|
(2) |
Reflects the adjustment to depreciation relating to the
adjustment to the fair market value and adjusted remaining
useful lives of the existing property, plant and equipment as
follows: |
|
|
|
|
|
Elimination of historical depreciation expense
|
|
$ |
(14,321 |
) |
Depreciation expense on fixed assets restated at fair value as
of January 1, 2004
|
|
|
10,452 |
|
|
|
|
|
|
|
$ |
(3,869 |
) |
|
|
|
|
|
|
(3) |
Reflects the additional amortization of customer contracts,
trade names and trademarks identified as part of the allocation
of reorganization value. |
|
(4) |
Reflects elimination of bankruptcy reorganization expenses. |
|
(5) |
Reflects elimination of gain from debt forgiveness. |
|
(6) |
Reflects adjustment of interest expense for the $230,000
reduction of Senior Subordinated Notes pursuant to the Plan of
Reorganization and interest under the revolving credit facility
and term loan ended October 20, 2004 as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Balance | |
|
Interest Rate | |
|
Interest Expense | |
|
|
| |
|
| |
|
| |
Elimination of historical interest expense for the period prior
to the Reorganization
|
|
|
|
|
|
|
|
|
|
$ |
17,211 |
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on new credit facility
|
|
$ |
90,308 |
|
|
|
6.05 |
% |
|
|
(5,464 |
) |
Fees related to new credit facility
|
|
|
|
|
|
|
|
|
|
|
(250 |
) |
Interest on 10% Senior Secured Notes
|
|
|
75,000 |
|
|
|
10.00 |
% |
|
|
(7,500 |
) |
Interest on other indebtedness
|
|
|
1,341 |
|
|
|
8.00 |
% |
|
|
(107 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(7) |
Reflects the adjustment of the amortization of net deferred
financing fees for the revolving credit facility and term loan
ended October 20, 2004 as follows: |
|
|
|
|
|
Elimination of historical amortization of deferred financing fees
|
|
$ |
6,940 |
|
Amortization on $3,202 of deferred financing fees incurred on
new credit facility and 10% Senior Secured Notes over
60 months
|
|
|
(511 |
) |
|
|
|
|
|
|
$ |
6,429 |
|
|
|
|
|
|
|
(8) |
Reflects income/(loss) before income taxes at a 40% effective
rate. No consideration has been given to our deferred tax
assets, including net operating loss carryforwards, which are
fully offset by a valuation allowance as any reversal of the
valuation allowance will offset goodwill first, then intangible
assets and then increase additional paid-in capital in
accordance with
SOP 90-7. |
Critical Accounting Policies
The process of preparing financial statements in conformity with
accounting principles generally accepted in the United States
requires us to use estimates and assumptions regarding certain
types of our assets, liabilities, revenues and expenses. We base
these estimates and assumptions upon the best information
available at the time of the estimates or assumptions. Actual
results could change materially from our estimates and
assumptions. The following is a discussion of certain of our
critical accounting policies and the related management
estimates and assumptions necessary in determining the value of
related assets or liabilities.
We recognize revenue when all of the following criteria are
satisfied: persuasive evidence of an arrangement exists; risk of
loss and title transfer to the customer; the price is fixed and
determinable; and collectibility is reasonably assured. A
provision for product returns is recorded based on historical
37
experience and any notification received of pending returns.
Such returns have historically been within our expectations and
the provisions established.
We recognize revenue from services performed to process
customer-owned (tolled) copper. Such revenue is
recognized at the time the product is received by the customer.
The value of tolled copper is excluded from both sales and cost
of goods sold, as title to these materials and the related risks
of ownership do not pass to us at any time.
We perform ongoing credit evaluations of our customers and
adjust credit limits based upon payment history and the
customers current creditworthiness, as determined by our
review of their current credit information. We continuously
monitor collections and payments from our customers and maintain
a provision for estimated credit losses based upon our
historical experience and any specific customer collection
issues that have been identified. While such credit losses have
historically been within our expectations and the provisions
established, we cannot guarantee that the historical credit loss
rates will continue in the future. Since we have a number of
relatively large customers, a significant change in the
liquidity or financial position of one of these customers could
have a material adverse impact on the collectibility of our
accounts receivables and our future operating results.
Inventories are valued at the lower of cost, determined using
the last in, first out (LIFO) method, or the current
estimated market value of the inventory. Because the main
component of our products is copper, a worldwide traded
commodity, the estimated fair market value of the inventory is
subject to wide fluctuations. Any significant decline in the
average COMEX price of copper can result in an inventory
valuation adjustment. Any significant decline in inventory
quantities can result in an adjustment to the LIFO reserves.
During 2005, inventories quantities were reduced. This reduction
resulted in a liquidation of LIFO quantities carried at lower
costs prevailing in the prior year as compared to the cost of
2005 purchases.
We establish deferred tax assets and liabilities based on
profits or losses in each jurisdiction in which we operate.
Associated valuation allowances reflect the likelihood of the
recoverability of these assets. Our judgment of the
recoverability of these assets is based primarily on historical
results of operations, our estimate of current and expected
future earnings as well as prudent and feasible tax planning
strategies. Any reversal of valuation allowance that existed at
October 20, 2004, the date we emerged from bankruptcy, will
first offset goodwill, then intangible assets and then increase
additional paid-in capital in accordance with
SOP 90-7. In 2005,
$9.1 million of the reversal of the valuation allowance
that existed at October 20, 2004 reduced goodwill.
As a result of the reorganization, the Company underwent an
ownership change within the meaning of Section 382 of the
Internal Revenue Code (IRC). As a result, the Company is subject
to an annual limitation of approximately $8 million on the
amount of NOL and credit carryforwards which the Company may
utilize in the U.S.
A debtor is not required to include gain on the discharge of
debt in income if the debt discharge occurs in bankruptcy.
However, IRC Section 108 requires that the debtors
NOL, capital and credit carryovers first be reduced and then tax
basis in assets be reduced. The Company expects to reduce
available current year tax losses and NOL carryforwards by
approximately $102 million as a result of the bankruptcy
reorganization. After consideration of this reduction, the
Company expects to have NOL carryforwards of approximately
$53 million as of December 31, 2005, available to
offset future federal taxable income. These NOL carryforwards
expire in varying amounts in the years 2022 to 2025 if not
utilized.
38
Whenever indications of impairment exist, we review the net
realizable value of our long-lived assets through an assessment
of the estimated future cash flows related to those assets such
as the loss of a key customer. In the event we determine that
the carrying values of long-lived assets are in excess of
estimated gross future cash flows for those assets, we will
write-down the value of the assets to an estimated fair value
using a discounted cash flow analysis. This applies to property,
plant and equipment, identifiable intangibles and other
long-lived assets. As for goodwill, we compare the carrying
value of our reporting units to the fair value of such units
based primarily on the reporting units cash flows. To the
extent the carrying value of the reporting unit exceeds its fair
value, the respective goodwill is written down to its fair value
using a residual goodwill calculation. A significant downward
revision in the estimated fair value of future cash flows could
result in a material impairment of our remaining goodwill.
We test for goodwill impairment annually and between annual
tests if an event occurs or if circumstances change that
indicate the fair value of a reporting unit is below the
units carrying amount. Performing the impairment test
requires us to estimate the fair values using the present value
of estimated future cash flows. We performed our annual
impairment test for 2005 as of December 31, 2005.
Recently Issued Accounting Standards
|
|
|
Recently Issued Accounting Standards |
In November 2004 (revised in December 2004), the FASB issued
SFAS No. 151, Inventory Costs an
amendment of ARB No. 43, Chapter 4 to be effective
for inventory costs incurred during fiscal years beginning after
June 15, 2005, with early adoption permitted.
SFAS No. 151 amends the guidance in Accounting
Research Bulleting (ARB) No. 43,
Chapter 4, Inventory Pricing, to clarify the
accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage).
Paragraph 5 of ARB 43, Chapter 4, previously stated
that . . . under some circumstances, items
such as idle facility expense, excessive spoilage, double
freight, and rehandling costs may be so abnormal as to require
treatment as current period
charges . . . . SFAS No. 151
requires those items be recognized as current period charges
regardless of whether they meet the criterion of so
abnormal. In addition, FAS No. 151 requires the
allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production
facilities. The Company does not expect the adoption of
SFAS No. 151 to have a material impact on its
financial position or results of operations.
In December 2004, the FASB issued SFAS No. 123(R),
Share-Based Payment. SFAS No. 123(R)
establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or
services. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in
share-based payment transactions. SFAS No. 123(R)
requires that the fair value of such equity instruments be
recognized as an expense in the historical financial statements
as services are performed. Prior to SFAS No. 123(R),
only certain pro forma disclosures of fair value were required.
The Company will adopt the provisions of
SFAS No. 123(R) effective the first quarter of fiscal
year 2006, which begins on January 1, 2006. The Company
does not believe the impact of adopting
SFAS No. 123(R) will be material.
In March 2005, the SEC issued Staff Accounting Bulletin
(SAB) No. 107, Share-Based Payment. This
SAB provides views of the SEC staff regarding the interaction
between SFAS No. 123(R) and certain SEC rules and
regulations, and is intended to assist in the initial
implementation of SFAS No. 123(R). The Company
anticipates refining its estimates of expected volatility and
expected term as a result of the guidance provided within
SAB No. 107 and SFAS No. 123(R).
In March 2005, the FASB issued FASB Interpretation
(FIN) No. 47, Accounting for Conditional
Asset Retirement Obligations, which is an interpretation of
SFAS No. 143, Accounting for Asset Retirement
Obligations. This Interpretation clarifies terminology
within SFAS No. 143 and requires an entity to
recognize a liability for the fair value of a conditional asset
retirement obligation when incurred if the liabilitys fair
value can be reasonably estimated. This Interpretation is
effective for fiscal years ending
39
after December 15, 2005. The adoption of this
Interpretation did not have a material impact on its financial
condition or results of operations.
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets, an amendment to APB Opinion
No. 29, to be for nonmonetary asset exchanges occurring
in fiscal periods beginning after June 15, 2005. The
guidance in APB Opinion No. 29, Accounting for
Nonmonetary Transactions, is based on the principle that
exchanges of nonmonetary assets should be measured based on the
fair value of the assets exchanged. The guidance in that
Opinion, however, included certain exceptions to that principle.
SFAS No. 153 amends Opinion 29 to eliminate the
exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a
result of the exchange. The Company does not expect the adoption
of SFAS No. 153 to have a material impact on its
financial position or results of operations.
Liquidity and Capital Resources
|
|
|
Working Capital and Cash Flows |
Net cash provided by operating activities before cash flows used
for reorganization expenses was $28.9 million for the year
ended December 31, 2005, compared to net cash provided by
operating activities of $7.4 million for the period
October 20 through December 31, 2004. This improvement
of $21.5 million was primarily the result of increased
accounts payable terms from re-instatement of terms trade
vendors of $21.6 million after emerging from
Chapter 11 bankruptcy and a decrease in inventories of
$25.6 million. The decrease in inventory was due to a
3.4 million planned reduction in copper pounds in the bare
wire segment, the $10.5 million sale of the inventories of
the U.S. Insulated Wire Business on November 30, 2005
and a $15.1 million increase in the LIFO reserve as a
result of increasing copper prices. These factors were partially
offset by higher accounts receivable of $29.7 million
resulting from increased copper prices and lower accrued
liabilities and other items of $10.3 million. Net income
(loss) for the year ended December 31, 2005 included higher
depreciation, amortization and long-lived asset impairment
charges of $3.8 million than in the period ended
December 31, 2004.
Accounts receivable increased $25.2 million from year-end
2004 primarily as the result of a 44.2% increase in fourth
quarter copper prices and a slight increase in days sales
outstanding for the year ended December 31, 2005 compared
to year ended December 31, 2004. The allowance for doubtful
accounts as a percentage of accounts receivable decreased from
5.8% at December 31, 2004 to 3.1% as of December 31,
2005 primarily from an improvement in the overall collectibility
of our receivables.
Inventories of $56.9 million, as of December 31, 2005,
decreased by $26.5 million from December 31, 2004 from
a 3.4 million pound planned reduction of copper in the bare
wire segment and the $10.5 million sale of the
U.S. Insulated Wire Business inventories on
November 30, 2005 and a $15.1 million increase in the
LIFO reserve as the result of higher copper prices. Accordingly,
inventory turns improved in the 2005 period compared to 2004.
Accounts payable were $33.9 million as of December 31,
2005, or an increase of $21.1 million from
December 31, 2004 levels, as trade vendor terms were
re-established after emerging from Chapter 11 bankruptcy
and the effect of 44.2% higher copper prices in fourth quarter
2005 versus the comparable 2004 period. As of December 31,
2005, we had a reserve of $1.6 million for the settlement
and costs of the hose claims. During the 2005 year,
$0.7 million was paid under various settlement agreements
for hose claims. As a result of claims settled to date, existing
Claims Resolution Agreements and known open claims, we
anticipate that the remaining reserve of $1.6 million is
adequate to cover remaining obligations and cash requirements.
Net cash used in reorganization activities was $6.4 million
in the year ended December 31, 2005 compared to
$3.5 million of net cash used in reorganization activities
in the period October 20 through December 31, 2004.
This increase of $2.9 million resulted from the final
payments of legal and
40
professional fees under the Chapter 11 bankruptcy as
approved by the court in the 2005 period, which were higher than
expenditures in the 2004 period.
Net cash used in investing activities for capital expenditures
was $7.0 million for the year ended December 31, 2005,
compared to $2.1 million for the period October 20 through
December 31, 2004, primarily from an increase for normal
replacement and cost reduction expenditures in 2005 in all three
segments due to more days in the 2005 period compared to the
2004 period. We anticipate making additional capital
expenditures in 2006 to fund our expansion plans. Proceeds from
the sale of property, plant and equipment for the year ended
December 31, 2005 included $4.3 million from the sale
of insulated wire assets.
Net cash used in financing activities was $31.3 million for
the year ended December 31, 2005, compared to net cash
provided by financing activities of $0.1 million for the
period October 20 through December 31, 2004. The
increase was primarily the result of net payments of
$31.2 million under our senior revolving credit facility in
the 2005 period.
Concurrently with the consummation of our reorganization, we and
our domestic subsidiaries entered into (1) a credit
agreement which provides for a five-year senior revolving credit
facility in an amount up to $110.0 million (including as a
sub-facility of the revolving credit facility, a
$25 million letter of credit facility) subject to borrowing
base availability, and (2) a credit agreement which
provides for a $30.0 million five-year senior term loan
facility. The proceeds of the facilities were used to repay our
DIP facility and for working capital and other general corporate
purposes. We also issued the $75 million of 10% Secured
Senior Subordinated Notes to the former holders of our
Subordinated Notes. For a description of the terms of these
facilities and the Notes, see Note 11 to the Consolidated
Financial Statements. On March 31, 2006, we increased our
senior revolving credit facility by $20 million, and the
revolving credit facility now provides for up to
$130 million subject to borrowing base availability.
We require cash for working capital, capital expenditures, debt
service and taxes. Our working capital requirements generally
increase when demand for our products increase or when copper,
copper premiums or compound costs material increase
significantly or rapidly. Currently, a $0.10 per pound
fluctuation in the price of copper will have a $4.2 million
impact on our working capital. The average price of copper based
upon COMEX increased to $1.68 per pound for the year ended
December 31, 2005 from $1.29 per pound for the year
ended December 31, 2004.
Our principal sources of cash are generated from operations and
availability under our debt financing arrangements. We expect
that ongoing requirements for working capital, capital
expenditures, debt service and taxes will be funded from
operating cash flow and borrowings under our revolving credit
facility.
As of December 31, 2005, we had $5.4 million of
unrestricted cash and cash equivalents. Actual borrowings
availability under our revolving credit facility is subject to a
borrowing base calculation, generally based upon a percentage of
eligible accounts receivable, inventory and property, plant and
equipment. As of December 31, 2005, our borrowing base was
$105.1 million and our outstanding indebtedness under the
revolving credit facility (including outstanding letters of
credit) was $40.6 million, resulting in a remaining
availability as of such date of $64.5 million.
On March 31, 2006, we increased our senior revolving credit
facility by $20 million, and the revolving credit facility
now provides for up to $130 million subject to borrowing
base availability. The Company funded the acquisition of Phelps
Dodge High Performance Conductors of SC & GA, Inc. with
borrowings under the revolving credit facility. After the
funding the acquisition on March 31, 2006, the outstanding
balance on the revolving credit facility was approximately
$44 million excluding letters of credit.
We expect our cash on hand, operating cash flow, together with
available borrowings under the senior revolving credit facility,
will be sufficient to meet our anticipated future operating
expenses, capital
41
expenditures and debt service requirements. Our ability to
generate sufficient cash flow to meet our operating needs could
be affected by general economic, financial, competitive,
legislative, regulatory, business and other factors beyond our
control. Any significant reduction in customer demand for our
products, change in competitive conditions, increases in our
major material components including copper and insulating
materials, or adverse changes in economic conditions in the
U.S. or worldwide could impact our ability to generate
sufficient cash flow to fund operations.
Off-Balance Sheet Arrangements
We have not historically utilized off-balance sheet financing
arrangements and have no such arrangements as of
December 31, 2005. However, we do finance the use of
certain facilities and equipment under lease agreements provided
by various institutions. Since the terms of these agreements
meet the definition of operating lease agreements, the sum of
future lease payments is not reflected on our consolidated
balance sheets. As of December 31, 2005, the future minimum
lease payments under these arrangements totaled
$3.1 million.
Contractual Obligations
The following table sets forth our contractual obligations as of
December 31, 2005 for the periods shown (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than | |
|
|
|
|
|
More Than | |
Contractual Obligations(3) |
|
Total | |
|
1 Year | |
|
1-3 Years | |
|
3-5 Years | |
|
5 Years | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Debt(1)
|
|
$ |
135.4 |
|
|
$ |
0.2 |
|
|
$ |
0.0 |
|
|
$ |
60.2 |
|
|
$ |
75.0 |
|
Estimated interest on debt(2)
|
|
|
40.5 |
|
|
|
11.4 |
|
|
|
10.8 |
|
|
|
10.8 |
|
|
|
7.5 |
|
Open purchase orders
|
|
|
14.2 |
|
|
|
14.2 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
Operating leases
|
|
|
3.1 |
|
|
|
1.5 |
|
|
|
1.5 |
|
|
|
0.1 |
|
|
|
0.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$ |
193.2 |
|
|
$ |
27.3 |
|
|
$ |
12.3 |
|
|
$ |
71.1 |
|
|
$ |
82.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Debt obligations are exclusive of interest. |
|
(2) |
Interest was estimated using the debt balance outstanding at
December 31, 2005 and the interest rates in effect on
December 31, 2005. |
|
(3) |
Deferred compensation of $1.7 million was excluded from the
contractual obligations table as the timing of the payments is
dependent on the employees termination date. |
|
|
Item 7A. |
Quantitative and Qualitative Disclosures about Market
Risk. |
We do not ordinarily hold market risk sensitive instruments for
trading purposes. We do, however, recognize market risk from
interest rate, foreign currency exchange and commodity price
exposure.
Interest Rate Risk
At December 31, 2005, approximately $60.4 million of
$135.4 million of long-term debt, specifically,
$60.2 million of borrowings under our senior credit
facility, bear interest at variable rates. A hypothetical 1%
increase in variable interest rates would increase our interest
rate expense by $0.6 million based on the debt outstanding
as of December 31, 2005. We are not currently engaged in
any hedging activities.
Foreign Currency Risk
We have operations in Mexico, France, Italy and the Philippines.
Our operations may, therefore, be subject to volatility because
of currency fluctuations. Sales and expenses are denominated in
local currencies for the French and Italian operations. The
U.S. Dollar is the functional currency for Mexico and the
Philippines operations. As a result, these operations are
subject to market risk with respect to
42
fluctuations in the relative value of currencies. We evaluate
from time-to-time
various currency hedging programs that could reduce the risk.
In terms of foreign currency translation risk, we are exposed
primarily to the euro, the Mexican peso and the Philippine peso.
Our net foreign currency investment in foreign subsidiaries and
affiliates translated into United States dollars using year-end
exchange rates at December 31, 2005 and 2004, was
$86.9 million and $62.4 million, respectively.
At December 31, 2005, we had no financial instruments
outstanding that were sensitive to changes in foreign currency
rates.
Commodity Price Risk
The principal raw material used by us is copper, which is
purchased in the form of
5/16-inch rod from the
major copper producers in North America, Europe and Asia. Copper
rod prices are based on market prices, which are generally
established by reference to the COMEX prices, plus a premium
charged to convert copper cathode to copper rod and deliver it
to the required location. As a worldwide traded commodity,
copper prices have historically been subject to fluctuations.
While fluctuations in the price of copper may directly affect
the per unit prices of our products, these fluctuations have not
had, nor are expected to have, a material impact on our
profitability due to copper price pass-through arrangements that
we have with our 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 charge to customers. However, a severe
increase in the price of copper could negatively impact our
short-term liquidity because of the period of time between our
purchase of copper at an increased price and the time at which
we receive cash payments after selling end products to customers
reflecting the increased price. These formulas for our insulated
wire customers do not, however, include adjustments for the
fluctuations in the premiums charged to convert copper cathode
to copper rod and deliver it to the required locations. In 2005,
the premium to convert copper cathode to copper rod for
insulated wire continuing operations increased by 25.4%. We
believe that higher premiums may continue.
Other major raw materials we consume include PVC compounds and
XLPE compounds. The prices of these items are generally affected
by world oil prices and worldwide supply and demand and
increased significantly in 2004 and 2005. World oil prices are
impacted by a number of factors, including seasonal
fluctuations, political instability and meteorological events.
In 2005, the price of a barrel of oil increased 41.9%.
Correspondingly, in 2005, the price increases for PVC compounds
and XLPE compounds for insulated wire continuing operations were
19.2% and 9.8%, respectively. Our contracts with customers for
insulated wire do not include adjustments for fluctuations in
the price of oil, PVC compounds or XLPE compounds. We believe
higher compound costs may continue.
43
|
|
Item 8. |
Financial Statements and Supplementary Data. |
INTERNATIONAL WIRE GROUP, INC.
INDEX
|
|
|
|
|
|
Audited Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
45 |
|
|
|
|
|
47 |
|
|
|
|
|
48 |
|
|
|
|
|
49 |
|
|
|
|
|
50 |
|
|
|
|
|
51 |
|
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of International Wire
Group, Inc.
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of International Wire Group, Inc. and its
subsidiaries (Successor) at December 31, 2005 and 2004 and
the results of their operations and their cash flows for the
year ended December 31, 2005 and from October 20
through December 31, 2004 in conformity with accounting
principles generally accepted in the United States of America.
These financial statements are the responsibility of the
Companys management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial
statements, the United States Bankruptcy Court for the Southern
District of New York confirmed the Companys reorganization
plan (the Plan) on October 20, 2004.
Confirmation of the Plan resulted in the discharge of specific
claims against the Company that arose before October 20,
2004 and terminated all rights and interests of the senior
subordinated debt holders and equity security holders as
provided for in the Plan. The Plan was substantially consummated
on October 20, 2004 and the Company emerged from
bankruptcy. In connection with its emergence from bankruptcy,
the Company adopted fresh-start reporting as of October 20,
2004.
As discussed in Note 1A to the consolidated financial
statements, the Company has restated its consolidated financial
statements as of and for the year ended December 31, 2005.
|
|
|
/s/ PricewaterhouseCoopers LLP |
Syracuse, New York
April 11, 2006, except as to Note 1A to the
consolidated financial statements as to which the date is
April 27, 2007.
45
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of International Wire
Group, Inc.
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the results of operations and cash flows of International Wire
Group, Inc. and its subsidiaries (Predecessor) for the period
from January 1 through October 19, 2004, and for the year
ended December 31, 2003 in conformity with accounting
principles generally accepted in the United States of America.
These financial statements are the responsibility of the
Companys management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial
statements, the Company and all of its domestic subsidiaries
voluntarily filed for a petition on March 24, 2004 with the
United States Bankruptcy Court for the Southern District of New
York for reorganization under the provisions of Chapter 11
of the Bankruptcy Code. The Companys Plan of
Reorganization was substantially consummated on October 20,
2004 and the Company emerged from bankruptcy. In connection with
its emergence from bankruptcy, the Company adopted fresh-start
reporting.
|
|
|
/s/ PricewaterhouseCoopers LLP |
Syracuse, New York
April 11, 2006
46
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
|
|
2005 | |
|
December 31, | |
|
|
Restated | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands, except | |
|
|
for share data) | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
5,422 |
|
|
$ |
15,192 |
|
|
Accounts receivable, less allowance of $3,036 and $4,060
|
|
|
98,296 |
|
|
|
70,609 |
|
|
Inventories
|
|
|
56,874 |
|
|
|
83,319 |
|
|
Prepaid expenses and other
|
|
|
10,112 |
|
|
|
11,118 |
|
|
Asset held for sale
|
|
|
1,975 |
|
|
|
|
|
|
Deferred income taxes
|
|
|
20,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
192,897 |
|
|
|
180,238 |
|
Property, plant and equipment, net
|
|
|
85,440 |
|
|
|
104,132 |
|
Goodwill
|
|
|
62,307 |
|
|
|
71,359 |
|
Identifiable intangibles, net
|
|
|
21,358 |
|
|
|
27,898 |
|
Deferred financing costs, net
|
|
|
2,457 |
|
|
|
3,075 |
|
Restricted cash
|
|
|
1,922 |
|
|
|
3,107 |
|
Other assets
|
|
|
2,305 |
|
|
|
4,398 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
368,686 |
|
|
$ |
394,207 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$ |
228 |
|
|
$ |
1,341 |
|
|
Accounts payable
|
|
|
33,865 |
|
|
|
12,751 |
|
|
Accrued and other liabilities
|
|
|
17,261 |
|
|
|
23,374 |
|
|
Accrued payroll and payroll related items
|
|
|
4,737 |
|
|
|
6,190 |
|
|
Customers deposits
|
|
|
11,428 |
|
|
|
12,376 |
|
|
Accrued interest
|
|
|
1,838 |
|
|
|
1,703 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
69,357 |
|
|
|
57,735 |
|
Long-term debt, less current maturities
|
|
|
135,188 |
|
|
|
165,308 |
|
Other long-term liabilities
|
|
|
3,558 |
|
|
|
4,783 |
|
Deferred income taxes
|
|
|
7,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
215,873 |
|
|
|
227,826 |
|
|
|
|
|
|
|
|
Stockholders equity: Common stock, $.01 par value,
20,000,000 shares authorized, 10,000,002 issued and
outstanding
|
|
|
100 |
|
|
|
100 |
|
|
Contributed capital
|
|
|
175,600 |
|
|
|
175,600 |
|
|
Accumulated (deficit)
|
|
|
(21,581 |
) |
|
|
(10,762 |
) |
|
Accumulated other comprehensive income/(loss)
|
|
|
(1,306 |
) |
|
|
1,443 |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
152,813 |
|
|
|
166,381 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
368,686 |
|
|
$ |
394,207 |
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
47
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
Successor | |
|
|
Predecessor | |
|
Predecessor | |
|
|
Company | |
|
Company | |
|
|
Company | |
|
Company | |
|
|
| |
|
| |
|
|
| |
|
| |
|
|
For the Year | |
|
For the Period | |
|
|
For the Period | |
|
|
|
|
Ended | |
|
October 20 | |
|
|
January 1 | |
|
For the Year | |
|
|
December 31, | |
|
through | |
|
|
through | |
|
Ended | |
|
|
2005 | |
|
December 31, | |
|
|
October 19, | |
|
December 31, | |
|
|
Restated | |
|
2004 | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
| |
|
| |
|
|
(In thousands, except per share amount) | |
Net sales
|
|
$ |
539,285 |
|
|
$ |
85,103 |
|
|
|
$ |
346,310 |
|
|
$ |
269,313 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold, exclusive of depreciation expense shown below
|
|
|
472,581 |
|
|
|
71,336 |
|
|
|
|
288,901 |
|
|
|
204,974 |
|
Selling, general and administrative expenses
|
|
|
34,222 |
|
|
|
6,006 |
|
|
|
|
21,027 |
|
|
|
24,093 |
|
Depreciation
|
|
|
9,347 |
|
|
|
2,934 |
|
|
|
|
11,387 |
|
|
|
14,217 |
|
Amortization
|
|
|
3,709 |
|
|
|
825 |
|
|
|
|
1,751 |
|
|
|
2,498 |
|
Impairment and plant closing charges
|
|
|
3,529 |
|
|
|
1,632 |
|
|
|
|
262 |
|
|
|
1,188 |
|
Reorganization expenses
|
|
|
|
|
|
|
|
|
|
|
|
3,062 |
|
|
|
2,172 |
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,973 |
|
Gain on sale of property plant and equipment
|
|
|
(721 |
) |
|
|
(8 |
) |
|
|
|
(158 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
16,618 |
|
|
|
2,378 |
|
|
|
|
20,078 |
|
|
|
17,198 |
|
Bankruptcy reorganization items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankruptcy reorganization (expense)
|
|
|
|
|
|
|
|
|
|
|
|
(12,710 |
) |
|
|
|
|
|
Gain from debt forgiveness
|
|
|
|
|
|
|
|
|
|
|
|
259,252 |
|
|
|
|
|
Other income/(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (excluding interest of $20,959 on liabilities
subject to compromise at October 19, 2004)
|
|
|
(13,350 |
) |
|
|
(2,586 |
) |
|
|
|
(14,625 |
) |
|
|
(39,722 |
) |
|
Amortization of deferred financing costs
|
|
|
(646 |
) |
|
|
(127 |
) |
|
|
|
(6,813 |
) |
|
|
(4,873 |
) |
|
Other, net
|
|
|
(137 |
) |
|
|
39 |
|
|
|
|
(182 |
) |
|
|
(49 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income tax provision
|
|
|
2,485 |
|
|
|
(296 |
) |
|
|
|
245,000 |
|
|
|
(27,446 |
) |
Income tax provision/(benefit)
|
|
|
3,762 |
|
|
|
(34 |
) |
|
|
|
666 |
|
|
|
291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations
|
|
|
(1,277 |
) |
|
|
(262 |
) |
|
|
|
244,334 |
|
|
|
(27,737 |
) |
Loss from discontinued operations, net of income taxes of
$(6,348), $0, $0 and $0, respectively
|
|
|
(9,542 |
) |
|
|
(10,500 |
) |
|
|
|
(7,026 |
) |
|
|
(19,001 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$ |
(10,819 |
) |
|
$ |
(10,762 |
) |
|
|
$ |
237,308 |
|
|
$ |
(46,738 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations
|
|
$ |
(0.13 |
) |
|
$ |
(0.03 |
) |
|
|
$ |
244,334 |
|
|
$ |
(27,737 |
) |
|
Loss from discontinued operations
|
|
|
(0.95 |
) |
|
|
(1.05 |
) |
|
|
|
(7,026 |
) |
|
|
(19,001 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$ |
(1.08 |
) |
|
$ |
(1.08 |
) |
|
|
$ |
237,308 |
|
|
$ |
(46,738 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic and diluted shares outstanding
|
|
|
10,000,002 |
|
|
|
10,000,002 |
|
|
|
|
1,000 |
|
|
|
1,000 |
|
See accompanying notes to the consolidated financial statements.
48
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
Carryover of | |
|
|
|
Other | |
|
|
|
|
Common | |
|
Contributed | |
|
Predecessor | |
|
Accumulated | |
|
Comprehensive | |
|
|
|
|
Stock | |
|
Capital | |
|
Basis | |
|
Deficit | |
|
Income/(loss) | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance Predecessor December 31, 2002
|
|
$ |
|
|
|
$ |
236,331 |
|
|
$ |
(67,762 |
) |
|
$ |
(220,791 |
) |
|
$ |
(131 |
) |
|
$ |
(52,353 |
) |
Capital contributed
|
|
|
|
|
|
|
7,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,000 |
|
Comprehensive income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,738 |
) |
|
|
|
|
|
|
(46,738 |
) |
|
|
Foreign currency translation adjustments, net of taxes of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,463 |
|
|
|
3,463 |
|
|
|
Total comprehensive (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43,275 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Predecessor December 31, 2003
|
|
|
|
|
|
|
243,331 |
|
|
|
(67,762 |
) |
|
|
(267,529 |
) |
|
|
3,332 |
|
|
|
(88,628 |
) |
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
237,308 |
|
|
|
|
|
|
|
237,308 |
|
|
|
Foreign currency translation adjustments, net of taxes of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
283 |
|
|
|
283 |
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
237,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Predecessor October 19, 2004
|
|
|
|
|
|
|
243,331 |
|
|
|
(67,762 |
) |
|
|
(30,221 |
) |
|
|
3,615 |
|
|
|
148,963 |
|
Fresh-start adjustments (Note 3)
|
|
|
100 |
|
|
|
(67,731 |
) |
|
|
67,762 |
|
|
|
30,221 |
|
|
|
(3,615 |
) |
|
|
26,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Successor October 20, 2004
|
|
|
100 |
|
|
|
175,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,700 |
|
Comprehensive income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,762 |
) |
|
|
|
|
|
|
(10,762 |
) |
|
|
Foreign currency translation adjustments, net of taxes of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,443 |
|
|
|
1,443 |
|
|
|
Total comprehensive (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,319 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Successor December 31, 2004
|
|
|
100 |
|
|
|
175,600 |
|
|
|
|
|
|
|
(10,762 |
) |
|
|
1,443 |
|
|
|
166,381 |
|
Comprehensive income/(loss) Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,819 |
) |
|
|
|
|
|
|
(10,819 |
) |
|
|
Foreign currency translation adjustments, net of taxes of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,749 |
) |
|
|
(2,749 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,568 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Successor December 31, 2005
Restated
|
|
$ |
100 |
|
|
$ |
175,600 |
|
|
$ |
|
|
|
$ |
(21,581 |
) |
|
$ |
(1,306 |
) |
|
$ |
152,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
49
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
|
|
|
|
|
|
|
| |
|
Successor | |
|
|
Predecessor | |
|
Predecessor | |
|
|
For the Year | |
|
| |
|
|
| |
|
| |
|
|
Ended | |
|
For the Period | |
|
|
For the Period | |
|
For the Year | |
|
|
December 31, 2005 | |
|
October 20 through | |
|
|
January 1 through | |
|
Ended | |
|
|
Restated | |
|
December 31, 2004 | |
|
|
October 19, 2004 | |
|
December 31, 2003 | |
|
|
| |
|
| |
|
|
| |
|
| |
|
|
|
|
(In thousands) | |
|
|
Cash flows provided by/(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$ |
(10,819 |
) |
|
$ |
(10,762 |
) |
|
|
$ |
237,308 |
|
|
$ |
(46,738 |
) |
|
Adjustments to reconcile net income/(loss) to net cash provided
by/(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from debt forgiveness
|
|
|
|
|
|
|
|
|
|
|
|
(259,252 |
) |
|
|
|
|
|
|
Depreciation
|
|
|
10,531 |
|
|
|
2,467 |
|
|
|
|
16,320 |
|
|
|
21,510 |
|
|
|
Amortization
|
|
|
4,613 |
|
|
|
1,127 |
|
|
|
|
2,466 |
|
|
|
3,628 |
|
|
|
Amortization of deferred financing costs
|
|
|
646 |
|
|
|
127 |
|
|
|
|
6,813 |
|
|
|
4,873 |
|
|
|
Provision for doubtful accounts
|
|
|
417 |
|
|
|
83 |
|
|
|
|
242 |
|
|
|
1,025 |
|
|
|
(Gain) on sale of property, plant and equipment
|
|
|
(721 |
) |
|
|
(16 |
) |
|
|
|
(192 |
) |
|
|
(8 |
) |
|
|
Impairment of long-lived assets
|
|
|
11,846 |
|
|
|
4,671 |
|
|
|
|
|
|
|
|
2,377 |
|
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,973 |
|
|
|
Deferred income taxes
|
|
|
(3,396 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(29,767 |
) |
|
|
4,541 |
|
|
|
|
(8,483 |
) |
|
|
(6,666 |
) |
|
|
|
Inventories
|
|
|
25,561 |
|
|
|
4,337 |
|
|
|
|
(20,072 |
) |
|
|
2,492 |
|
|
|
|
Prepaid expenses and other assets
|
|
|
568 |
|
|
|
(978 |
) |
|
|
|
(3,844 |
) |
|
|
(1,567 |
) |
|
|
|
Accounts payable
|
|
|
21,770 |
|
|
|
(4,658 |
) |
|
|
|
2,976 |
|
|
|
(10,356 |
) |
|
|
|
Accrued and other liabilities
|
|
|
688 |
|
|
|
5,671 |
|
|
|
|
(4,098 |
) |
|
|
7,037 |
|
|
|
|
Accrued payroll and payroll related items
|
|
|
(1,453 |
) |
|
|
558 |
|
|
|
|
2,999 |
|
|
|
(587 |
) |
|
|
|
Customers deposits
|
|
|
(948 |
) |
|
|
(1,982 |
) |
|
|
|
1,915 |
|
|
|
(1,973 |
) |
|
|
|
Accrued interest
|
|
|
135 |
|
|
|
1,667 |
|
|
|
|
7,224 |
|
|
|
18,389 |
|
|
|
|
Other long-term liabilities
|
|
|
(767 |
) |
|
|
529 |
|
|
|
|
(139 |
) |
|
|
(3,320 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) operating activities before
reorganization activities
|
|
|
28,904 |
|
|
|
7,382 |
|
|
|
|
(17,817 |
) |
|
|
(6,911 |
) |
Cash flows provided by (used in) reorganization activities
|
|
|
(6,439 |
) |
|
|
(3,489 |
) |
|
|
|
6,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) operating activities
|
|
|
22,465 |
|
|
|
3,893 |
|
|
|
|
(10,841 |
) |
|
|
(6,911 |
) |
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(6,973 |
) |
|
|
(2,088 |
) |
|
|
|
(7,775 |
) |
|
|
(13,970 |
) |
Proceeds from sale of property, plant and equipment
|
|
|
5,100 |
|
|
|
16 |
|
|
|
|
192 |
|
|
|
8 |
|
Restricted cash
|
|
|
1,186 |
|
|
|
|
|
|
|
|
(1,492 |
) |
|
|
(15,094 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(687 |
) |
|
|
(2,072 |
) |
|
|
|
(9,075 |
) |
|
|
(29,056 |
) |
Cash flows provided by/(used in) financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under long-term obligations
|
|
|
61,091 |
|
|
|
(6,317 |
) |
|
|
|
91,593 |
|
|
|
79,477 |
|
|
|
|
Repayment under long term obligations
|
|
|
(92,324 |
) |
|
|
6,979 |
|
|
|
|
(82,000 |
) |
|
|
(16,888 |
) |
|
|
|
Financing fees and other
|
|
|
(28 |
) |
|
|
(523 |
) |
|
|
|
(2,642 |
) |
|
|
(4,008 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(31,261 |
) |
|
|
139 |
|
|
|
|
6,951 |
|
|
|
58,581 |
|
Effects of exchange rate changes on cash and cash equivalents
|
|
|
(287 |
) |
|
|
(99 |
) |
|
|
|
315 |
|
|
|
821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(9,770 |
) |
|
|
1,861 |
|
|
|
|
(12,650 |
) |
|
|
23,435 |
|
Cash and cash equivalents at beginning of the period
|
|
|
15,192 |
|
|
|
13,331 |
|
|
|
|
25,981 |
|
|
|
2,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the period
|
|
$ |
5,422 |
|
|
$ |
15,192 |
|
|
|
$ |
13,331 |
|
|
$ |
25,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
13,361 |
|
|
$ |
915 |
|
|
|
$ |
8,218 |
|
|
$ |
23,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net taxes paid
|
|
$ |
810 |
|
|
$ |
48 |
|
|
|
$ |
761 |
|
|
$ |
187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
50
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
|
|
1. |
Business Organization and Basis of Presentation |
International Wire Group, Inc., a Delaware corporation (the
Company), together with its subsidiaries,
manufacture and market wire products (including bare and
tin-plated copper wire and insulated wire) for other wire
suppliers and original equipment manufacturers. The
Companys products include a broad spectrum of copper wire
configurations and gauges with a variety of electrical and
conductive characteristics and are utilized by a wide variety of
customers primarily in the appliance, automotive, electronics
and data communications and general industrial/energy
industries. The Company manufactures and distributes its
products at 15 facilities located in the United States, Mexico,
France, Italy and the Philippines.
Since the Company was formed in 1995, it has completed the
acquisition of several entities and the related operations of
those businesses. These acquisitions and related results of
operations are included in the accompanying consolidated
financial statements from their respective acquisition dates.
In March 2000, the Company consummated the sale of its Wire
Harness business to Viasystems International, Inc.
(Viasystems) for $210,798 in cash (the Wire
Harness Sale). In connection therewith, the Company
entered into an agreement to supply Viasystems wire
harness business with substantially all of their insulated wire
requirements through 2003, which was a continuation of existing
practice. This supply agreement was extended through
December 31, 2005. On June 29, 2005, Viasystems
notified the Company that they were electing not to renew this
supply agreement after its current expiration date of
December 31, 2005. See Note 10 for further discussion
of the Wire Harness Sale and transactions with Viasystems.
Over the last several years, the Companys insulated wire
segment operating results have been adversely impacted by
industry wide over capacity and increased material costs, that,
with the exception of copper price increases, cannot be passed
through to customers under most of our current customer
contracts. In addition, in the second and fourth quarters of
2005, we were notified that significant volume with two large
customers, Viasystems and Yazaki Corp, and its affiliates,
respectively, would not be renewed upon the expiration of the
existing supply contracts. Throughout 2005, the Company actively
evaluated the insulated wire business and considered
alternatives affecting all or part of the insulated wire
segment. On December 2, 2005 we sold and leased selected
assets of the U.S. Insulated Wire Business to Copperfield
LLC and ceased operations. Accordingly, the U.S. Insulated
Wire Business has been presented as a discontinued operation in
the accompanying consolidated statement of operations. The
results of operations for the Cebu, Philippines and Durango,
Mexico facilities, the remaining insulated wire facilities, are
included in continuing operations in the accompanying
consolidated statements of operations. We continue to explore
strategic alternatives for the remainder of our insulated wire
segment, including the sale or closure of the operations in
Cebu, Philippines and Durango, Mexico. The Durango plant ceased
producing insulated wire at the end of January, 2006.
|
|
|
Fresh-Start Basis of Presentation |
The accompanying consolidated financial statements have been
presented in accordance with the American Institute of Certified
Public Accountants (AICPA) Statement of
Position (SOP) 90-7, Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code, as
amended. As a result of adopting fresh-start reporting upon
emerging from Chapter 11 of the U.S. Bankruptcy Code
on October 20, 2004, International Wire Group, Inc.s
financial statements subsequent to this date are not comparable
with those prepared for the periods before the plan of
reorganization was confirmed, including the historical financial
statements included herein. References to
Predecessor refer to International Wire Group, Inc.
through October 19, 2004. References to
Successor refer to International Wire Group, Inc. on
and after October 20, 2004.
51
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has restated its consolidated financial statements
as of and for the year ended December 31, 2005, and
deferred taxes and associated valuation allowance at
December 31, 2004, to correct errors in accounting for
deferred income taxes that were recorded against goodwill and
the provision for income tax.
The errors at December 31, 2004 arose from:
|
|
|
|
1. |
an understatement of deferred tax assets of $2,354 related to
inventory resulting from errors in recording fresh start
accounting entries reflecting book and tax basis differences
arising from the valuation of inventory at October 20, 2004
(the fresh start date); |
|
|
2. |
an overstatement of net operating loss (NOL) carry
forwards of $1,151 at the Companys French subsidiary and
adjustments to accrued liabilities book and tax basis
differences of $285; |
|
|
3. |
an overstatement of deferred tax liabilities for fixed assets of
$5,582 resulting from errors in the computation of timing
differences for cumulative depreciation between book and tax
records; and |
|
|
4. |
an overstatement of intangible asset deferred tax liabilities of
$864 due to the omission of the tax bases of an intangible asset
and of taxable goodwill in the computation of cumulative timing
differences. |
The impact of correcting these errors results in an increase in
net deferred tax assets at December 31, 2004, before
valuation allowance, of $7,934. The Company had previously
concluded at December 31, 2004 that it was more likely than
not that it would not be able to realize the benefit of its
deferred tax assets and as a result a full valuation allowance
was recorded. Accordingly, as a result of the above corrections,
a corresponding increase in valuation allowance of $7,934 has
been recorded. As a result there is no net impact to the
statement of operations for the year ended December 31,
2004 or total assets, liabilities or stockholders equity
at December 31, 2004.
The Companys disposition of its U.S. Insulated Wire
business, including tangible assets, in December 2005
resulted in the realization of the fixed asset and inventory
adjustments noted above and a resulting increase in the
Companys cumulative NOL at December 31, 2005. Upon
the release of the valuation allowance in the fourth quarter of
the year ended December 31, 2005 (see Note 12), in
accordance with SOP 90-7 the release of this valuation allowance
is recorded as a reduction to goodwill created at the fresh
start date. As a result of the above incremental deferred taxes
and valuation allowance recorded at the fresh start date, the
Company has recorded an incremental adjustment to reduce
goodwill by $9,052 at December 31, 2005.
The Company has also identified a reduction in the income tax
provision for continuing operations for the year ended
December 31, 2005 of $839 relating primarily to the losses
of a subsidiary which were erroneously not included in the
computation of the provision for U.S. taxes originally recorded
for the year then ended. The Company also identified an increase
in the income tax provision of $472 relating to an error in not
applying a change in state tax law in 2005 that impacted the
applicable rate used to compute deferred income tax assets and
liabilities.
52
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the impact of the restatement:
|
|
|
|
|
|
|
|
|
|
|
|
As Previously | |
|
|
|
|
Reported | |
|
Restated | |
|
|
| |
|
| |
Consolidated Statement of Operations:
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
Income tax provision from continuing operations
|
|
|
4,129 |
|
|
|
3,762 |
|
|
Loss from continuing operations
|
|
|
(1,644 |
) |
|
|
(1,277 |
) |
|
Net loss
|
|
|
(11,186 |
) |
|
|
(10,819 |
) |
|
Basic and diluted net loss per share from continuing operations
|
|
$ |
(0.17 |
) |
|
$ |
(0.13 |
) |
|
Basic and diluted net loss per share
|
|
$ |
(1.12 |
) |
|
$ |
(1.08 |
) |
Consolidated Balance Sheet:
|
|
|
|
|
|
|
|
|
As of December 31, 2005
|
|
|
|
|
|
|
|
|
|
Current deferred tax asset
|
|
|
8,900 |
|
|
|
20,218 |
|
|
Total current assets
|
|
|
181,579 |
|
|
|
192,897 |
|
|
Goodwill
|
|
|
71,193 |
|
|
|
62,307 |
|
|
Total assets
|
|
|
366,254 |
|
|
|
368,686 |
|
|
Non-current deferred tax liability
|
|
|
5,705 |
|
|
|
7,770 |
|
|
Total liabilities
|
|
|
213,808 |
|
|
|
215,873 |
|
|
Accumulated deficit
|
|
|
(21,948 |
) |
|
|
(21,581 |
) |
|
Total stockholders equity
|
|
|
152,446 |
|
|
|
152,813 |
|
|
Total liabilities and stockholders equity
|
|
|
366,254 |
|
|
|
368,686 |
|
Consolidated Statement of Cash Flows:
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
|
(11,186 |
) |
|
|
(10,819 |
) |
|
Deferred income taxes
|
|
|
(3,029 |
) |
|
|
(3,396 |
) |
2004 income taxes (Note 12)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Accounts receivable reserves
|
|
|
1,522 |
|
|
|
1,522 |
|
|
Inventories
|
|
|
(1,170 |
) |
|
|
1,184 |
|
|
Accrued liabilities not yet deductible
|
|
|
7,340 |
|
|
|
7,699 |
|
|
Net operating loss carryforward
|
|
|
13,146 |
|
|
|
11,995 |
|
|
Postretirement benefits
|
|
|
98 |
|
|
|
98 |
|
|
Other
|
|
|
181 |
|
|
|
105 |
|
|
|
|
|
|
|
|
|
|
|
21,117 |
|
|
|
22,603 |
|
|
Valuation allowance
|
|
|
(6,773 |
) |
|
|
(14,707 |
) |
|
|
|
|
|
|
|
|
|
|
14,344 |
|
|
|
7,896 |
|
|
Deferred tax liabilities-depreciation and amortization
|
|
|
14,344 |
|
|
|
7,896 |
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$ |
0 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
Certain other Notes appearing in these consolidated financial
statements were impacted by these corrections. Refer to Notes 4,
7, 12, 16 and 19.
|
|
2. |
Voluntary Bankruptcy Filing and Plan of Reorganization |
On March 24, 2004, the Predecessor entered into a
lock-up and voting
agreement with a majority in principal amount of the then
bondholders, including the members of an Ad Hoc Committee of
Bondholders and its then largest equity holder, to effect a
pre-negotiated plan of reorganization. In order to
53
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
consummate its reorganization, the Predecessor and all of its
domestic subsidiaries filed voluntary petitions under
Chapter 11 of the U.S. Bankruptcy Code in the
Bankruptcy Court in the Southern District of New York (the
Filing). The cases were consolidated and were
jointly administered under case number
04-11991 (BRL). The
Predecessors
non-U.S. subsidiaries
were not part of the filing. In addition, the Predecessor
entered into a
debtor-in-possession
financing agreement with Highbridge/Zwirn Special Opportunities
Fund, L.P. and a group of senior lenders. Such financing
agreement provided for $140,000 of
debtor-in-possession
financing consisting of a $90,000 revolving loan and a $50,000
term loan. The
debtor-in-possession
financing (DIP) was used to repay $82,000 of Senior
Secured Notes plus accrued interest, premium and fees and
provided working capital during the reorganization process.
On October 20, 2004, the Predecessors Second Amended
and Restated Joint Plan of Reorganization under Chapter 11
of the Bankruptcy Code (the Plan) was confirmed and
the Company emerged. The Plan involved the exchange of
approximately $305,000 of principal amount plus accrued interest
of the Companys 11.75 percent and 14 percent
Senior Subordinated Notes for 96 percent of the Common
Stock of the Successor and $75,000 of new 10 percent
Secured Senior Subordinated Notes to be issued pursuant to the
Plan. All of the outstanding common stock of the Predecessor was
converted into 4 percent of the Common Stock of the
Successor. All other liabilities were unimpaired and were paid
with interest, as applicable. In addition, the Company entered
into an agreement with a group of lenders for a $140,000 senior
credit facility, the proceeds of which were utilized to
refinance the Companys obligations under the DIP facility
and provide funding for working capital and other general
corporate purposes.
Under Chapter 11, certain claims against the debtor in
existence prior to the filing of the petition for relief under
federal bankruptcy laws are stayed while the debtor continues
business operations as a
debtor-in-possession.
These claims are considered liabilities subject to
compromise. The primary categories of liabilities subject
to compromise as of March 24, 2004 were the following:
|
|
|
|
|
|
Accrued interest
|
|
$ |
29,252 |
|
Senior Subordinated Notes, excluding unamortized premium
|
|
|
305,000 |
|
|
|
|
|
|
Total
|
|
$ |
334,252 |
|
|
|
|
|
In accordance with
SOP 90-7, a gain
from debt forgiveness of $259,252 is included in the
Predecessors consolidated statement of operations for the
period from January 1 through October 19, 2004.
In addition, from the time the Predecessor filed its Plan
through October 19, 2004, the Predecessor did not recognize
interest charges of $20,959 on liabilities subject to compromise
and on the date of filing the Plan wrote off the premium of
$2,673 related to the Senior Subordinated Notes subject to
compromise in accordance with
SOP 90-7. The
Company also wrote off deferred financing fees of $1,548 related
to the Senior Subordinated Notes on the date of filing the Plan
in accordance with
SOP 90-7.
The Predecessor incurred reorganization expenses primarily
related to professional fees as follows:
|
|
|
|
|
|
|
|
|
|
|
January 1 | |
|
Year | |
|
|
through | |
|
Ended | |
|
|
October 19, | |
|
December 31, | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Consulting
|
|
$ |
1,439 |
|
|
$ |
1,440 |
|
Legal
|
|
|
1,410 |
|
|
|
692 |
|
Other
|
|
|
213 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
$ |
3,062 |
|
|
$ |
2,172 |
|
|
|
|
|
|
|
|
54
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
From January 1 through October 19, 2004, the Predecessor
incurred bankruptcy reorganization expenses as follows:
|
|
|
|
|
Consulting
|
|
$ |
4,067 |
|
Legal
|
|
|
4,050 |
|
Key Employee Retention Plan
|
|
|
2,295 |
|
Management company severance
|
|
|
1,920 |
|
Deferred financing fees
|
|
|
1,548 |
|
Premium on 11.75 Percent Series B Senior Subordinated
Notes
|
|
|
(2,673 |
) |
Other
|
|
|
1,503 |
|
|
|
|
|
|
|
$ |
12,710 |
|
|
|
|
|
In accordance with
SOP 90-7, the
Successor adopted fresh-start reporting as the holders of the
existing voting shares of the Predecessor immediately prior to
filing and confirmation of the Plan received less than
50 percent of the voting shares of the emerging entity, and
its reorganization value immediately before the confirmation of
the Plan was less than the total of its allowed claims and
post-petition liabilities. For accounting purposes, the Plan was
consummated on October 20, 2004. In accordance with
fresh-start reporting, the Successor has adjusted its assets and
liabilities to their estimated fair value at October 20,
2004, with the excess of the Successors reorganization
value over the fair value of its tangible and identifiable
intangible assets and liabilities reported as goodwill in the
consolidated balance sheet.
As of October 20, 2004, management determined that the
enterprise value was within a range of $295,000 to $390,000,
with approximately $342,500 representing managements best
estimate of the Companys enterprise value. The enterprise
value was based on a calculation of discounted projected cash
flows for the Company. The discounted cash flow analysis was
based on 5-year cash
flow projections prepared by management and reviewed by the then
current board of directors. Cash flows were discounted at
10 percent representing the after-tax weighted average cost
of capital. The cash flow projections were based on estimates
and assumptions about circumstances and events that have not yet
taken place. Such estimates and assumptions are inherently
subject to significant economic and competitive uncertainties
and contingencies beyond the control of the Successor including,
but not limited to, those with respect to future revenues and
costs of the Successor. Accordingly, differences are expected
between the projections and the actual results due to events and
circumstances which frequently do not occur as expected.
Reorganization value, as defined by
SOP 90-7 is
the fair value of the entity before considering
liabilities and approximates the amount a willing buyer would
pay for the assets of the entity immediately after the
restructuring. At October 20, 2004, this value was
derived by adding the fair value of all liabilities
(approximately $62,500) not included in the calculation of the
enterprise value (all liabilities except funded long-term debt)
and additional debt (approximately $6,000) to the enterprise
value (approximately $342,500) of the Successor to arrive at the
$411,000 reorganization value of the reorganized entity. Once
this value was determined, the Company determined the fair value
of tangible fixed assets and specifically identifiable
intangible assets. Once these valuations were completed, the
Company allocated the reorganization value to the fair value of
its assets. As stated above, the excess of the Successors
reorganization value over the fair value of its tangible and
intangible assets has been recorded as goodwill in the amount of
approximately $71,400.
At October 20, 2004, the liabilities of the Successor
consisted primarily of post-petition current liabilities,
outstanding pre-petition claims, $96,581 under the Senior
Revolving Credit and Term Loan Facility (Note 11) and
$75,000 of Senior Secured Subordinated Notes. The
Successors consolidated
55
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
balance sheet included no beginning retained earnings/deficit,
and accumulated depreciation and amortization were reduced to $0
at October 20, 2004 in connection with recording the
property, plant, and equipment and identifiable intangibles at
estimated fair value.
As required under
SOP 90-7, the
Company estimated the fair market value of its identifiable
intangible assets at October 20, 2004. The Company
allocated $16,234 to customer contracts and relationships,
$14,200 to trade names and trademarks and $2,671 to leases. The
total effect of fresh start adjustments on identifiable
intangible assets from the Predecessor at October 19, 2004
to the Successor at October 20, 2004 was a net increase of
$30,124.
56
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The effect of the Plan and implementation of fresh-start
reporting on the consolidated balance sheet is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor | |
|
|
|
|
|
Successor | |
|
|
| |
|
|
|
|
|
| |
|
|
October 19, | |
|
Debt | |
|
Fresh-Start | |
|
October 20, | |
|
|
2004 | |
|
Restructuring | |
|
Adjustments | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
ASSETS |
Cash and cash equivalents
|
|
$ |
13,331 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
13,331 |
|
Accounts receivable trade, net
|
|
|
74,305 |
|
|
|
|
|
|
|
|
|
|
|
74,305 |
|
Inventories
|
|
|
79,626 |
|
|
|
|
|
|
|
7,415 |
(a) |
|
|
87,041 |
|
Prepaid expenses and other
|
|
|
12,537 |
|
|
|
|
|
|
|
(1,116 |
)(e) |
|
|
11,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
179,799 |
|
|
|
|
|
|
|
6,299 |
|
|
|
186,098 |
|
Property, plant and equipment
|
|
|
109,107 |
|
|
|
|
|
|
|
(5,315 |
)(b) |
|
|
103,792 |
|
Goodwill
|
|
|
86,417 |
|
|
|
|
|
|
|
(15,058 |
)(c) |
|
|
71,359 |
|
Identifiable intangibles, net
|
|
|
2,981 |
|
|
|
|
|
|
|
30,124 |
(d) |
|
|
33,105 |
|
Deferred financing fees, net
|
|
|
|
|
|
|
|
|
|
|
2,678 |
(e) |
|
|
2,678 |
|
Other assets
|
|
|
13,685 |
|
|
|
|
|
|
|
|
|
|
|
13,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
391,989 |
|
|
$ |
|
|
|
$ |
18,728 |
|
|
$ |
410,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Current maturities of long-term debt
|
|
$ |
1,519 |
|
|
$ |
|
|
|
$ |
(134 |
)(h) |
|
$ |
1,385 |
|
Accounts payable
|
|
|
17,081 |
|
|
|
|
|
|
|
|
|
|
|
17,081 |
|
Accrued and other liabilities
|
|
|
44,031 |
|
|
|
|
|
|
|
(3,168 |
)(j) |
|
|
40,863 |
|
Accrued interest
|
|
|
29,626 |
|
|
|
(29,252 |
)(i) |
|
|
(338 |
)(h) |
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
92,257 |
|
|
|
(29,252 |
) |
|
|
(3,640 |
) |
|
|
59,365 |
|
Long-term debt, less current maturities
|
|
|
397,785 |
|
|
|
(230,000 |
)(i) |
|
|
3,796 |
(h) |
|
|
171,581 |
|
Other long-term liabilities
|
|
|
12,236 |
|
|
|
|
|
|
|
(8,165 |
)(f) |
|
|
4,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
502,278 |
|
|
|
(259,252 |
) |
|
|
(8,009 |
) |
|
|
235,017 |
|
|
Total stockholders equity
|
|
|
(110,289 |
) |
|
|
259,252 |
|
|
|
26,737 |
(g) |
|
|
175,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
391,989 |
|
|
$ |
|
|
|
$ |
18,728 |
|
|
$ |
410,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
To adjust inventory to estimated fair market value. |
|
|
|
(b) |
|
To adjust property and equipment to estimated fair market value. |
|
(c) |
|
To write off Predecessor goodwill and record Successor
reorganization value in excess of identifiable assets (Goodwill). |
|
(d) |
|
To recognize identifiable intangible assets at estimated fair
market value. |
|
(e) |
|
To recognize deferred financing fees incurred in connection with
Successor debt. On October 19, 2004, the Company prepaid
$1,116 of financing fees. On October 20, 2004 the Company
reclassified those fees upon receipt of the proceeds. The
Company paid an additional $1,563 in financing fees on
October 20, 2004. |
|
(f) |
|
To adjust capital leases by $537 and post-retirement benefits by
$7,628 to estimated fair market value. |
57
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(g) |
|
To write off common stock and retained earnings of the
Predecessor, and to record the issuance of 10 million
shares of Successor common stock. |
|
(h) |
|
To write off
debtor-in-possession
financing and accrued interest and the addition of the new
senior revolving credit facility and term loan and secured
senior subordinated notes. |
|
(i) |
|
To reflect the settlement of liabilities subject to compromise
of $334,252, exchanged for $75,000 of Indentures. |
|
(j) |
|
To reflect reorganization-related payments made with loan
proceeds. |
|
|
4. |
Significant Accounting Policies |
|
|
|
Principles of Consolidation |
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation.
The Company recognizes revenue when all of the following
criteria are satisfied: persuasive evidence of an arrangement
exists; risk of loss and title transfer to the customer; the
price is fixed and determinable and collectibility is reasonably
assured. Sales and related cost of goods sold are included in
income when goods are delivered to customers in accordance with
the invoice terms F.O.B. destination. Our sales agreements and
terms contain right of inspection or acceptance provisions and
we replace goods damaged or lost in transit. A provision for
product returns is recorded based on historical experience and
any notification received of pending returns.
The Company also recognizes revenues from services performed to
process customer-owned (tolled) copper. Such revenue
is recognized at the time the product is received by the
customer and the above criteria are met. The value of tolled
copper is excluded from both sales and cost of goods sold, as
title to these materials and the related risks of ownership do
not pass to the Company at any time.
The Company performs ongoing credit evaluations of its customers
and adjusts credit limits based upon payment history and the
customers current creditworthiness, as determined by
review of their current credit information. A provision for
estimated credit losses is based upon historical experience and
any specific customer issues that have been identified. Account
balances are charged off against the allowance when the Company
believes it is probable the receivables will not be recovered.
The Company does not have any off-balance sheet exposure related
to its customers.
|
|
|
Shipping and Handling Fees and Costs |
Shipping and handling fees billed to customers are included in
net sales. Shipping and handling costs associated with outbound
freight for the bare wire and engineered wire Europe
segments are included in selling, general and administrative
expenses and totaled $11,074 for the year ended
December 31, 2005, $1,952 for the period October 20 through
December 31, 2004, $8,489 for the period January 1 through
October 19, 2004, and $8,092 for the year ended
December 31, 2003, respectively.
|
|
|
Cash and Cash Equivalents |
For purposes of the consolidated statement of cash flows, the
Company considers all highly liquid investments purchased with
maturities of three months or less to be cash equivalents.
58
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2005 and 2004, the Company maintained
restricted cash in the amount of $1,922 and $3,107,
respectively, associated with deposits for self-insured
workers compensation programs.
|
|
|
Concentration of Credit Risk |
Financial instruments that potentially expose the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents in bank deposits accounts, short-term and long-term
investments and trade receivables. The Company invests its funds
in highly rated institutions and limits its investment in any
individual debtor. The Company has not experienced significant
losses related to cash and cash equivalents and does not believe
it is exposed to any significant credit risks relating to its
cash and cash equivalents.
Inventories are valued at the lower of cost or market. Cost is
determined using the
last-in, first-out
(LIFO) method.
|
|
|
Property, Plant and Equipment |
Upon emergence from bankruptcy on October 20, 2004,
property, plant and equipment was recorded at estimated fair
market value in accordance with
SOP 90-7.
Additions to property, plant and equipment after
October 20, 2004 are recorded at cost. Depreciation is
calculated using the straight-line method. The average estimated
lives utilized in calculating depreciation are as follows:
building 25 to 40 years; building
improvements 15 years; machinery and
equipment 3 to 11 years; and furniture and
fixtures 5 years. Leasehold improvements are
amortized over the shorter of the term of the respective lease
or the life of the respective improvement. The cost and related
accumulated depreciation of assets sold, retired or otherwise
disposed of are removed from the respective accounts, and any
resulting gains or losses are included in the consolidated
statement of operations.
Goodwill at December 31, 2005 represents the excess of the
reorganization value of the Successor over the fair value of net
assets. Goodwill is not being amortized but is reviewed at least
annually for impairment as required under SFAS No. 142
using a fair-value-based test. Each year the Company tests for
impairment of goodwill according to a two-step approach. In the
first step, the Company estimates the fair values of its
reporting units using the present value of future cash flows
approach. If the carrying amount of the reporting unit exceeds
its fair value, the second step of the goodwill impairment test
is performed to measure the amount of the impairment loss, if
any. In the second step the implied fair value of the goodwill
is estimated as the fair value of the reporting unit used in the
first step less the fair values of all other net tangible and
intangible assets of the reporting unit. If the carrying amount
of the goodwill exceeds its implied fair market value, an
impairment loss is recognized in an amount equal to that excess,
not to exceed the carrying amount of the goodwill. In addition,
goodwill of a reporting unit is tested for impairment between
annual tests if an event occurs or circumstances change that
would indicate that goodwill may be impaired. The Companys
annual impairment test date is December 31.
|
|
|
Identifiable Intangibles, Net |
Identifiable intangible assets at December 31, 2005
represent the fair market value of customer contracts,
relationships, trade names, trademarks and favorable leases.
Identifiable intangible assets are
59
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
amortized over their projected useful lives of 15 years for
customer contracts and relationships, 20 years for trade
names and trademarks and 3 years for the favorable lease.
|
|
|
Impairment of Long-lived Assets |
The Company periodically evaluates the recoverability of its
property and equipment and other long-lived assets, including
identifiable intangible assets, when circumstances indicate that
an event of impairment may have occurred in accordance with the
provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets
(SFAS No. 144). This periodic review
may result in an adjustment of estimated depreciable lives or an
asset impairment. When indicators of impairment are present, the
carrying values of the asset are evaluated in relation to their
operating performance and future undiscounted cash flows of the
underlying assets. If the future undiscounted cash flows are
less than their book value, an impairment exists. The impairment
is measured as the difference between the book value and the
fair value of the underlying asset. Fair values are based on
estimates of the market prices and assumptions concerning the
amount and timing of estimated future cash flows and assumed
discount rates, reflecting varying degrees of perceived risk. An
impairment charge of $3,337 was recorded in the year ended
December 31, 2005.
Deferred financing costs, consisting of fees and other expenses
associated with debt financing, are amortized over the term of
the related debt using the straight-line method, which
approximates the effective interest method.
The Company accounts for certain items of income and expense in
different periods for financial reporting and income tax
purposes. Provisions for deferred income taxes are made in
recognition of such temporary differences, where applicable. A
valuation allowance is established against deferred tax assets
unless the Company believes it is more likely than not that the
benefit will be realized.
|
|
|
Foreign Currency Translation |
The Company has operations in Mexico, France, Italy and the
Philippines. Local currencies are the functional currency for
the Companys foreign subsidiaries located in France and
Italy. Accordingly, assets and liabilities of these foreign
subsidiaries are translated at the rates of exchange in effect
at the balance sheet date. Income and expense items and cash
flows of these subsidiaries are translated at average monthly
rates of exchange. The resultant translation gains and losses
are reported in other comprehensive income/(loss).
The U.S. dollar is the functional currency for the
operations in Mexico and the Philippines. All gains and losses
from remeasurement and transactions are determined using a
combination of current and historical rates and are included in
net income/(loss).
Exchange gains and losses arising from transactions in
currencies other than the functional currency of the subsidiary
involved are included in net income/(loss). To date, the effect
of such amounts on net income/(loss) has not been material.
The Company previously separately reported cash flow from
discontinued operations. The Company has conformed prior years
to the current year presentation of total cash flows. There is
no change to operating cash flows for any prior period. The
Consolidated Statement of Cash Flows reflects deposits into
60
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and changes in restricted cash accounts as an Investing
Activity. The Consolidated Statements of Cash Flows for
the period October 20 through December 31, 2004, from the
period from January 1 through October 19, 2004, and for the
year ended December 31, 2003 previously reflected such
deposits into restricted cash accounts as a Financing
Activity. Prior periods have been conformed to the current
year basis and presentation. This revision had no impact on the
Consolidated Balance Sheets, Consolidated Statements of
Operations, or the net increase (decrease) in cash and cash
equivalents included in our Consolidated Statements of Cash
Flows for any of the periods.
|
|
|
Fair Value of Financial Instruments |
The Companys financial instruments are carried at face
amounts. The Company has estimated the fair market value of its
Secured Senior Subordinated Notes using current market data. The
fair market value of the Secured Senior Subordinated Notes was
approximately $72,750 and $79,100 at December 31, 2005 and
2004, respectively.
|
|
|
Estimates and Assumptions |
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
As allowed under SFAS No. 123, Accounting for
Stock-Based Compensation, the Company applies APB Opinion
No. 25, Accounting for Stock Issued to Employees,
and related Interpretations in accounting for its employee
stock option awards. Accordingly, no compensation cost has been
recognized for awards to employees as options are issued at
exercise prices equal to the estimated market value at date of
grant. Had compensation cost for the respective option awards
been determined based upon the fair value at the
61
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
grant date, consistent with the methodology prescribed under
SFAS No. 123, net income/(loss) would approximate the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
Predecessor | |
|
|
| |
|
| |
|
|
For the Year | |
|
October 20 | |
|
|
|
For the Year | |
|
|
Ended | |
|
to | |
|
January 1 to | |
|
Ended | |
|
|
December 31, | |
|
December 31, | |
|
October 19, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Restated | |
|
|
|
|
|
|
Pro forma net income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net income/(loss)
|
|
$ |
(10,819 |
) |
|
$ |
(10,762 |
) |
|
$ |
237,308 |
|
|
$ |
(46,738 |
) |
Add: Stock-based employee compensation expense included in
reported income, net of related tax effects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Total stock-based employee compensation expense determined
under fair value based methods for all awards, net of related
tax effects
|
|
|
|
|
|
|
|
|
|
|
(179 |
) |
|
|
(207 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income/(loss)
|
|
$ |
(10,819 |
) |
|
$ |
(10,762 |
) |
|
$ |
237,129 |
|
|
$ |
(46,945 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income/(loss) per share
|
|
$ |
(1.08 |
) |
|
$ |
(1.08 |
) |
|
$ |
237,129 |
|
|
$ |
(46,945 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has estimated the fair value of its granted stock
options by applying the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
Predecessor |
|
|
|
|
|
|
|
For the Year Ended |
|
October 20 to |
|
January 1 to |
|
For the Year Ended |
|
|
December 31, 2005 |
|
December 31, 2004 |
|
October 19, 2004 |
|
December 31, 2003 |
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
3.5%-4.6 |
% |
|
|
|
|
|
|
3.5 |
% |
|
|
3.0 |
% |
Expected dividend yield
|
|
|
0 |
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
Expected option term
|
|
|
5 years |
|
|
|
|
|
|
|
5 years |
|
|
|
5 years |
|
Volatility
|
|
|
52.6 |
% |
|
|
|
|
|
|
65.0 |
% |
|
|
0.0 |
% |
In connection with the Plan, all Predecessor options were
cancelled.
The Plan provided for the 2004 Stock Option Plan covering an
aggregate of 1,111,111 shares of common stock. However, the
2004 Stock Option Plan expired since the plan was not approved
by our shareholders on or prior to October 20, 2005. No
options had been granted to management under the 2004 Stock
Option Plan. In the third quarter of 2005, the Successor granted
an option to acquire 25,000 shares to the Vice-Chairman of
the Board of Directors with an exercise price of $11 per
share. Compensation cost for these options using their fair
value would not have been material for the year ended
December 31, 2005.
|
|
|
Allocation of Interest to Expense to Discontinued
Operations |
Interest expense has been allocated to discontinued operations
under the provisions of EITF 87-24. Interest expense allocated
to discontinued operation was $808, $128, $880 and $2,218 for
the year ended December 31, 2005, the period October 20
through December 31, 2004, the period January 1 through
October 19, 2004 and the year ended December 31, 2003,
respectively.
62
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Net Income/(Loss) Per Common Share |
The Company accounts for and discloses net income/(loss) per
common share in accordance with SFAS No. 128,
Earnings Per Share. Basic net income/(loss) per
common share is computed by dividing net income/(loss)
attributable to common stockholders by the weighted average
number of common shares outstanding. Diluted net income/(loss)
per common share is computed by dividing net income/(loss)
attributable to common stockholders by the weighted average
number of common shares and dilutive potential common share
equivalents then outstanding. Potential common shares consist of
shares issuable upon the exercise of stock options.
The Company had sales to two significant customers in the
periods included in the accompanying statements of operations.
Sales to General Cable Corporation represented the following
%s of net sales from continuing operations; 18% for the
year ended December 31, 2005, 23% for the period
October 20, 2004 to December 31, 2004, 11% for the
period January 1, 2004 through October 19, 2004 and 2%
for the year ended December 31, 2003. Sales to Yazaki
Corporation represented the following %s of net sales from
continuing operations; 10% for the year ended December 31,
2005, 4% for the period October 20, 2004 through
December 31, 2004, 13% for the period January 1, 2004
through October 19, 2004 and 12% for the year ended
December 31, 2003.
The Company is in the business of manufacturing and marketing
wire and wire products. The Company evaluates its business
activities that are regularly reviewed by the Chief Executive
Officer for which discrete financial information is available.
As a result of this evaluation, the Company determined that it
has three reportable segments, Bare Wire, Engineered
Wire Europe and Insulated Wire.
|
|
|
Other Comprehensive Income/(Loss) |
SFAS No. 130, Reporting Comprehensive
Income establishes standards for reporting and displaying
comprehensive income and its components in a full set of
general-purpose financial statements. For the years ended
December 31, 2005, the period October 20, 2004 through
December 31, 2004, the period January 1, 2004 through
October 19, 2004 and the year ended December 31, 2003,
the Company had two components of comprehensive income or loss:
net income/(loss) and foreign currency translations adjustments.
|
|
|
Recently Issued Accounting Standards |
In November 2004 (revised in December 2004), the FASB issued
SFAS No. 151, Inventory Costs an
amendment of ARB No. 43, Chapter 4 to be effective
for inventory costs incurred during fiscal years beginning after
June 15, 2005, with early adoption permitted.
SFAS No. 151 amends the guidance in Accounting
Research Bulleting (ARB) No. 43,
Chapter 4, Inventory Pricing, to clarify the
accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage).
Paragraph 5 of ARB 43, Chapter 4, previously stated
that ... under some circumstances, items such as idle
facility expense, excessive spoilage, double freight, and
rehandling costs may be so abnormal as to require treatment as
current period charges ... . SFAS No. 151
requires those items be recognized as current period charges
regardless of whether they meet the criterion of so
abnormal. In addition, FAS No. 151 requires the
allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production
facilities. The Company does not expect the adoption of
SFAS No. 151 to have a material impact on its
financial position or results of operations.
63
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In December 2004, the FASB issued SFAS No. 123(R),
Share-Based Payment. SFAS No. 123(R)
establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or
services. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in
share-based payment transactions. SFAS No. 123(R)
requires that the fair value of such equity instruments be
recognized as an expense in the historical financial statements
as services are performed. Prior to SFAS No. 123(R),
only certain pro forma disclosures of fair value were required.
The Company will adopt the provisions of
SFAS No. 123(R) effective the first quarter of fiscal
year 2006, which begins on January 1, 2006. The Company
does not believe the impact of adopting
SFAS No. 123(R) will be material.
In March 2005, the SEC issued Staff Accounting Bulletin
(SAB) No. 107, Share-Based Payment. This
SAB provides views of the SEC staff regarding the interaction
between SFAS No. 123(R) and certain SEC rules and
regulations, and is intended to assist in the initial
implementation of SFAS No. 123(R). The Company
anticipates refining its estimates of expected volatility and
expected term as a result of the guidance provided within
SAB No. 107 and SFAS No. 123(R).
In March 2005, the FASB issued FASB Interpretation
(FIN) No. 47, Accounting for Conditional
Asset Retirement Obligations, which is an interpretation of
SFAS No. 143, Accounting for Asset Retirement
Obligations. This Interpretation clarifies terminology
within SFAS No. 143 and requires an entity to
recognize a liability for the fair value of a conditional asset
retirement obligation when incurred if the liabilitys fair
value can be reasonably estimated. This Interpretation is
effective for fiscal years ending after December 15, 2005.
The adoption of this Interpretation did not have a material
impact on its financial condition or results of operations.
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets, an amendment to APB Opinion
No. 29, to be applied for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005.
The guidance in APB Opinion No. 29, Accounting for
Nonmonetary Transactions, is based on the principle that
exchanges of nonmonetary assets should be measured based on the
fair value of the assets exchanged. The guidance in that
Opinion, however, included certain exceptions to that principle.
SFAS No. 153 amends Opinion 29 to eliminate the
exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a
result of the exchange. The Company does not expect the adoption
of SFAS No. 153 to have a material impact on its
financial position or results of operations.
The composition of inventories is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Raw materials
|
|
$ |
18,274 |
|
|
$ |
21,922 |
|
Work-in process
|
|
|
14,400 |
|
|
|
22,234 |
|
Finished goods
|
|
|
24,200 |
|
|
|
39,163 |
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$ |
56,874 |
|
|
$ |
83,319 |
|
|
|
|
|
|
|
|
Inventories are valued at the lower of cost or market. Cost is
determined using the
last-in, first-out
(LIFO) method. Had inventories been valued at the
first-in, first-out
(FIFO) cost method, inventories would have been
$20,641 and $5,587 higher as of December 31, 2005 and 2004,
respectively. During 2005, inventory quantities were reduced.
This reduction resulted in a liquidation of LIFO inventory
64
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
quantities carried at lower costs prevailing in the prior year
as compared with the cost of 2005 purchases. The effect of this
decrease in inventory decreased cost of goods sold by $1,120 and
decreased the net loss by $1,120 or $0.11 per share.
|
|
6. |
Property, Plant and Equipment |
The composition of property, plant and equipment is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Land
|
|
$ |
5,954 |
|
|
$ |
6,385 |
|
Building and improvements
|
|
|
25,609 |
|
|
|
29,526 |
|
Machinery and equipment
|
|
|
69,131 |
|
|
|
67,993 |
|
Construction in progress
|
|
|
1,217 |
|
|
|
2,695 |
|
|
|
|
|
|
|
|
|
|
|
101,911 |
|
|
|
106,599 |
|
Less: accumulated depreciation
|
|
|
(16,471 |
) |
|
|
(2,467 |
) |
|
|
|
|
|
|
|
|
|
$ |
85,440 |
|
|
$ |
104,132 |
|
|
|
|
|
|
|
|
Depreciation expense for continuing operations was $9,347,
$2,934, $11,387 and $14,217 for the year ended December 31,
2005, the period October 20 through December 31, 2004, for
the period January 1 through October 19, 2004 and for the
year ended December 31, 2003, respectively.
|
|
7. |
Goodwill and Intangible Assets, Net |
The changes in the carrying amount of goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Restated | |
|
|
Balance, beginning of period
|
|
$ |
71,359 |
|
|
$ |
71,359 |
|
Reversal of deferred income tax valuation allowance
|
|
|
(9,052 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$ |
62,307 |
|
|
$ |
71,359 |
|
|
|
|
|
|
|
|
All goodwill is included in the bare wire segment. The Company
completed its annual impairment test at December 31, 2005
and concluded that goodwill was not impaired. A similar test was
done at December 31, 2003 that resulted in a goodwill
impairment of $2,973 at the Companys European reporting
unit.
The components of identifiable intangibles, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
|
|
Accumulated | |
|
|
|
Accumulated | |
|
|
Cost | |
|
Amortization | |
|
Cost | |
|
Amortization | |
|
|
| |
|
| |
|
| |
|
| |
Customer contracts and relationships
|
|
$ |
11,292 |
|
|
$ |
1,125 |
|
|
$ |
16,234 |
|
|
$ |
927 |
|
Trade names and trademarks
|
|
|
10,248 |
|
|
|
660 |
|
|
|
14,200 |
|
|
|
4,102 |
|
Leases
|
|
|
2,671 |
|
|
|
1,068 |
|
|
|
2,671 |
|
|
|
178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$ |
24,211 |
|
|
$ |
2,853 |
|
|
$ |
33,105 |
|
|
$ |
5,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2005 and 2004, various impairment indicators were
experienced with respect to the insulated wire segment (see
Note 9).
65
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amortization expense for continuing operations was $2,316, $536,
$0, and $0 for the year ended December 31, 2005, for the
period October 20 through December 31, 2004, for the period
January 1 through October 19, 2004 and for the year ended
December 31, 2003, respectively. The estimated amortization
expense for identifiable intangible assets held as of
December 31, 2005 is as follows:
|
|
|
|
|
|
|
Amount | |
|
|
| |
2006
|
|
$ |
2,137 |
|
2007
|
|
|
1,959 |
|
2008
|
|
|
1,247 |
|
2009
|
|
|
1,247 |
|
2010
|
|
|
1,247 |
|
Thereafter
|
|
$ |
13,521 |
|
As of October 20, 2004, the Successor recorded deferred
financing fees of $3,202 in connection with the Senior Revolving
Credit Facility and Senior Term Loan (Note 11). During the
period from January 1 through October 19, 2004, the
Predecessor incurred additional deferred financing fees of
$2,642 in connection with its DIP financing and wrote off $4,753
of the remaining deferred financing fees related to the Senior
Secured Notes, DIP and Senior Subordinated Notes as a result of
the reorganization.
In 2003, the Predecessor incurred deferred financing costs of
$3,084 in connection with the issuance of 10.375 percent
Senior Secured Notes under an indenture dated May 30, 2003.
The Company incurred additional deferred fees of $924 in
connection with agreements in place prior to 2003. With the
proceeds from the 10.375 percent Senior Secured Notes, the
Company repaid the outstanding balance of the credit agreement
then in place and wrote-off $2,141 of remaining deferred
financing costs associated with the agreement.
|
|
9. |
Discontinued Operations |
Over the last several years, the Companys insulated wire
segment operating results have been adversely impacted by
industry wide over capacity and increased material costs, that,
with the exception of copper prices increase, cannot be passed
through to customers under most of our current customer
contracts. In addition, in the second and fourth quarters of
2005, we were notified that significant volume with two large
customers, Viasystems and Yazaki Corp and its affiliates would
not be renewed. Throughout 2005, we were actively evaluating the
business and considering alternatives affecting all or part of
the insulated wire business. On November 30, 2005, we sold
and leased selected assets for proceeds of $15,057, principally
inventory and property, plant and equipment of the
U.S. insulated wire business to Copperfield LLC and ceased
those operations. The proceeds were used to pay-down borrowings
under the senior revolving credit facility. Accordingly, the
U.S. Insulated Wire Business has been presented as a
discontinued operation in the accompanying consolidated
statement of operations for the year ended December 31,
2005, the period October 20 through December 31, 2004, the
period January 1 through October 19, 2004 and the year
ended December 31, 2003. The results of operations for the
Cebu, Philippines and Durango, Mexico facilities are included in
continuing operations in the accompanying consolidated
statements of operations.
66
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following comprises the (loss) from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
Predecessor | |
|
|
| |
|
|
| |
|
|
|
|
For the Period | |
|
|
For the Period | |
|
|
|
|
For the Year | |
|
October 20 | |
|
|
January 1 | |
|
For the Year | |
|
|
Ended | |
|
through | |
|
|
through | |
|
Ended | |
|
|
December 31, | |
|
December 31, | |
|
|
October 19, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
| |
|
| |
U.S. Insulated Wire Business
|
|
$ |
(9,542 |
) |
|
$ |
(10,500 |
) |
|
|
$ |
(7,026 |
) |
|
$ |
(12,072 |
) |
Wire Harness product liability claims
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,929 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(9,542 |
) |
|
$ |
(10,500 |
) |
|
|
$ |
(7,026 |
) |
|
$ |
(19,001 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the third quarter of 2005, the Company began discussions
and negotiations to sell selected assets of the
U.S. Insulated Wire Business. While negotiations were not
concluded, the Company continued to operate these assets, and
based on these discussions and other factors, the Company
determined that certain property, plant and equipment and
long-lived customer relationship intangibles were impaired.
Based on estimates of future cash flow, including estimates of
proceeds on disposal to be derived from these assets, the
Company recorded a total impairment charge of $5,783 to
write-down the carrying values of property, plant and equipment
by $4,108 and customer relationship intangibles by $1,675 in the
third quarter of 2005.
On June 29, 2005, Viasystems (See Note 10), a
significant customer of the insulated wire segment notified the
Company that they were electing not to renew their insulated
wire supply agreement with the Company and that this agreement
would terminate in accordance with its terms on
December 31, 2005. As a result, the Company determined that
certain long-lived customer relationship intangibles for this
segment were impaired. These assets derive their values
primarily from the projected cash flows. Based on the
termination of this agreement, future cash flows were deemed to
be negatively affected and resulted in the decline in value of
the segments customer relationships. In conjunction
therewith, the Company recorded an impairment charge of $2,548
in the second quarter of 2005.
During the fourth quarter of 2004, certain component costs such
as insulating compound and the premiums charged to convert
copper cathode to copper rod incurred by the insulated wire
segment, excluding the cost of copper, increased significantly
primarily due to higher world oil prices. As the
Successors customer contracts do not allow for
pass-through of these component costs, the Successor determined
that certain long-lived assets were impaired. These assets
derive their values primarily from their projected cash flows.
Based on the changes in the cost structure in the fourth
quarter, future cash flows were deemed to be negatively affected
and resulted in a reduction in value to certain of the
segments identified intangibles. Accordingly, $711 of
customer contracts and relationships and $3,960 of trade names
and trademarks attributable to the insulated wire segment were
determined to be impaired. The Company wrote off the full amount
of the impaired assets in the period from October 20 through
December 31, 2004.
In 2003, the Company began marketing efforts for previously
closed plants and wrote down the net book values of such
facilities with impairment charges of $2,377. These charges are
included in the loss from discontinued operations.
The Company recorded a charge to loss from discontinued
operations during 2003 of $6,929, net of $0 income tax benefit
related to the Wire Harness Product Liability Claims, as
described in Note 17.
67
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The U.S. Insulated Wire Business operating results of
discontinued operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
Predecessor | |
|
|
| |
|
| |
|
|
|
|
For the | |
|
For the | |
|
|
|
|
|
|
Period | |
|
Period | |
|
|
|
|
For the Year | |
|
October 20 | |
|
January 1 | |
|
|
|
|
Ended | |
|
through | |
|
through | |
|
For the Year | |
|
|
December 31, | |
|
December 31, | |
|
October 19, | |
|
Ended | |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
December 31, 2003 | |
|
|
| |
|
| |
|
| |
|
| |
Net sales
|
|
$ |
124,263 |
|
|
$ |
21,041 |
|
|
$ |
106,686 |
|
|
$ |
120,021 |
|
Loss before income tax provision
|
|
|
(9,542 |
) |
|
|
(10,500 |
) |
|
|
(7,026 |
) |
|
|
(12,072 |
) |
The major classes of assets and liabilities of our discontinued
operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
|
|
|
$ |
118 |
|
|
Accounts receivable
|
|
|
17,486 |
|
|
|
24,294 |
|
|
Inventory
|
|
|
|
|
|
|
36,181 |
|
|
Assets held for sale
|
|
|
1,975 |
|
|
|
|
|
|
Other current assets
|
|
|
460 |
|
|
|
4,331 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$ |
19,921 |
|
|
$ |
64,924 |
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$ |
|
|
|
$ |
32,885 |
|
|
Identifiable intangibles
|
|
|
|
|
|
|
5,900 |
|
|
Other non-current assets
|
|
|
|
|
|
|
890 |
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
$ |
|
|
|
$ |
39,675 |
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
3,370 |
|
|
$ |
2,933 |
|
|
Accrual expenses
|
|
|
2,248 |
|
|
|
5,105 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
$ |
5,618 |
|
|
$ |
8,038 |
|
|
|
|
|
|
|
|
|
|
10. |
Related Party Transactions |
In connection with the sale of the Companys former wire
harness business to Viasystems International, Inc.
(Viasystems), the Company entered into an agreement
and an extension thereto to supply substantially all of their
insulated wire requirements through December 2005. At the time
of the sale, the Company and Viasystems were commonly controlled
by affiliates of Hicks, Muse, Tate & Furst Incorporated
(Hicks Muse). In conjunction with the Plan and as of
October 20, 2004 the Successor and Viasystems are no longer
related parties. The Company had sales to Viasystems of $45,014
for the year ended December 31, 2005, $8,048 and $33,355
for the periods from October 20 through December 31,
2004 and from January 1 through October 19, 2004,
respectively and $34,077 for the year ended December 31,
2003, respectively. The outstanding trade receivables due from
Viasystems were $6,098 and $6,510 at December 31, 2005 and
2004, respectively. Also see Note 17 Litigation.
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
major shareholder, chairman and director is the Chief Executive
Officer of the Company. In addition, the Vice President of
Finance of the
68
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company holds a minority ownership interest and is a director.
Sales to Prime for the year ended December 31, 2005, the
periods from October 20 through December 31, 2004 and from
January 1 through October 19, 2004 and year ended
December 31, 2003 were $8,828, $2,351, $10,811 and $11,196,
respectively. The Company had outstanding accounts receivable
from Prime related to those sales of $823 and $276 at
December 31, 2005 and 2004, respectively. Sales to Prime
were made on terms comparable to those of other companies in the
industry.
The composition of long-term debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Senior Revolving Credit Facility
|
|
$ |
30,188 |
|
|
$ |
60,308 |
|
Senior Term Loan
|
|
|
30,000 |
|
|
|
30,000 |
|
10% Secured Senior Subordinated Notes
|
|
|
75,000 |
|
|
|
75,000 |
|
Other
|
|
|
228 |
|
|
|
1,341 |
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
135,416 |
|
|
|
166,649 |
|
Less current maturities
|
|
|
228 |
|
|
|
1,341 |
|
|
|
|
|
|
|
|
Long-term portion of long-term debt
|
|
$ |
135,188 |
|
|
$ |
165,308 |
|
|
|
|
|
|
|
|
|
|
|
Senior Revolving Credit Facility and Term Loan |
Concurrently with the consummation of the Predecessors
reorganization, on October 20, 2004, the Successor and the
domestic subsidiaries entered into (collectively, the
Credit Facility) (1) a credit agreement among
Congress Financial Corporation (Central) (now known as Wachovia
Capital Financial Corporation (Central)), as administrative
agent, and the several banks and financial institutions parties
thereto, which provides for a five year senior revolving credit
facility in an amount of up to $110,000 (including, as a
sub-facility of the revolving credit facility, a $25,000 letter
of credit facility), (the Revolver Credit Facility)
and (2) a credit agreement among Silver Point Finance LLC,
as administrative agent, and the several banks and financial
institutions parties thereto, which provides for a $30,000 five
year senior term loan facility (the Term Credit
Facility). Initial proceeds from this facility were used
to repay the
debtor-in-possession
financing of $91,905, reorganization costs of $1,263 and for
working capital or other general corporate purposes.
Borrowings under the Revolver Credit Facility are tied to a
borrowing base, which is calculated by reference to, among other
things, eligible accounts receivable, eligible inventory and
eligible real property and equipment. The Term Credit Facility
is in the amount of $30,000. As of December 31, 2005,
letters of credit in the amount of $9,922 were outstanding and
$30,188 was drawn under the Revolver Credit Facility.
Availability under the Revolver Credit Facility was $64,500 as
of December 31, 2005.
The Company may choose to pay interest on advances under the
Credit Facility at either a Eurodollar rate or a base rate plus
the following applicable margin: (1) for base rate term
loan advances, 3.50 percent per annum; (2) for
Eurodollar rate term loan advances, 6.00 percent per annum;
(3) for base rate revolving credit facility advances,
0.25 percent to 1.00 percent per annum, depending on
the borrowing base component to which such revolving credit
facility advances relate and subject to adjustment in accordance
with a pricing grid based on excess availability, (4) for
Eurodollar rate revolving credit facility advances,
2.00 percent to 2.75 percent per annum, depending on
the borrowing base component to which such revolving credit
facility advances relate and subject to adjustment in accordance
with a pricing grid based on excess availability and
(5) for letters of credit, 1.50 percent to
2.00 percent per annum, subject
69
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
to adjustment in accordance with a pricing grid based on excess
availability. The default rate is 2.00 percent above the
rate otherwise applicable. The Company also has an annual
commitment fee of 0.25 percent on the unused balance of its
Revolving Credit Facility and a letter of credit fee equal to
0.125 percent plus the applicable margin in respect of
letters of credit.
The Companys domestic subsidiaries are the primary parties
to the Credit Facility. The Company has guaranteed their
obligations under the Credit Facility. The collateral for the
Senior Credit facility includes all or substantially all of the
Companys and its domestic subsidiaries assets,
including 65 percent of the capital stock of, or other
equity interests in, the Companys foreign subsidiaries.
The Term Credit Facility, and the liens and guarantees in
respect thereof, are junior to the revolving credit facility,
and the liens and guarantees in respect thereof.
The Companys credit facility requires the Company to
observe conditions, affirmative covenants and negative covenants
(including financial covenants), including compliance, with a
fixed charge coverage ratio when either (1) the minimum
availability under the credit facility falls below $20,000 or
(2) there is a default or event of default.
The Companys Revolving Credit Facility commitment expires
on October 20, 2009. The Term Credit Facility is required
to be repaid in full at maturity on October 20, 2009.
The Company may prepay the loans or reduce the commitments under
its credit facility in a minimum amount of $5,000 and additional
integral amounts in multiples of $1,000 in respect of the
Revolving Credit Facility and in a minimum principal amount of
$1,000 and integral multiples of $100 in respect of the Term
Credit Facility. The commitments under the Revolving Credit
Facility may not be reduced by more than $10,000 in any
twelve-month period.
The Company must prepay the loans under the Revolving Credit
Facility by the following amounts (subject to certain
exceptions):
|
|
|
|
|
An amount equal to 100 percent of the net proceeds of any
incurrence of indebtedness by the Company or any of its
subsidiaries; |
|
|
|
An amount equal to 100 percent of the net proceeds of any
non-ordinary course sale or other disposition by us or any of
its subsidiaries of any assets, except for certain exceptions. |
The lenders under the Companys Credit Facility will apply
each mandatory prepayment to any outstanding borrowings under
the loans in accordance with the terms of an intercreditor
agreement among the lenders to the revolving credit facility and
the term loan.
|
|
|
Secured Senior Subordinated Notes |
The 10 percent Secured Senior Subordinated Notes due 2011
(Notes) are: senior subordinated obligations of the
Company; senior in right of payment to any of future
subordinated obligations; guaranteed by the Companys
domestic subsidiaries; and secured by a third-priority lien on
all or substantially all of the Companys and its domestic
subsidiaries assets, including 65 percent of the capital
stock of, or other equity interests in, the Companys
foreign subsidiaries.
The Company issued the Notes pursuant to the Plan on
October 20, 2004 in aggregate principal amount of $75,000.
The Notes will mature on October 15, 2011.
Interest on the Notes accrues at the rate of 10 percent per
annum and is payable semiannually in arrears on October 15 and
April 15, commencing on April 15, 2005. Interest on
overdue principal accrues at 2 percent per annum in excess
of the above rate and pay interest on overdue installments of
interest at such higher rate to the extent lawful.
70
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Except as set forth below, the Company will not be entitled to
redeem the Notes at its option prior to October 15, 2007.
At any time after October 15, 2007, the Company may at its
option redeem all or part of the Notes at the redemption prices
(expressed percentages of the principal amount) set forth below,
plus accrued and unpaid interest thereon, if any, to the
applicable redemption date if redeemed during the twelve-month
period beginning on October 15 of the years indicated below:
|
|
|
|
|
|
|
Redemption | |
Period |
|
Price | |
|
|
| |
2007
|
|
|
105.00 |
% |
2008
|
|
|
102.50 |
% |
2009
|
|
|
101.25 |
% |
2010 and thereafter
|
|
|
100.00 |
% |
Notwithstanding the foregoing, at any time after the issue date,
on or prior to October 15, 2007:
|
|
|
|
|
The Company may on any one or more occasions redeem up to
35 percent of the aggregate principal amount of the Notes
at a redemption price equal to 110 percent of the principal
amount thereof, plus accrued and unpaid interest thereon, if
any, to the redemption date with net cash proceeds at one or
more underwritten public offerings of the Companys common
stock; provided that at least 50% of the Notes remain
outstanding and that the redemption occurs within 90 days
of the closing of the public offering. |
|
|
|
If the Company or any of its restricted subsidiaries consummate
an asset disposition pursuant to which the net available cash
exceeds $25,000, the Company will have the option to redeem up
to the maximum principal amount of the Notes that may be
purchased out of such net available cash at any offer price in
cash in an amount equal to 110 percent of the principal
amount thereof plus accrued and unpaid interest thereon, if any,
to the date fixed for redemption; provided that the redemption
occurs within 90 days after the date of the closing of the
asset disposition. |
The Companys ability to redeem the Notes is also subject
to restrictions in its senior credit facility.
The Company is not required to make any mandatory redemption or
sinking fund payments with respect to the Notes. However, upon a
change of control of the Company, it may be required to offer to
purchase the Notes at 101 percent of the principal amount
thereof plus accrued and unpaid interest thereon, if any, to the
date fixed for the closing of such offer to purchase.
The indenture governing the Notes contains restrictive covenants
which, among other things, limit the Companys ability and
some of its subsidiaries to (subject to exceptions): incur
additional debt; pay dividends or distributions on, or redeem or
repurchase, capital stock; restrict dividends or other payments;
transfer or sell assets; engage in transactions with affiliates;
create certain liens; engage in sale/leaseback transactions;
impair the collateral for the Notes; make investments; guarantee
debt; consolidate, merge or transfer all or substantially all of
its assets and the assets of the Companys subsidiaries;
and engage in unrelated businesses.
Upon the occurrence of events of default specified in the
indenture, the trustee for the Notes or the holders of at least
25 percent of the principal amount of the outstanding Notes
may declare the principal amount then outstanding of, and
accrued but unpaid interest, if any, on, all of the Notes to be
due and payable.
Upon the happening of other events of default specified in the
indenture, the principal amount then outstanding of, and accrued
but unpaid interest, if any, on, all of the Notes will
automatically become due and payable without any action by the
trustee or the holders of the Notes.
71
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company may terminate most of its obligations under the
indenture governing the Notes at any time by irrevocably
depositing in trust with the trustee money or
U.S. government obligations for the payment of principal,
premium (if any), and interest on the Notes to maturity or any
redemption date the Company specifies, together with satisfying
other conditions and obligations set forth in the indenture.
Scheduled maturities of debt at December 31, 2005 are as
follows:
|
|
|
|
|
|
|
|
2004 | |
|
|
| |
2006
|
|
$ |
228 |
|
2007
|
|
|
|
|
2008
|
|
|
|
|
2009
|
|
|
60,188 |
|
2010
|
|
|
|
|
Thereafter
|
|
|
75,000 |
|
|
|
|
|
|
Total
|
|
$ |
135,416 |
|
|
|
|
|
The Company accounts for income taxes in accordance with the
provisions of SFAS No. 109. The provision (benefit)
for income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
Predecessor | |
|
|
| |
|
| |
|
|
For the Year | |
|
October 20 | |
|
January 1 | |
|
For the Year | |
|
|
Ended | |
|
through | |
|
through | |
|
Ended | |
|
|
December 31, | |
|
December 31, | |
|
October 19, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Restated | |
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
7,844 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
State
|
|
|
1,124 |
|
|
|
|
|
|
|
|
|
|
|
291 |
|
Foreign
|
|
|
807 |
|
|
|
(34 |
) |
|
|
666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,775 |
|
|
|
(34 |
) |
|
|
666 |
|
|
|
291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(5,675 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
(338 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,013 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit) for continuing operations
|
|
|
3,762 |
|
|
|
(34 |
) |
|
|
666 |
|
|
|
291 |
|
Tax expense (benefit) on discontinued operations
|
|
|
(6,348 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit)
|
|
$ |
(2,586 |
) |
|
$ |
(34 |
) |
|
$ |
666 |
|
|
$ |
291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The U.S. and foreign components of income/(loss) before income
taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
Predecessor | |
|
|
| |
|
| |
|
|
For the Year | |
|
October 20 | |
|
January 1, | |
|
For the Year | |
|
|
Ended | |
|
through | |
|
through | |
|
Ended | |
|
|
December 31, | |
|
December 31, | |
|
October 19, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
Domestic
|
|
$ |
(18,674 |
) |
|
$ |
(9,697 |
) |
|
$ |
232,471 |
|
|
$ |
(42,749 |
) |
Foreign
|
|
|
5,269 |
|
|
|
(1,099 |
) |
|
|
5,503 |
|
|
|
3,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income taxes provision (benefit)
|
|
$ |
(13,405 |
) |
|
$ |
(10,796 |
) |
|
$ |
237,974 |
|
|
$ |
(39,518 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation between the statutory income tax rate and
effective tax rate is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
Predecessor | |
|
|
| |
|
| |
|
|
For the Year | |
|
October 20 | |
|
January 1, | |
|
For the Year | |
|
|
Ended | |
|
through | |
|
through | |
|
Ended | |
|
|
December 31, | |
|
December 31, | |
|
October 19, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Restated | |
|
|
|
|
|
|
U.S. Federal statutory rate at 35%
|
|
$ |
(4,692 |
) |
|
$ |
(3,779 |
) |
|
$ |
83,291 |
|
|
$ |
(13,831 |
) |
State taxes, net of federal effect
|
|
|
(579 |
) |
|
|
(461 |
) |
|
|
(415 |
) |
|
|
(2,119 |
) |
Foreign rate differential
|
|
|
6,046 |
|
|
|
(539 |
) |
|
|
(1,378 |
) |
|
|
(1,764 |
) |
Disregarded entity loss deductible in U.S.
|
|
|
(660 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Nondeductible expenses
|
|
|
322 |
|
|
|
147 |
|
|
|
4,265 |
|
|
|
37 |
|
Nondeductible amortization of intangibles
|
|
|
|
|
|
|
|
|
|
|
286 |
|
|
|
|
|
Non-includable reorganization income
|
|
|
|
|
|
|
|
|
|
|
(88,813 |
) |
|
|
|
|
Change in U.S. valuation allowance
|
|
|
(3,692 |
) |
|
|
4,724 |
|
|
|
(27,799 |
) |
|
|
18,504 |
|
Reduction in available net operation loss carryforward
|
|
|
|
|
|
|
|
|
|
|
31,011 |
|
|
|
|
|
Change in effective rate on deferred income taxes
|
|
|
975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(306 |
) |
|
|
(126 |
) |
|
|
218 |
|
|
|
(536 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(2,586 |
) |
|
$ |
(34 |
) |
|
$ |
666 |
|
|
$ |
291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tax effects of significant temporary differences
representing deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
| |
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Restated | |
|
Restated | |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accounts receivable reserves
|
|
$ |
1,069 |
|
|
$ |
1,522 |
|
Inventories
|
|
|
5,198 |
|
|
|
1,184 |
|
Accrued liabilities not yet deductible
|
|
|
6,655 |
|
|
|
7,699 |
|
Net operating loss carryforward
|
|
|
22,479 |
|
|
|
11,995 |
|
Postretirement benefits
|
|
|
89 |
|
|
|
98 |
|
Other
|
|
|
115 |
|
|
|
105 |
|
|
|
|
|
|
|
|
|
|
|
35,605 |
|
|
|
22,603 |
|
Valuation allowance
|
|
|
(2,493 |
) |
|
|
(14,707 |
) |
|
|
|
|
|
|
|
|
|
|
33,112 |
|
|
|
7,896 |
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
16,377 |
|
|
|
7,896 |
|
|
Unremitted earnings in the Philippines
|
|
|
4,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,664 |
|
|
|
7,896 |
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$ |
12,448 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
$ |
20,218 |
|
|
$ |
|
|
Net noncurrent deferred tax liabilities
|
|
|
(7,770 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets
|
|
$ |
12,448 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Net deferred taxes at December 31, 2004 were $0 after
valuation allowance. During the period subsequent to
reorganization, the Company underwent significant changes in its
structure which impacted its future outlook, including emergence
from bankruptcy and the sale of its U.S. insulated wire
business. The Company evaluated the historical performance of
its remaining business at December 31, 2005 and its future
outlook and determined that it was now more likely than not that
it would realize the benefit of its deferred tax assets.
Accordingly, the Company released its U.S. valuation allowance.
A valuation allowance is required against deferred tax assets
if, based on the weight of available evidence, it is more likely
than not that some or all of the deferred tax assets will not be
realized. During 2005, the valuation allowance on the
U.S. deferred tax assets was reversed since based upon the
weight of available evidence, it was determined that it is more
likely than not the tax benefit will be realized. In accordance
with SOP 90-7, the
valuation allowance established in fresh-start reporting upon
emergence from bankruptcy of $9,052 has offset goodwill. The
remaining change in the U.S. valuation allowance established
subsequent to October 20, 2004 of $3,692 was released as a
tax benefit in continuing operations. Valuation allowances
continue to be recorded in certain foreign jurisdictions against
NOLs and other deferred tax assets since it is not more
likely than not the tax benefits will be realized. In 2005, the
foreign valuation allowance increased by $530 to $2,493 as of
December 31, 2005. Any reversal of valuation allowance
established in fresh-start reporting upon emergence from
bankruptcy remaining on foreign deferred tax assets will first
offset goodwill, then intangible assets and then increase
additional paid-in capital in accordance with
SOP 90-7.
The valuation allowance for deferred taxes was $2,493, $14,707,
$9,983 and $66,749 at December 31, 2005, December 31,
2004, October 20, 2004 and December 31, 2003
respectively. The Company recorded net changes to the valuation
allowance of ($12,214), $4,724, $0 and $66,749 for the periods
January 1,
74
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2005 through December 31, 2005, October 20 through
December 31, 2004, January 1 through October 19,
2004 and January 1, 2003 through December 31, 2003,
respectively.
The Company has unremitted earnings of foreign subsidiaries that
relate to its operations in the Philippines. The Company is
continuing to explore strategic alternatives for exiting the
remainder of its insulated wire business, which includes its
operations in the Philippines. Therefore, these unremitted
earnings are no longer considered to be permanently reinvested
outside the United States and US deferred taxes of approximately
$4,300 have been provided thereon as of December 31, 2005.
The American Jobs Creation Act of 2004 (the Jobs
Act), enacted on October 22, 2004, provides for a
temporary 85% dividends received deduction on certain foreign
earnings repatriated during a one-year period. The deduction
would result in an approximate 5.25% federal tax rate on the
repatriated earnings. To qualify for the deduction, the earnings
must be reinvested in the United States pursuant to a domestic
reinvestment plan established by the Companys chief
executive officer and approved by the Companys board of
directors. Certain other criteria in the Jobs Act must also be
satisfied. The Company has determined that no foreign earnings
will be repatriated under the Jobs Act.
Under the guidance in FASB Staff Position
No. FAS 109-1, Application of FASB Statement
No. 109, Accounting for Income Taxes, to the
Tax Deduction on Qualified Production Activities Provided by the
American Jobs Creation Act of 2004, the deduction will be
treated as a special deduction as described in FASB
Statement No. 109. As such, the special deduction has no
effect on deferred tax assets and liabilities existing at the
enactment date. Since the Company does not have domestic taxable
income in 2005, it is not entitled to this special deduction and
there is no impact on the effective tax rate.
As of December 31, 2005, the Companys U.S. net
operating loss (NOL) carryovers of approximately
$52,900 expire in periods ranging from the year 2022 through the
year 2025. As a result of the reorganization, the Company
underwent an ownership change within the meaning of
Section 382 of the Internal Revenue Code (IRC).
The Company is subject to an annual limitation of approximately
$8,100 on the amount of net operating loss carryforward of the
Predecessor Company of $29,200, which the Company may utilize in
the U.S.
A debtor is not required to include gain on the discharge of
debt in income if the debt discharge occurs in bankruptcy.
However, IRC Section 108 requires that the debtors
NOL, capital and credit carryovers first be reduced and then tax
basis in assets be reduced. The Predecessor reduced its
U.S. NOL carryovers by approximately $84,300 as a result of
its emergence from bankruptcy.
|
|
13. |
Impairment and Plant Closing Charges |
Impairment and plant closing charges are comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
Successor | |
|
Predecessor | |
|
Predecessor | |
|
|
Company |
|
Company | |
|
Company | |
|
Company | |
|
|
|
|
| |
|
| |
|
| |
|
|
|
|
For the Period | |
|
For the Period | |
|
|
|
|
For the Year |
|
October 20 | |
|
January 1 | |
|
For the Year | |
|
|
Ended |
|
through | |
|
through | |
|
Ended | |
|
|
December 31, |
|
December 31, | |
|
October 19, | |
|
December 31, | |
|
|
2005 |
|
2004 | |
|
2004 | |
|
2003 | |
|
|
|
|
| |
|
| |
|
| |
Bare wire and Engineered wire segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant closings
|
|
$ |
|
|
|
$ |
1,632 |
|
|
$ |
262 |
|
|
$ |
200 |
|
|
Fixed asset impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,632 |
|
|
|
262 |
|
|
|
1,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
Successor | |
|
Predecessor | |
|
Predecessor | |
|
|
Company | |
|
Company | |
|
Company | |
|
Company | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
For the Period | |
|
For the Period | |
|
|
|
|
For the Year | |
|
October 20 | |
|
January 1 | |
|
For the Year | |
|
|
Ended | |
|
through | |
|
through | |
|
Ended | |
|
|
December 31, | |
|
December 31, | |
|
October 19, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
Insulated wire segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant closings
|
|
|
192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed asset impairment
|
|
|
3,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
3,529 |
|
|
$ |
1,632 |
|
|
$ |
262 |
|
|
$ |
1,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of activity related to plant closings is as follows:
In December 2005, the Company began phasing out insulated wire
operations at its Durango, Mexico plant as the result of certain
customers not renewing contracts which expired on
December 31, 2005 and early 2006 and not being able to
replace the business with new insulated wire customers. The
Company incurred $192 of severance costs related to this action.
In addition, based upon recent marketing efforts and a possible
total closure of the facility, the Successor wrote down the net
book value of this facility and machinery and equipment to the
expected fair value resulting in an impairment charge of $3,337.
In December 2004, the Successor began the closure of its plant
in Beynost, France, which finally ceased production in March
2005, and recorded plant closing charges of $1,632 for personnel
and shut-down costs in the period October 20 through
December 31, 2004. In addition, there were $262 of plant
closing charges from previously closed plants in Arkansas
recorded by the Predecessor for the period January 1 through
October 19, 2004 for facility related costs.
In 2003 and in connection with a plant consolidation plan, the
Predecessor performed an analysis of the two closed facilities
in Arkansas and the machinery and equipment that were not moved
and consolidated into existing facilities. It began marketing
efforts to sell the closed facilities. Based on the results of
these analyses, the Predecessor recorded a non-cash impairment
loss of $988 which represented the difference between
managements estimate of the fair market value of the
remaining facilities and equipment and the carrying value. In
addition, the Predecessor recorded $200 of charges including
personnel and severance costs.
|
|
14. |
Retirement Benefits and Stock Option Plans |
The Company sponsors a defined contribution retirement plan,
which provides retirement benefits for eligible employees.
Company contribution expense related to the retirement plan for
the year ended December 31, 2005, the periods from October
20 through December 31, 2004 and from January 1 through
October 19, 2004, and the year ended December 31, 2003
amounted to $835, $181, $893, and $1,528 respectively.
The Successor adopted a 2004 Stock Option Plan (2004 Stock
Option Plan) on October 20, 2004 that provides for
the award of the incentive stock options and nonqualified
options. Subject to adjustment in the event of certain corporate
transactions or events, a maximum of 1,111,111 shares of
the Successors common stock is issuable under the 2004
Stock Option Plan. However, the 2004 Stock Option Plan expired
since the stock option plan was not approved by our shareholders
on or prior to October 20, 2005. No options had been
granted to management under the 2004 Stock Option Plan.
In the third quarter of 2005, Successor granted 25,000 options
to the Vice-Chairman of the Board of Directors with an exercise
price of $11 per share.
76
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Predecessor and its parent had a stock option plan. These
options were terminated under the Plan. Holdings Qualified
and Non-Qualified Stock Option Plan (the Option
Plan) provided for the granting of up to
4,795,322 shares of common stock to officers and key
employees of Holding and the Company. All outstanding options
under the plan were terminated in bankruptcy.
The Predecessor also granted Performance Options (the
Performance Options) to certain key executives in
1996 and 1995. The Performance Options were exercisable only on
the occurrence of certain events. The exercise price for the
Performance Options was initially equal to $1.00 per share
and, effective each anniversary of the grant date, the per share
exercise price for the Performance Options is equal to the per
share exercise price for the prior year multiplied by 1.09. The
Performance Options were cancelled under the Plan.
Changes in the status of the Option Plan are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted | |
|
|
|
|
|
|
Average | |
|
|
|
|
|
|
Exercise Price | |
|
Options | |
|
Options | |
|
|
per Share | |
|
Granted | |
|
Vested | |
|
|
| |
|
| |
|
| |
December 31, 2002 (Predecessor)
|
|
|
1.00 |
|
|
|
3,332,354 |
|
|
|
2,770,354 |
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
1.00 |
|
|
|
|
|
|
|
149,700 |
|
|
Forfeitures
|
|
|
1.00 |
|
|
|
(75,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003 (Predecessor)
|
|
|
1.00 |
|
|
|
3,257,354 |
|
|
|
2,920,054 |
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled on reorganization
|
|
|
|
|
|
|
(3,257,354 |
) |
|
|
(2,920,054 |
) |
|
|
|
|
|
|
|
|
|
|
October 20, 2004 (Successor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the status of the Performance Options are summarized
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Exercise Price |
|
Options |
|
Options |
|
|
per Share |
|
Granted |
|
Vested |
|
|
|
|
|
|
|
December 31, 2002 (Predecessor)
|
|
|
1.79 |
|
|
|
4,202,744 |
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003 (Predecessor)
|
|
|
1.94 |
|
|
|
4,202,744 |
|
|
|
|
|
Cancelled on reorganization
|
|
|
|
|
|
|
(4,202,744 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 20, 2004 (Successor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15. |
Commitments and Contingencies |
The Company leases certain property, transportation vehicles and
other equipment under operating leases. Total rental expense
under operating leases was $3,939, $2,719, $4,209 and $4,246 for
the year ended December 31, 2005, for the periods from
October 20 through December 31, 2004 and from January
77
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
1 through October 19, 2004 and for the year ended
December 31, 2003, respectively. Future minimum lease
payments under operating leases for the years ended
December 31 are:
|
|
|
|
|
2006
|
|
$ |
1,546 |
|
2007
|
|
|
841 |
|
2008
|
|
|
642 |
|
2009
|
|
|
24 |
|
2010
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
$ |
3,053 |
|
|
|
|
|
The Company has a postretirement benefit plan that provides
certain medical and life insurance for certain retirees and
eligible dependents of an acquired company. Current employees
are not eligible to participate in the plan. Effective
June 30, 2003, the plan was changed with respect to the
former employees contributions for medical benefits. Under
the change, and among other things, the former employees
contributions are based upon an actuarially-determined rate
which makes the funding by the former employees sufficient to
pay projected claims resulting in no cost to the Company.
Under fresh-start reporting, the liability under this plan is
considered to be liquidated as a result of the funding policy
adopted June 30, 2003. The effect of this negative plan
amendment is recognized by reducing prior service cost ratably
over the estimated remaining life of the participants. The life
insurance benefits were not changed. The Company funds the plan
as claims or insurance premiums are incurred. The plan can be
amended or terminated at any time by the Company. Net
postretirement benefit (income)/expense included the following
components:
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor | |
|
|
| |
|
|
January 1 | |
|
|
|
|
through | |
|
Year Ended | |
|
|
October 19, | |
|
December 31, | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Interest cost
|
|
$ |
7 |
|
|
$ |
234 |
|
Amortization of prior service cost
|
|
|
(525 |
) |
|
|
(360 |
) |
Amortization of unrecognized net lost
|
|
|
37 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
Net periodic postretirement income
|
|
$ |
(481 |
) |
|
$ |
(109 |
) |
|
|
|
|
|
|
|
The change in the projected postretirement benefit obligation
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
Predecessor | |
|
|
December 31, | |
|
|
December 31, | |
|
|
2004 | |
|
|
2003 | |
|
|
| |
|
|
| |
Beginning benefit obligation balance
|
|
$ |
154 |
|
|
|
$ |
6,938 |
|
Interest cost
|
|
|
7 |
|
|
|
|
234 |
|
Plan participants contribution
|
|
|
254 |
|
|
|
|
160 |
|
Actuarial losses
|
|
|
|
|
|
|
|
460 |
|
Benefits paid
|
|
|
(304 |
) |
|
|
|
(348 |
) |
Plan amendments
|
|
|
|
|
|
|
|
(7,290 |
) |
Fresh-start reporting adjustment
|
|
|
(111 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending benefit obligation balance
|
|
$ |
|
|
|
|
$ |
154 |
|
|
|
|
|
|
|
|
|
78
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The funded status and amounts recognized in the consolidated
balance sheets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor | |
|
|
December 31, |
|
|
December 31, | |
|
|
2004 |
|
|
2003 | |
|
|
|
|
|
| |
Beginning benefit obligation balance
|
|
$ |
|
|
|
|
$ |
(154 |
) |
Beginning benefit obligation balance
|
|
|
|
|
|
|
|
(7,474 |
) |
|
|
|
|
|
|
|
|
Beginning benefit obligation balance
|
|
$ |
|
|
|
|
$ |
(7,628 |
) |
|
|
|
|
|
|
|
|
The discount rate used in determining the accumulated
postretirement benefit obligation was 6 percent for the
period from January 1 through October 19, 2004 and for the
year ended December 31, 2003. The assumed health-care cost
trend rate used in measuring the accumulated postretirement
benefit obligation was 12 percent, decreasing gradually to
5 percent in year 2008 and thereafter.
The Company is subject to legal proceedings and claims that
arise in the normal course of business. In the opinion of
management, the ultimate liabilities with respect to these
actions will not have a material adverse effect on the
Companys financial condition, results of operations or
cash flows. See Note 17 to the Companys consolidated
financial statements included herein.
|
|
16. |
Business Segment Information |
The Company has three reportable segments: bare wire, engineered
wire Europe and insulated wire. The
U.S. Insulated Wire Business is reported as a discontinued
operation in these consolidated financial statements. The
remaining insulated wire business comprises Cebu, Philippines
and Durango, Mexico. Previously the Company had reported two
reportable segments: Bare Wire and Insulated Wire. Segment data
for the prior periods below has been recast to reflect the
remaining continuing operations and to conform with the current
year presentation. These segments are strategic business units
organized around two product categories that follow
managements internal organization structure. The Company
evaluates segment performance based upon segment operating
income.
The bare wire segment manufactures bare and tin-plated copper
wire products (or conductors) used to transmit digital, video
and audio signals or conduct electricity and sells to insulated
wire manufacturers and various industrial OEMs for use in
computer and data communications products, general industrial,
energy, appliances, automobiles and other applications. The bare
wire segment is in the primary business of copper fabrication.
The Company may provide such copper to its customers or use
their copper in the fabrication process. While the Company bills
its customers for copper it provides, it does not distinguish in
its records these customer types and it is therefore not
practicable to provide such disclosure.
The engineered wire Europe segment manufactures and
engineers bare copper wire products (or conductors) to conduct
electricity either for power or for grounding purposes and are
sold to a diverse customer base of various OEMs for use in
electrical appliances, power supply, aircraft and railway and
automotive.
The insulated wire segment manufactures and sells insulated wire
products (copper conductors insulated with plastic or other
polymeric compounds) to automotive and appliance manufacturers
for use in the assembly of wire harnesses that are installed in
both automobiles and appliances.
79
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Summarized financial information for the Companys
reportable segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered | |
|
|
|
|
|
|
|
|
|
|
|
|
Wire- | |
|
Insulated | |
|
|
|
|
|
|
|
|
Bare Wire | |
|
Europe | |
|
Wire | |
|
Corporate |
|
Elimination | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2005
|
|
$ |
391,795 |
|
|
$ |
38,845 |
|
|
$ |
114,556 |
|
|
$ |
|
|
|
$ |
(5,911 |
) |
|
$ |
539,285 |
|
For the period October 20 through December 31, 2004
|
|
|
62,580 |
|
|
|
7,039 |
|
|
|
16,764 |
|
|
|
|
|
|
|
(1,280 |
) |
|
|
85,103 |
|
For the period January 1 through October 19, 2004
|
|
|
246,201 |
|
|
|
30,584 |
|
|
|
75,010 |
|
|
|
|
|
|
|
(5,485 |
) |
|
|
346,310 |
|
For the year ended December 31, 2003
|
|
|
190,758 |
|
|
|
30,935 |
|
|
|
52,765 |
|
|
|
|
|
|
|
(5,145 |
) |
|
|
269,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered | |
|
|
|
|
|
|
|
|
|
|
|
|
Wire- | |
|
Insulated | |
|
|
|
|
|
|
|
|
Bare Wire | |
|
Europe | |
|
Wire | |
|
Corporate | |
|
Elimination | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Operating income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2005
|
|
$ |
20,158 |
|
|
$ |
1,378 |
|
|
$ |
500 |
|
|
$ |
(5,418 |
) |
|
$ |
|
|
|
$ |
16,618 |
|
For the period October 20 through December 31, 2004
|
|
|
2,761 |
|
|
|
(2,812 |
) |
|
|
2,429 |
|
|
|
|
|
|
|
|
|
|
|
2,378 |
|
For the period January 1 through October 19, 2004
|
|
|
18,161 |
|
|
|
1,785 |
|
|
|
2,851 |
|
|
|
(2,719 |
) |
|
|
|
|
|
|
20,078 |
|
For the year ended December 31, 2003
|
|
|
17,982 |
|
|
|
1,098 |
|
|
|
7,215 |
|
|
|
(9,097 |
) |
|
|
|
|
|
|
17,198 |
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005 Restated
|
|
|
62,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,307 |
|
As of December 31, 2004
|
|
|
71,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,359 |
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005 Restated
|
|
|
245,465 |
|
|
|
28,230 |
|
|
|
67,075 |
|
|
|
32,517 |
|
|
|
(4,601 |
) |
|
|
368,686 |
|
As of December 31, 2004
|
|
|
237,066 |
|
|
|
31,559 |
|
|
|
105,939 |
|
|
|
20,936 |
|
|
|
(1,293 |
) |
|
|
394,207 |
|
The following table presents sales by period and by geographic
region based on the country in which the legal subsidiary is
domiciled.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
Predecessor | |
|
|
| |
|
|
| |
|
|
For the Year | |
|
October 20 | |
|
|
January 1 | |
|
For the Year | |
|
|
Ended | |
|
through | |
|
|
through | |
|
Ended | |
|
|
December 31, | |
|
December 31, | |
|
|
October 19, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
| |
|
| |
United States
|
|
$ |
385,884 |
|
|
$ |
61,299 |
|
|
|
$ |
240,716 |
|
|
$ |
185,613 |
|
Europe
|
|
|
38,845 |
|
|
|
7,039 |
|
|
|
|
30,584 |
|
|
|
30,935 |
|
Mexico
|
|
|
40,619 |
|
|
|
5,731 |
|
|
|
|
20,191 |
|
|
|
9,796 |
|
Philippines
|
|
|
73,937 |
|
|
|
11,034 |
|
|
|
|
54,819 |
|
|
|
42,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
539,285 |
|
|
$ |
85,103 |
|
|
|
$ |
346,310 |
|
|
$ |
269,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents property, plant and equipment by
geographic region based on the location of the asset:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
United States
|
|
$ |
64,693 |
|
|
$ |
78,294 |
|
Europe
|
|
|
7,916 |
|
|
|
9,479 |
|
Mexico
|
|
|
5,118 |
|
|
|
8,831 |
|
Philippines
|
|
|
7,713 |
|
|
|
7,528 |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
85,440 |
|
|
$ |
104,132 |
|
|
|
|
|
|
|
|
In February 2002, the Company initiated an action in the Circuit
Court of Cook County, Chancery Division (Case No. 02CH2470)
located in Chicago, Illinois, titled International Wire
Group, Inc. v. National Union Fire Insurance Company of
Pittsburgh, Pennsylvania, AIG Technical Services, Inc., Aon
Corporation and Aon Risk Services of Missouri, Ltd. (The
AIG Litigation).The Company alleges in the
complaint in such action, among other things, that National
Union is obligated to defend and indemnify and otherwise provide
insurance coverage to the Company and the various original
equipment manufacturers for certain claims and damages related
to certain water inlet hoses supplied by and through the Company
pursuant to two (2) $25,000 excess insurance policies
issued to the Company by National Union. In July 2003, a ruling
was rendered in this matter. The trial court ruled in favor of
the Company and ruled that National Union/ AIG is obligated to
defend and indemnify and otherwise provide insurance coverage to
the Company and various original equipment manufacturers for
certain claims and damages related to certain water inlet hoses
supplied by and through the Company pursuant to the two
(2) $25,000 excess insurance policies issued to the Company
by National Union. National Union/ AIG filed for an appeal of
the decision.
In December 2003, the Company and the Predecessors former
parent company reached an agreement with National Union, AIG
Technical Services, Aon Corporation and Aon Risk Services of
Missouri to settle the pending matters in the AIG Litigation.
Under the settlement agreement, National Union agreed to provide
full defense and indemnity to the Company and certain original
equipment manufacturers for all claims for damages that have
occurred between April 1, 2000 and March 31, 2002
related to certain water inlet hoses supplied by and through the
Company pursuant to the two (2) $25,000 excess insurance
policies issued to the Company by National Union. All other
aspects of the settlement are subject to the confidentiality
provisions of the settlement agreement.
In connection with the Wire Harness Sale, the Company agreed to
indemnify Viasystems for certain claims and litigation including
any claims related to the claims for water inlet hoses. The
Companys policy is to record the probable and reasonably
estimable loss related to the product liability claims. Over
time, the level of claims, insurance coverage and settlements
has varied. Accordingly, the Company has revised its estimated
liability outstanding, or balance sheet reserve, based on actual
claims reported and costs incurred and its estimate of claims
and cost incurred but not reported. The Company has reached
global settlements with various claimants related to such claims
which are also considered in determining the balance sheet
reserve. There are no recoveries from third parties considered
in the balance sheet reserve. The following table summarizes the
number of uninsured claims received, resolved and pending as
81
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of and for the periods ending December 31, 2005, 2004 and
October 19, 2004 and December 31, 2003 (in thousands
except number of claims):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of | |
|
|
No. of | |
|
Alleged | |
|
|
Claims | |
|
Damages | |
|
|
| |
|
| |
As of December 31, 2002 (Predecessor)
|
|
|
465 |
|
|
$ |
4,343 |
|
For the year ended December 31, 2003 (Predecessor)
|
|
|
|
|
|
|
|
|
|
New uninsured claims
|
|
|
2,832 |
|
|
|
27,172 |
|
|
Resolved uninsured claims
|
|
|
(1,604 |
) |
|
|
(15,790 |
) |
|
|
|
|
|
|
|
As of December 31, 2003 (Predecessor)
|
|
|
1,693 |
|
|
|
15,725 |
|
For the period January 1, 2004 through October 19,
2004 (Predecessor)
|
|
|
|
|
|
|
|
|
|
New uninsured claims
|
|
|
523 |
|
|
|
5,896 |
|
|
Resolved uninsured claims
|
|
|
(1,870 |
) |
|
|
(18,181 |
) |
|
|
|
|
|
|
|
As of October 19, 2004 (Predecessor)
|
|
|
346 |
|
|
|
3,440 |
|
For the period October 20, 2004 through December 31,
2004 (Successor)
|
|
|
|
|
|
|
|
|
|
New uninsured claims
|
|
|
42 |
|
|
|
516 |
|
|
Resolved uninsured claims
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
As of December 31, 2004 (Successor)
|
|
|
388 |
|
|
|
3,956 |
|
For the year ended December 31, 2005 (Successor)
|
|
|
|
|
|
|
|
|
|
New uninsured claims
|
|
|
1,526 |
|
|
|
15,158 |
|
|
Resolved uninsured claims
|
|
|
(1,604 |
) |
|
|
(15,503 |
) |
|
|
|
|
|
|
|
As of December 31, 2005
|
|
|
310 |
|
|
$ |
3,611 |
|
|
|
|
|
|
|
|
For the periods prior to April 1, 2002, the Companys
product liability coverage is in excess of the insured claims
outstanding. As of December 31, 2005 the total of such
claims was less than $2,000 with an estimated liability related
to these claims of less than $500. During 2004, new additional
insured claims of approximately $5,000 were brought and settled
by the insurance providers before year end and at no expense to
the Company. As of December 31, 2003, the insured claims
total was approximately $5,300 and insurance providers
subsequently resolved approximately $3,300 of such claims for
approximately $1,000 at no expense to the Company. As of
December 31, 2005 and 2004, the Company had $75,000 of
remaining insurance coverage under its excess umbrella policies
for each of the insured years prior to April 1, 2002.
For the periods ended December 31, 2004 and
October 19, 2004 and the years ended December 31, 2003
and 2002, the aggregate settlement costs, cost of administering
and litigating and average cost per resolved claim were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor | |
|
|
Predecessor | |
|
|
| |
|
|
| |
|
|
For the Year | |
|
October 20, | |
|
|
January 1, 2004 | |
|
For the Year | |
|
|
Ended | |
|
2004 through | |
|
|
through | |
|
Ended | |
|
|
December 31, | |
|
December 31, | |
|
|
October 19, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
| |
|
| |
Aggregate settlement costs
|
|
$ |
340 |
|
|
$ |
|
|
|
|
$ |
3,294 |
|
|
$ |
1,387 |
|
Cost of administering and litigating
|
|
$ |
360 |
|
|
$ |
5 |
|
|
|
$ |
392 |
|
|
$ |
3,493 |
|
Average cost per resolved claim
|
|
$ |
|
|
|
$ |
|
|
|
|
$ |
1 |
|
|
$ |
1 |
|
The Company had a reserve of $1,566 and $2,293 as of
December 31, 2005 and December 31, 2004, respectively,
related to the estimated future payments to be made to the
claimants in the settlement of the
82
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
remaining incurred claims and claims incurred but not reported.
The majority of payments are expected to be made over
approximately the next two years. Due to the uncertainties
associated with these product claims, such as greater than
expected amount of unreported claims and amounts to be paid
under reached global settlements, the future cost of final
settlement of these claims may differ from the liability
currently accrued. However, in the Companys opinion, the
impact of final settlement of these claims on future operations,
financial position and cash flows should not be material.
The Company is a party to various legal proceedings and
administrative actions, all of which are of an ordinary or
routine nature incidental to the operations of the Company. The
Company does not believe that such proceedings and actions would
materially affect the Company.
The leased facility, which is reported as assets held for sale
at December 31, 2005, was sold to Copperfield LLC on
February 21, 2006 for $1,975 under the terms of the Asset
Purchase Agreement.
On March 4, 2006, the Company entered into a Stock Purchase
Agreement (Purchase Agreement) with Phelps Dodge
Corporation (PD) to acquire the stock of Phelps
Dodge High Performance Conductors of SC & GA, Inc
(HPC). PD is a primary supplier of copper rod to the
Company. The purchase price is $42,000, subject to a working
capital adjustment. Additionally, the Company will purchase the
copper inventory held on consignment by HPC from PD. Based on
current prices and recent inventory levels, the Company would
expect to pay approximately $5,000 for this consigned inventory.
In addition, the Company has agreed to a contingency payment in
an amount equal to 4.88 multiplied by the amount that HPCs
2006 EBITDA (as defined in the Purchase Agreement) exceeds
$9,400. The contingency payment is capped at $3,000. The
transaction contemplated by the Purchase Agreement closed on
March 31, 2006.
On March 31, 2006, we increased our senior revolving credit
facility by $20,000, and the revolving credit facility now
provides for up to $130,000 subject to borrowing base
availability.
|
|
19. |
Quarterly Financial Information (unaudited) |
Selected unaudited quarterly financial data for the year ended
December 31, 2005, the periods from October 20 to
December 31, 2004 and the Predecessor three quarters ended
September 30, 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
|
| |
|
|
4th Qtr. | |
|
3rd Qtr. | |
|
2nd Qtr. | |
|
1st Qtr. | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Restated | |
|
|
|
|
|
|
|
|
($ in thousands except per share amounts) | |
Net sales
|
|
$ |
152,590 |
|
|
$ |
138,958 |
|
|
$ |
126,825 |
|
|
$ |
120,912 |
|
Operating income
|
|
|
1,041 |
|
|
|
7,538 |
|
|
|
2,807 |
|
|
|
5,232 |
|
Income/(loss) from continuing operations
|
|
|
(1,131 |
) |
|
|
2,694 |
|
|
|
(1,902 |
) |
|
|
(938 |
) |
Income/(loss) from discontinued operations
|
|
|
108 |
|
|
|
(6,341 |
) |
|
|
(3,786 |
) |
|
|
477 |
|
Net income/(loss)
|
|
|
(1,023 |
) |
|
|
(3,647 |
) |
|
|
(5,688 |
) |
|
|
(461 |
) |
Earnings/(loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(0.10 |
) |
|
$ |
(0.36 |
) |
|
$ |
(0.57 |
) |
|
$ |
(0.05 |
) |
83
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Company | |
|
|
|
|
|
| |
|
|
2004 | |
|
|
2004 | |
|
|
| |
|
|
| |
|
|
October 20 | |
|
|
October 1 | |
|
|
|
|
through | |
|
|
through | |
|
|
|
|
December 31 | |
|
|
October 19 | |
|
3rd Qtr. | |
|
2nd Qtr. | |
|
1st Qtr. | |
|
|
| |
|
|
| |
|
| |
|
| |
|
| |
|
|
($ in thousands except per share amounts) | |
Net sales
|
|
$ |
85,103 |
|
|
|
$ |
32,975 |
|
|
$ |
102,378 |
|
|
$ |
109,636 |
|
|
$ |
101,321 |
|
Operating income
|
|
|
2,378 |
|
|
|
|
9,052 |
|
|
|
6,043 |
|
|
|
2,312 |
|
|
|
2,671 |
|
Income/(loss) from continuing operations
|
|
|
(262 |
) |
|
|
|
253,934 |
|
|
|
1,629 |
|
|
|
(3,422 |
) |
|
|
(7,807 |
) |
Loss from discontinued operations
|
|
|
(10,500 |
) |
|
|
|
(792 |
) |
|
|
145 |
|
|
|
(266 |
) |
|
|
(6,113 |
) |
Net income/(loss)
|
|
|
(10,762 |
) |
|
|
|
253,142 |
|
|
|
1,774 |
|
|
|
(3,688 |
) |
|
|
(13,920 |
) |
Earnings/(loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(1.08 |
) |
|
|
$ |
253,142 |
|
|
$ |
1,774 |
|
|
$ |
(3,688 |
) |
|
$ |
(13,920 |
) |
The Company has restated its selected unaudited quarterly
financial data for the fourth quarter of 2005 to correct errors
in accounting for deferred income tax assets/liabilities,
goodwill and the provision for income tax. See Note 1A to
the consolidated financial statements.
The following table presents the impact of the restatement:
|
|
|
|
|
|
|
|
|
|
|
As Previously | |
|
|
4th Qtr. 2005 |
|
Reported | |
|
Restated | |
|
|
| |
|
| |
Income/(loss) from continuing operations
|
|
$ |
(1,498 |
) |
|
$ |
(1,131 |
) |
Net income/(loss)
|
|
|
(1,390 |
) |
|
|
(1,023 |
) |
Earnings/(loss) per share
Basic and diluted
|
|
|
(0.14 |
) |
|
|
(0.10 |
) |
84
|
|
Item 9. |
Changes in and Disagreement with Accountants on Accounting
and Financial Disclosure. |
Not applicable.
|
|
Item 9A. |
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, with
the participation of other members of management, conducted an
evaluation of the effectiveness of the design and operation of
the disclosure controls and procedures pursuant to
Rules 13a-15(b)
and 15d-15(b) under the
Securities and Exchange Act of 1934. Based upon the evaluation
and because of the material weaknesses described below and our
failure to file a Current Report on
Form 8-K for
certain changes in director compensation, our officers concluded
that, as of the end of the period covered by this report, our
disclosure controls and procedures were not effective.
Notwithstanding the material weaknesses discussed below, the
Companys management has concluded that the financial
statements included in this
Form 10-K fairly
present in all material respects the Companys financial
position and its results of operations for the periods presented
in conformity with generally accepted accounting principles.
As of December 31, 2005, we did not maintain effective
controls over the evaluation and completeness of our deferred
tax assets and liabilities, the associated valuation allowances
established in previous years to reflect the likelihood of the
recoverability of net deferred tax assets and the income tax
provision (benefit) for continuing and discontinued operations.
Specifically, we did not have effective controls in place to
identify net operating loss carryforwards and the differences
between book and tax accounting for fixed assets, certain
inventory reserves and LIFO inventories and certain intangibles.
This material weakness resulted in a restatement of the
Companys 2005 annual consolidated financial statements
with respect to income taxes. In addition, this control
deficiency could result in a material misstatement to the
aforementioned accounts such as deferred tax assets, deferred
tax liabilities, goodwill, and income tax provision (benefit)
that would result in a material misstatement to the
Companys annual or interim consolidated financial
statements that would not be prevented or detected. Accordingly,
management has determined that this control deficiency
constitutes a material weakness. This material weakness existed
throughout 2006 and at December 31, 2006.
As of December 31, 2006, we did not maintain a sufficient
number or personnel with an appropriate level of knowledge to
adequately prepare the financial statements, which contributed
to the following control deficiencies:
|
|
|
1. We did not have an adequate process in place to perform
analysis and independent secondary review of complex or
non-routine accounting matters, such as accounting for
discontinued operations, certain aspects of debt modification,
purchase accounting transactions and stock-based compensation. |
|
|
2. We did not maintain an adequate process to analyze and
review certain accrued liabilities and related expense accounts
involving managements judgments and estimates. |
|
|
3. We did not maintain effective policies and procedures
related to its financial close process to ensure that the
presentation and disclosures in the financial statements were
prepared and reviewed in a timely and accurate manner. |
A material weakness is a control deficiency or combination of
control deficiencies that results in more than a remote
likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. These
control deficiencies, either individually or in the aggregate,
could result in material misstatements to annual or interim
financial statements that would not be prevented or detected.
Accordingly, management determined that these control
deficiencies combined constituted a material weakness.
Remediation Plan
Our remediation plan for the deferred tax accounting weakness
included a special project in which we staffed qualified outside
tax and accounting consultants, beginning in the second quarter
of 2006, to fully assess the material weakness. Management also
obtained internal and external resources for the
85
preparation of the 2006 quarter-end and year-end closings. The
initial phase of the remediation plans has resulted in the
restatement of the 2005 annual consolidated financial statements
as more fully described in Amendment No. 1 to the
Form 10-K for
December 31, 2005 in Note 1A. We continue to
strengthen our controls over income tax accounting with
additional internal accounting and external resources through
and including the preparation of the 2006 income tax provision
and related footnote disclosures which were completed after
December 31, 2006. To remediate the control weakness
related to personnel, management has hired a Manager of
Financial Reporting who possesses the technical qualifications
to properly account for both non-routine and routine
transactions. Management has additionally hired a Manager of
Internal Audit/SOX to assist management in the proper
implementation of adequate disclosure controls. Management, with
the assistance of the Manager of Internal Audit/SOX, has
developed, and will continue to develop, detailed control
remediation steps for each of the deficiencies noted above and
has begun implementation of those controls. Management will also
conduct an analysis of the current financial reporting staff and
validate that the roles and responsibilities have been properly
allocated and assess the potential need for additional
resources. Management will obtain those resources if deemed
necessary.
On April 4, 2006, we filed a Current Report on Form 8-K with the
Securities and Exchange Commission disclosing the changes in our
director compensation. We are in the process of reminding our
directors, officers and employees about matters requiring filing
of a Current Report on
Form 8-K.
|
|
Item 9B. |
Other Information. |
None.
PART III
|
|
Item 10. |
Directors and Executive Officers of Registrant. |
A list of our executive officers and biographical information
appears in Part I, Item 1 of this report. Information
about our Directors may be found under the caption Our
Management of our Proxy Statement for the 2006 Annual
Meeting of Shareholders (the Proxy Statement). That
information is incorporated herein by reference.
The information in the Proxy Statement set forth under the
caption Section 16(a) Beneficial Ownership Reporting
Compliance is incorporated herein by reference.
We have adopted the Business Code of Ethics, a code of ethics
that applies to our Chief Executive Officer, Chief Financial
Officer and other finance organization employees. The code of
ethics is publicly available on our website at
http://itwg.client.shareholder.com/conduct.cfm. If we make any
substantive amendments to the code of ethics or grant any waiver
from a provision of the code to our Chief Executive Officer and
Chief Financial Officer, we will disclose the nature of such
amendment or waiver on that website or in a report on
Form 8-K.
|
|
Item 11. |
Executive Compensation. |
The information in the Proxy Statement set forth under the
captions Executive Compensation and
Information About the Board and its Committees
Director Compensation is incorporated herein by reference.
|
|
Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters. |
The information in the Proxy Statement set forth under the
caption Security Ownership of Certain Beneficial
Ownership is incorporated herein by reference.
86
|
|
Item 13. |
Certain Relationships and Related Transactions. |
The information set forth under the caption Certain
Relationships and Related Transactions of the Proxy
Statement is incorporated herein by reference.
|
|
Item 14. |
Principal Accountant Fees and Services. |
Information concerning principal accountant fees and services
appears in the Proxy Statement under the heading
Independent Auditors and is incorporated herein by
reference.
PART IV
|
|
Item 15. |
Exhibits and Financial Statement Schedules. |
(a)
1. See Index to Financial Statements and Financial
Schedules in Item 8. Financial Statements and
Supplementary Data on page 42 of this report.
2. REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of International Wire
Group, Inc.:
Our audits of the consolidated financial statements of
International Wire Group, Inc. and its subsidiaries (Successor)
at December 31, 2005 and December 31, 2004 and for the
year ended December 31, 2005 and the period from October 20
through December 31, 2004 referred to in our report dated
April 11, 2006, except as to Note 1A to the
consolidated financial statements as to which the date is
April 27, 2007, appearing in this
Form 10-K/A also
included an audit of the financial statement schedule listed in
Item 15(a)2 of this
Form 10-K/A. In
our opinion, this financial statement schedule presents fairly,
in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial
statements.
|
|
|
/s/ PRICEWATERHOUSECOOPERS
LLP
|
Syracuse, New York
April 11, 2006
FINANCIAL STATEMENT SCHEDULE
INTERNATIONAL WIRE GROUP, INC. (Successor)
SCHEDULE II VALUATION AND QUALIFYING
ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at | |
|
|
|
|
|
Collection Of |
|
|
Allowance For Doubtful Accounts Deducted |
|
Beginning | |
|
|
|
|
|
Previously Written |
|
Balance at | |
from Accounts Receivables in the Balance Sheet |
|
of Period | |
|
Provision | |
|
Write-Offs | |
|
off Accounts |
|
End of Period | |
|
|
| |
|
| |
|
| |
|
|
|
| |
|
|
(In thousands) | |
Year ended December 31, 2005
|
|
$ |
4,060 |
|
|
$ |
417 |
|
|
$ |
(1,441 |
) |
|
$ |
|
|
|
$ |
3,036 |
|
Period October 20 through December 31, 2004
|
|
$ |
4,169 |
|
|
$ |
83 |
|
|
$ |
(192 |
) |
|
$ |
|
|
|
$ |
4,060 |
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of International Wire
Group, Inc.:
Our audits of the consolidated financial statements of
International Wire Group, Inc. and its subsidiaries
(Predecessor) for the period from January 1, through
October 19, 2004 and for the year ended
87
December 31, 2003 referred to in our report dated
April 11, 2006, appearing in this
Form 10-K/A also
included an audit of the financial statement schedule listed in
Item 15(a)2 of this
Form 10-K/A. In
our opinion, this financial statement schedule presents fairly,
in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial
statements.
|
|
|
/s/ PRICEWATERHOUSECOOPERS
LLP
|
Syracuse, New York
April 11, 2006
88
FINANCIAL STATEMENT SCHEDULE
INTERNATIONAL WIRE GROUP, INC. (Predecessor)
SCHEDULE II VALUATION AND QUALIFYING
ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collection Of | |
|
|
|
|
Balance at | |
|
|
|
|
|
Previously | |
|
|
Allowance For Doubtful Accounts Deducted |
|
Beginning | |
|
|
|
|
|
Written off | |
|
Balance at | |
from Accounts Receivables in the Balance Sheet |
|
of Period | |
|
Provision | |
|
Write-Offs | |
|
Accounts | |
|
End of Period | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Year ended December 31, 2003
|
|
$ |
7,080 |
|
|
$ |
1,832 |
|
|
$ |
(3,997 |
) |
|
$ |
(16 |
) |
|
$ |
4,899 |
|
Period January 1 through October 19, 2004
|
|
$ |
4,899 |
|
|
$ |
242 |
|
|
$ |
(972 |
) |
|
$ |
|
|
|
$ |
4,169 |
|
89
3. Exhibits:
|
|
|
|
|
Exhibit |
|
|
No. |
|
Exhibit Description |
|
|
|
|
2.1 |
|
|
Second Amended and Restated Joint Plan of Reorganization of
International Wire Group, Inc., et. al., under
Chapter 11 of the Bankruptcy Code, dated June 24,
2004.(7) |
|
2.2 |
|
|
Stock Purchase Agreement, dated March 4, 2006, between
Phelps Dodge Corporation, a New York corporation, and
International Wire Group, Inc., a Delaware corporation.(13) |
|
2.3 |
|
|
Amendment No. 1 to Stock Purchase Agreement, dated
March 31, 2006, between Phelps Dodge Corporation, a New
York corporation, and International Wire Group, Inc., a
Delaware corporation.(14) |
|
3.1 |
|
|
Amended and Restated Certificate of Incorporation of
International Wire Group, Inc.(2) |
|
3.2 |
|
|
Amended and Restated Bylaws of International Wire Group, Inc.(2) |
|
4.1 |
|
|
Indenture, dated as of October 20, 2004, among
International Wire Group, Inc., the guarantors party thereto,
and BNY Midwest Trust Company, as Trustee.(2) |
|
4.2 |
|
|
Form of 10% Secured Senior Subordinated Note due 2011 (included
as Exhibit A to the Indenture filed as Exhibit 4.1
hereto).(2) |
|
10.1 |
|
|
Loan and Security Agreement, dated as of October 20, 2004,
among the borrowers and guarantors specified therein, the
several lenders from time to time parties thereto and Congress
Financial Corporation (Central), as agent.(2) |
|
10.2 |
|
|
Loan and Security Agreement, dated as of October 20, 2004,
among the borrowers and guarantors specified therein, the
several lenders from time to time parties thereto and Silver
Point Finance, LLC, as agent.(2) |
|
10.3 |
|
|
Collateral Agreement, dated as of October 20, 2004, among
International Wire Group, Inc., the subsidiaries of
International Wire Group, Inc. identified therein, and BNY
Midwest Trust Company, as collateral agent.(2) |
|
10.4 |
|
|
Intercreditor Agreement, dated as of October 20, 2004,
among Congress Financial Corporation (Central), as working
capital loan and security agreement agent, Silver Point Finance,
LLC, as term loan agreement agent, and BNY Midwest Trust
Company, as trustee.(2) |
|
10.5 |
|
|
Intercreditor Agreement, dated October 20, 2004, by and
between Congress Financial Corporation (CENTRAL), in its
capacity as agent pursuant to the working capital loan and
security agreement for the lenders who are party from time to
time thereto, and Silver Point Finance, LLC, in its capacity as
collateral agent pursuant to the term loan agreement.(2) |
|
10.6 |
|
|
International Wire Group, Inc. 2004 Stock Option Plan.(2)* |
|
10.7 |
|
|
Amended and Restated Registration Rights Agreement, dated as of
November 23, 2004, among International Wire Group, Inc. and
the holders specified therein.(2) |
|
10.8 |
|
|
Amended and Restated Employment Agreement, dated
September 15, 2003, by and among International Wire Holding
Company, International Wire Group, Inc., the other subsidiary
parties thereto, and Joseph M. Fiamingo.(4)* |
|
10.9 |
|
|
Second Amended and Restated Employment Agreement, dated
June 30, 2005, between International Wire Group, Inc., the
other subsidiary parties thereto, and Glenn J. Holler.(9)* |
|
10.10 |
|
|
Amended and Restated Employment Agreement, dated March 14,
1995, between Omega Wire, Inc. and Rodney D. Kent.(6)* |
|
10.11 |
|
|
Supply Contract, dated January 1, 2003, between Viasystems,
Inc. and International Wire Group, Inc.(4) |
|
10.12 |
|
|
First Amendment to Supply Contract, dated February 1, 2004,
between Viasystems, Inc. and International Wire Group, Inc.(1)+ |
|
10.13 |
|
|
Letter Agreement regarding supply agreement, dated June 9,
2004, between Viasystems, Inc. and International Wire Group,
Inc.(1)+ |
|
10.14 |
|
|
International Wire Group, Inc. Key Employee Retention Plan.(2)* |
|
10.15 |
|
|
International Wire Group, Inc. Insulated Wire Division Retention
Plan(1)* |
90
|
|
|
|
|
Exhibit |
|
|
No. |
|
Exhibit Description |
|
|
|
|
10.16 |
|
|
Monitoring and Oversight Agreement, dated June 12, 1995,
among International Wire Holding Company, International Wire
Group, Inc. and Hicks, Muse & Co. Partners, L.P.(6) |
|
10.17 |
|
|
Consulting Agreement, dated November 15, 2004, between
International Wire Group, Inc. and Whiterock Affiliates LLC(1)* |
|
10.18 |
|
|
Compensation for William Lane Pennington(1)* |
|
10.19 |
|
|
Nonqualified Stock Option Agreement, dated August 1, 2005,
between International Wire Group, Inc. and William Lane
Pennington.(10)* |
|
10.20 |
|
|
Form of Indemnification Agreement(11) |
|
10.21 |
|
|
Asset Purchase Agreement, dated November 30, 2005, among
International Wire Group, Inc., a Delaware corporation, Wire
Technologies, Inc., an Indiana corporation, and Copperfield,
LLC., a Minnesota limited liability company.(12) |
|
10.22 |
|
|
Amendment No. 1 to Loan and Security Agreement, dated as of
March 31, 2006, among the borrowers and guarantors
specified therein, the several lenders from time to time parties
thereto and Wachovia Capital Finance Corporation (Central),
formerly known as Congress Financial Corporation (Central).(14) |
|
10.23 |
|
|
Amendment No. 1 to Loan and Security Agreement, dated as of
March 31, 2006, among the borrowers and guarantors
specified therein, the several lenders from time to time parties
thereto and Silver Point Finance, LLC.(14) |
|
10.24 |
|
|
Amendment No. 1 to Intercreditor Agreement, dated as of
March 31, 2006, by and between Wachovia Financial
Corporation (CENTRAL), in its capacity as agent pursuant to the
working capital loan and security agreement for the lenders who
are party from time to time thereto, and Silver Point Finance,
LLC, in its capacity as collateral agent pursuant to the term
loan agreement.(14) |
|
10.25 |
|
|
Supplement No. 1 to the Indenture, dated as of
March 31, 2006, among International Wire Group, Inc.,
the guarantors party thereto, and BNY Midwest Trust Company, as
Trustee.(14) |
|
10.26 |
|
|
Supplement No. 1 to the Collateral Agreement, dated as of
March 31, 2006, among International Wire Group, Inc.,
the subsidiaries of International Wire Group, Inc.
identified therein, and BNY Midwest Trust Company, as collateral
agent.(14) |
|
10.27 |
|
|
Letter agreement, dated April 4, 2006, between
International Wire Group, Inc. and William Lane
Pennington.(14) |
|
21.1 |
|
|
Subsidiaries of International Wire Group, Inc.(15) |
|
31.1 |
|
|
Certification of Principal Executive Officer Required by
Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended. |
|
31.2 |
|
|
Certification of Principal Financial Officer Required by
Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended. |
|
32.1 |
|
|
Certification of Principal Executive Officer Required by
Rule 13a-14(b) of the Securities Exchange Act of 1934, as
amended, and 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
32.2 |
|
|
Certification of Principal Financial Officer Required by
Rule 13a-14(b) of the Securities Exchange Act of 1934, as
amended, and 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
(1) |
Incorporated by reference to the Registration Statement on
Amendment No. 1 to
Form S-1 of
International Wire Group, Inc. filed May 10, 2005. |
|
|
(2) |
Incorporated by reference to the Registration Statement on
Form S-1 of
International Wire Group, Inc., filed November 23, 2004. |
|
|
(3) |
Incorporated by reference to the Annual Report on
Form 10-K of
International Wire Group, Inc., filed on March 31, 2003. |
91
|
|
|
|
(4) |
Incorporated by reference to the Quarterly Report on
Form 10-Q of
International Wire Group, Inc., filed on November 14, 2003. |
|
|
(5) |
Incorporated by reference to the Annual Report on
Form 10-K405 of
International Wire Group, Inc., filed on March 21, 2000. |
|
|
(6) |
Incorporated by reference to the Registration Statement on
Form S-1
(33-93970) of
International Wire Group, Inc. as declared effective by the
Securities and Exchange Commission on September 29, 1995. |
|
|
(7) |
Incorporated by reference to the
Form T-3 of
International Wire Group, Inc. filed on July 29, 2004. |
|
|
(8) |
Incorporated by reference to the Registration Statement on
Amendment No. 2 to
Form S-1 of
International Wire Group, Inc. filed June 24, 2005. |
|
|
(9) |
Incorporated by reference to the Registration Statement on
Amendment No. 3 to
Form S-1 of
International Wire Group, Inc. filed July 21, 2005. |
|
|
(10) |
Incorporated by reference to the Registration Statement on
Amendment No. 4 to
Form S-1 of
International Wire Group, Inc. filed August 2, 2005. |
|
(11) |
Incorporated by reference to the Quarterly Report on
Form 10-Q of
International Wire Group, Inc., filed on September 14, 2005. |
|
(12) |
Incorporated by reference to the
Form 8-K of
International Wire Group, Inc., filed on December 5, 2005. |
|
(13) |
Incorporated by reference to the
Form 8-K of
International Wire Group, Inc., filed on March 7, 2006. |
|
(14) |
Incorporated by reference to the
Form 8-K of
International Wire Group, Inc. filed on April 4, 2006. |
|
(15) |
Incorporated by reference to the Form 10-K of International Wire
Group, Inc. filed on April 11, 2006. |
|
|
|
|
* |
Indicates a management contract or compensatory plan or
arrangement. |
|
|
|
|
+ |
Portions of this exhibit have been omitted pursuant to the
Commissions grant of a request for confidential treatment. |
92
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized as of April 30, 2007.
|
|
|
International Wire Group, Inc. |
|
|
|
|
|
Rodney D. Kent |
|
Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
in the capacities and as of April 30, 2007.
|
|
|
|
|
Signature |
|
Capacity |
|
|
|
|
/s/ Rodney D. Kent
Rodney
D. Kent |
|
Chief Executive Officer and Director |
|
/s/ Glenn J. Holler
Glenn
J. Holler |
|
Senior Vice President, Chief Financial Officer (Principal
Accounting Officer) and Secretary |
|
/s/ Mark Holdsworth
Mark
Holdsworth |
|
Chairman of the Board |
|
/s/ William Lane Pennington
William
Lane Pennington |
|
Vice Chairman of the Board |
|
/s/ Peter Blum
Peter
Blum |
|
Director |
|
/s/ David M. Gilchrist, Jr.
David
M. Gilchrist, Jr. |
|
Director |
|
/s/ David H. Robbins
David
H. Robbins |
|
Director |
|
/s/ Lowell W. Robinson
Lowell
W. Robinson |
|
Director |
|
/s/ John T. Walsh
John
T. Walsh |
|
Director |
93
EXHIBIT INDEX
Exhibits:
|
|
|
|
|
Exhibit |
|
|
No. |
|
Exhibit Description |
|
|
|
|
2 |
.1 |
|
Second Amended and Restated Joint Plan of Reorganization of
International Wire Group, Inc., et. al., under
Chapter 11 of the Bankruptcy Code, dated June 24,
2004.(7) |
|
2 |
.2 |
|
Stock Purchase Agreement, dated March 4, 2006, between
Phelps Dodge Corporation, a New York corporation, and
International Wire Group, Inc., a Delaware corporation.(13) |
|
2 |
.3 |
|
Amendment No. 1 to Stock Purchase Agreement, dated
March 31, 2006, between Phelps Dodge Corporation, a New
York corporation, and International Wire Group, Inc., a
Delaware corporation.(14) |
|
3 |
.1 |
|
Amended and Restated Certificate of Incorporation of
International Wire Group, Inc.(2) |
|
3 |
.2 |
|
Amended and Restated Bylaws of International Wire Group, Inc.(2) |
|
4 |
.1 |
|
Indenture, dated as of October 20, 2004, among
International Wire Group, Inc., the guarantors party thereto,
and BNY Midwest Trust Company, as Trustee.(2) |
|
4 |
.2 |
|
Form of 10% Secured Senior Subordinated Note due 2011 (included
as Exhibit A to the Indenture filed as Exhibit 4.1
hereto).(2) |
|
10 |
.1 |
|
Loan and Security Agreement, dated as of October 20, 2004,
among the borrowers and guarantors specified therein, the
several lenders from time to time parties thereto and Congress
Financial Corporation (Central), as agent.(2) |
|
10 |
.2 |
|
Loan and Security Agreement, dated as of October 20, 2004,
among the borrowers and guarantors specified therein, the
several lenders from time to time parties thereto and Silver
Point Finance, LLC, as agent.(2) |
|
10 |
.3 |
|
Collateral Agreement, dated as of October 20, 2004, among
International Wire Group, Inc., the subsidiaries of
International Wire Group, Inc. identified therein, and BNY
Midwest Trust Company, as collateral agent.(2) |
|
10 |
.4 |
|
Intercreditor Agreement, dated as of October 20, 2004,
among Congress Financial Corporation (Central), as working
capital loan and security agreement agent, Silver Point Finance,
LLC, as term loan agreement agent, and BNY Midwest Trust
Company, as trustee.(2) |
|
10 |
.5 |
|
Intercreditor Agreement, dated October 20, 2004, by and
between Congress Financial Corporation (CENTRAL), in its
capacity as agent pursuant to the working capital loan and
security agreement for the lenders who are party from time to
time thereto, and Silver Point Finance, LLC, in its capacity as
collateral agent pursuant to the term loan agreement.(2) |
|
10 |
.6 |
|
International Wire Group, Inc. 2004 Stock Option Plan.(2)* |
|
10 |
.7 |
|
Amended and Restated Registration Rights Agreement, dated as of
November 23, 2004, among International Wire Group, Inc. and
the holders specified therein.(2) |
|
10 |
.8 |
|
Amended and Restated Employment Agreement, dated
September 15, 2003, by and among International Wire Holding
Company, International Wire Group, Inc., the other subsidiary
parties thereto, and Joseph M. Fiamingo.(4)* |
|
10 |
.9 |
|
Second Amended and Restated Employment Agreement, dated
June 30, 2005, between International Wire Group, Inc., the
other subsidiary parties thereto, and Glenn J. Holler.(9)* |
|
10 |
.10 |
|
Amended and Restated Employment Agreement, dated March 14,
1995, between Omega Wire, Inc. and Rodney D. Kent.(6)* |
|
10 |
.11 |
|
Supply Contract, dated January 1, 2003, between Viasystems,
Inc. and International Wire Group, Inc.(4) |
|
10 |
.12 |
|
First Amendment to Supply Contract, dated February 1, 2004,
between Viasystems, Inc. and International Wire Group, Inc.(1)+ |
|
10 |
.13 |
|
Letter Agreement regarding supply agreement, dated June 9,
2004, between Viasystems, Inc. and International Wire Group,
Inc.(1)+ |
|
10 |
.14 |
|
International Wire Group, Inc. Key Employee Retention Plan.(2)* |
94
|
|
|
|
|
Exhibit |
|
|
No. |
|
Exhibit Description |
|
|
|
|
10 |
.15 |
|
International Wire Group, Inc. Insulated Wire Division Retention
Plan(1)* |
|
10 |
.16 |
|
Monitoring and Oversight Agreement, dated June 12, 1995,
among International Wire Holding Company, International Wire
Group, Inc. and Hicks, Muse & Co. Partners, L.P.(6) |
|
10 |
.17 |
|
Consulting Agreement, dated November 15, 2004, between
International Wire Group, Inc. and Whiterock Affiliates LLC(1)* |
|
10 |
.18 |
|
Compensation for William Lane Pennington(1)* |
|
10 |
.19 |
|
Nonqualified Stock Option Agreement, dated August 1, 2005,
between International Wire Group, Inc. and William Lane
Pennington.(10)* |
|
10 |
.20 |
|
Form of Indemnification Agreement(11) |
|
10 |
.21 |
|
Asset Purchase Agreement, dated November 30, 2005, among
International Wire Group, Inc., a Delaware corporation, Wire
Technologies, Inc., an Indiana corporation, and Copperfield,
LLC., a Minnesota limited liability company. (12) |
|
10 |
.22 |
|
Amendment No. 1 to Loan and Security Agreement, dated as of
March 31, 2006, among the borrowers and guarantors
specified therein, the several lenders from time to time parties
thereto and Wachovia Capital Finance Corporation (Central),
formerly known as Congress Financial Corporation (Central).(14) |
|
10 |
.23 |
|
Amendment No. 1 to Loan and Security Agreement, dated as of
March 31, 2006, among the borrowers and guarantors
specified therein, the several lenders from time to time parties
thereto and Silver Point Finance, LLC.(14) |
|
10 |
.24 |
|
Amendment No. 1 to Intercreditor Agreement, dated as of
March 31, 2006, by and between Wachovia Financial
Corporation (CENTRAL), in its capacity as agent pursuant to the
working capital loan and security agreement for the lenders who
are party from time to time thereto, and Silver Point Finance,
LLC, in its capacity as collateral agent pursuant to the term
loan agreement.(14) |
|
10 |
.25 |
|
Supplement No. 1 to the Indenture, dated as of
March 31, 2006, among International Wire Group, Inc.,
the guarantors party thereto, and BNY Midwest Trust Company, as
Trustee.(14) |
|
10 |
.26 |
|
Supplement No. 1 to the Collateral Agreement, dated as of
March 31, 2006, among International Wire Group, Inc.,
the subsidiaries of International Wire Group, Inc.
identified therein, and BNY Midwest Trust Company, as collateral
agent.(14) |
|
10 |
.27 |
|
Letter agreement, dated April 4, 2006, between
International Wire Group, Inc. and William Lane
Pennington.(14) |
|
21 |
.1 |
|
Subsidiaries of International Wire Group, Inc.(15) |
|
31 |
.1 |
|
Certification of Principal Executive Officer Required by
Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended. |
|
31 |
.2 |
|
Certification of Principal Financial Officer Required by
Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended. |
|
32 |
.1 |
|
Certification of Principal Executive Officer Required by
Rule 13a-14(b) of the Securities Exchange Act of 1934, as
amended, and 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
32 |
.2 |
|
Certification of Principal Financial Officer Required by
Rule 13a-14(b) of the Securities Exchange Act of 1934, as
amended, and 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
(1) |
Incorporated by reference to the Registration Statement on
Amendment No. 1 to
Form S-1 of
International Wire Group, Inc. filed May 10, 2005. |
|
|
(2) |
Incorporated by reference to the Registration Statement on
Form S-1 of
International Wire Group, Inc., filed November 23, 2004. |
|
|
(3) |
Incorporated by reference to the Annual Report on
Form 10-K of
International Wire Group, Inc., filed on March 31, 2003. |
95
|
|
|
|
(4) |
Incorporated by reference to the Quarterly Report on
Form 10-Q of
International Wire Group, Inc., filed on November 14, 2003. |
|
|
(5) |
Incorporated by reference to the Annual Report on
Form 10-K405 of
International Wire Group, Inc., filed on March 21, 2000. |
|
|
(6) |
Incorporated by reference to the Registration Statement on
Form S-1
(33-93970) of
International Wire Group, Inc. as declared effective by the
Securities and Exchange Commission on September 29, 1995. |
|
|
(7) |
Incorporated by reference to the
Form T-3 of
International Wire Group, Inc. filed on July 29, 2004. |
|
|
(8) |
Incorporated by reference to the Registration Statement on
Amendment No. 2 to
Form S-1 of
International Wire Group, Inc. filed June 24, 2005. |
|
|
(9) |
Incorporated by reference to the Registration Statement on
Amendment No. 3 to
Form S-1 of
International Wire Group, Inc. filed July 21, 2005. |
|
|
|
|
(10) |
Incorporated by reference to the Registration Statement on
Amendment No. 4 to
Form S-1 of
International Wire Group, Inc. filed August 2, 2005. |
|
|
(11) |
Incorporated by reference to the Quarterly Report on
Form 10-Q of
International Wire Group, Inc., filed on September 14, 2005. |
|
|
(12) |
Incorporated by reference to the
Form 8-K of
International Wire Group, Inc., filed on December 5, 2005. |
|
|
(13) |
Incorporated by reference to the
Form 8-K of
International Wire Group, Inc., filed on March 7, 2006. |
|
|
(14) |
Incorporated by reference to the
Form 8-K of
International Wire Group, Inc. filed on April 4, 2006. |
|
|
(15) |
Incorporated by reference to the
Form 10-K of
International Wire Group, Inc. filed on April 11, 2006. |
|
|
|
|
* |
Indicates a management contract or compensatory plan or
arrangement. |
|
|
|
|
+ |
Portions of this exhibit have been omitted pursuant to the
Commissions grant of a request for confidential treatment. |
96