e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
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, 2006
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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
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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
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(State or other jurisdiction
of
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(I.R.S. Employer
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incorporation or
organization)
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Identification No.)
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12 Masonic Ave.
Camden, NY
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13316
(Zip Code)
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(Address of principal executive
offices)
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(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, 2006, the aggregate market value of the
registrants common stock held by non-affiliates of the
registrant was $52,590,780 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 þ No o
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 31, 2007
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Common Stock, $0.01 par value
per share
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10,000,002 shares
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DOCUMENTS
INCORPORATED BY REFERENCE
The definitive proxy statement relating to the registrants
2007 annual meeting of stockholders is incorporated by reference
in Part III.
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, engineered
products and high performance conductors, 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 aerospace, appliance,
automotive, electronics and data communications, general
industrial/energy industries and medical device industries. We
manufacture and distribute our products at 16 facilities located
in the United States, Belgium, France and Italy. We operate our
business in the following three segments:
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Bare Wire. 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.
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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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High Performance Conductors. Our high
performance conductors segment manufactures specialty high
performance conductors which include tin, nickel and
silver-plated copper and copper alloy conductors including
standard and customized high and low temperature conductors as
well as specialty film insulated conductors and miniature tubing
products. This segment resulted from our acquisition of Phelps
Dodge High Performance Conductors of SC & GA, Inc.
(HPC) on March 31, 2006.
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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 Avenue, Camden, New York, and
our telephone number at such address is
(315) 245-3800.
Our internet address is www.iwg.com.
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Insulated
Wire Business Sale
On November 30, 2005, we entered into an Asset Purchase
Agreement with Copperfield, LLC (Copperfield). The
transaction was consummated on December 2, 2005. Pursuant
to that agreement, 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.
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Under the agreement, we received net proceeds of
$15.0 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.
On June 28 and 30, 2006, the Company entered into Stock
Purchase Agreements (Cebu and Durango Purchase
Agreements) with Draka Holdings N.V. (Draka)
and Draka Holdings Mexico, S.A. (Draka Mexico). The
sales were completed on July 3, 2006. Pursuant to the terms
of the Cebu Purchase Agreement, Draka purchased all the stock of
the Companys Philippines insulated wire subsidiary,
IWG-Philippines, Incorporated, for a purchase price of
$30.0 million, plus an additional sum of $0.9 million
pursuant to a post-closing working capital adjustment.
Additionally, we reimbursed Draka $3.5 million for an
accounts receivable collected related to the business sold and
Draka purchased approximately $6.5 million of copper from
the Company, which was being held on consignment. Pursuant to
the terms of the Durango Purchase Agreement, Draka and Draka
Mexico purchased all the stock of the Companys Mexican
insulated wire subsidiaries, IWG Services Company, S. de R.L. de
C.V., Cables Durango, S. de R.L. de C.V. and IWG Durango, S. de
R.L. de C.V., for a purchase price of $5.0 million.
The disposition of the IWG-Philippines and the Mexican insulated
wire subsidiaries, which was completed on July 3, 2006,
together with the sale of certain U.S. insulated wire
assets to Copperfield, LLC in December 2005 and the subsequent
collection of retained accounts receivable, complete the
Companys exit from the Insulated Wire business.
Accordingly, the entire Insulated Wire business has been
presented as a discontinued operation in the accompanying
consolidated statements of operations.
Acquisition
and Other
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 standard and customized high and low
temperature 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. On
March 31, 2006, we completed the acquisition of all of the
outstanding common stock of HPC for $42.0 million plus a
working capital adjustment of $4.3 million. We funded the
acquisition with borrowings under our Revolver Credit Facility
(as defined below). Additionally, we purchased the copper
inventory held on consignment by HPC from PD for
$5.1 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
$3.0 million and the full amount will
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be paid in 2007. 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.
Additionally, on October 27, 2006, the Company announced
the purchase of a new plant site located in Sherrill, New York,
from a subsidiary of Oneida, LTD. The purchase of this facility,
which is approximately 80,000 square feet, for
approximately $0.6 million, will be used to expand and move
current bare wire production in the central New York region. New
and existing equipment will be installed in this facility over
the next 3 to 6 months. Total capital expenditures related
to the facility are expected to be approximately
$14 million. The City of Sherrill, New York provides
favorable hydroelectric power rates which should result in lower
production costs.
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 with 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 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.
Products
and Markets
At December 31, 2005, the Company had three reportable
segments: Bare Wire, Engineered Wire Products Europe
and Insulated Wire. As a result of the HPC acquisition on
March 31, 2006 and the discontinued operations of the
Insulated Wire business (see Note 1 to the consolidated
financial statements), at December 31, 2006 the
Companys three reportable segments are Bare Wire,
Engineered Wire Products-Europe and High Performance Conductors.
These segments are strategic business units organized around
three product categories that follow managements internal
organization structure. The Company evaluates segment
performance based on segment operating income. See Note 17
to our consolidated financial statements for segment reporting.
The following is a description of our primary products and
markets served:
Bare
Wire Segment (82% of 2006 Consolidated Net Sales from Continuing
Operations)
Our external sales of bare wire products in the United States
and Canada 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 14% of total 2006 Bare Wire net sales);
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automotive (approximately 20% of total 2006 Bare Wire net sales);
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electronics and data communications (approximately 29% of total
2006 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 37% of total 2006 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.
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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 and is 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 Products Europe Segment (7% of 2006
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 31% of total 2006
Engineered Wire Products Europe net sales);
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power supply (approximately 32% of total 2006 Engineered Wire
Products Europe net sales);
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aircraft and railway (approximately 17% of total 2006 Engineered
Wire Products Europe net sales); and
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automotive (approximately 20% of total 2006 Engineered Wire
Products Europe net sales).
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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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High
Performance Conductors Segment (11% of 2006 Consolidated Net
Sales from Continuing Operations)
The High Performance Conductors segment (HPC), which
resulted from the Companys acquisition described in
Note 5 to our consolidated financial statements,
manufactures specialty high performance conductors which include
tin, nickel and silver plated copper and copper alloy conductors
including standard and customized high and low temperature
conductors as well as specialty film, insulated conductors and
miniature tubing products.
Our external sales of high performance conductors in the United
States, Europe and Asia are primarily directly to wire
insulators that manufacture wire and cable products by applying
insulation, through a variety of processes, for applications in
high temperature environments. HPCs film insulated and
tubing products are sold to medical device manufacturers either
directly or through our manufacturers representatives
specializing in the medical market. HPCs products are sold
to a variety of customers in the following markets:
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commercial and military aerospace and defense (approximately 45%
of High Performance Conductors net sales) includes commercial
and military aircraft wiring, avionics, defense weapons and
security systems, commercial and defense satellite systems;
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electronics and data communication (approximately 21% of High
Performance Conductors net sales) including consumer
electronics, test equipment, data and voice communication;
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industrial and automotive (approximately 19% of High Performance
Conductors net sales) including industrial power, heat and
freeze control, automotive and geophysical; and
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medical electronics and devices (approximately 15% of High
Performance Conductors net sales) including medical diagnostic
and test equipment and components for minimally invasive medical
devices.
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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 and
OEMs who then sell to a diverse array of end users. For
the year ended December 31, 2006, we had significant sales
to General Cable Corporation, which represented 23% of our
consolidated net sales from continuing operations, and
significant sales to AFL Automotive, LP, which represented 10%
of our consolidated net sales from continuing operations.
International
Operations
We currently have operations in Belgium, France, and Italy. For
the years ended December 31, 2006, 2005 and 2004,
approximately 8%, 9% and 10% of our consolidated net sales from
continuing operations originated from these foreign operations.
We have a manufacturing facility in Vinovo, Italy and two
facilities in Saint-Chamond, France as well as a
sales/distribution facility in Puurs, Belgium. See Note 17
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.
Qualitative Disclosures about Market Risk for further
discussion about our foreign currency risk.
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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
South America. 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.
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.
With the HPC acquisition, other raw materials used include
silver and nickel. The cost of silver and nickel components in
our products is generally passed-through to our customers. 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 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.
Bare
Wire
As of December 31, 2006, we had ten facilities dedicated to
the production and distribution of bare wire products in the
United States. Six of these facilities are located in New York,
one in Indiana, two in Texas and one distribution facility is
located in California. We also have a facility in New York which
is being prepared for production for the third quarter of 2007.
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
29% 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, 2006, we had three facilities dedicated
to the production and distribution of specialty wire products in
Europe, two located in France and one located 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.
High
Performance Conductors
HPC has two facilities dedicated to the production and
distribution of high performance conductor and medical products
in the United States, one located in South Carolina and one
located in Georgia. In addition, there is sale/distribution
facility in Belgium. The manufacturing of high performance
conductors 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 materials, primarily copper, and
to a lesser extent, aluminum, copper-clad steel, copper-clad
aluminum and various copper alloys, are 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 a tin, silver or nickel
electroplating process. Approximately 95% of our high
performance conductors products are plated with one of these
materials. The plating processes are used to prevent the copper
wires from oxidizing. Additionally, silver and tin plating
improves the solderability of wires, and nickel plating allows
copper wires to be used in high-temperature 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 100
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 geometric construction ranging
from 49 to over 2,000 strands.
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Additionally, our facility in Georgia manufactures medical grade
products that utilize two additional processes: film insulated
and tubing.
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Film Insulated. Film insulating is the process
of coating bare or silver plated wires with electrically
insulating materials such as polyethylene or polyimide. This
process is performed over multiple passes in an oven that cures
the film being applied.
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Tubing. Tubing is the process of removing the
copper mandrel (wire) from a previously film insulated product
in order to create a tube with very thin walls and a precision
internal dimension. This tube is then flushed with acid to
remove contaminant materials, rinsed, dried and cut to size.
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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 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
8
delay. Management believes the ability to supply orders in a
timely fashion is a competitive factor in our market, and
therefore, attempts to minimize order backlog to the extent
practicable.
Patents
and Trademarks
We have one patent, ten registered trademarks and three pending
trademarks. We do not believe that our competitive position or
operations are dependent on any individual patent or trademark
or groups thereof.
Employees
As of December 31, 2006, we employed approximately 1,500
full time employees. We believe that we have a good relationship
with our employees. None of our U.S. 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.
Executive
Officers of the Registrant
Set forth below are the names and positions of the executive
officers of our company as of December 31, 2006.
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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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59
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Director and Chief Executive
Officer
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Glenn J. Holler
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59
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Senior Vice President, Chief
Financial Officer
and Secretary
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Donald F. DeKay
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52
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Vice President Finance
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Chrysant E. Makarushka
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66
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Vice President
Purchasing and Logistics
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Martin G. Dew
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44
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President of IWG High Performance
Conductors, Inc.
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9
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. 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.
Donald F. DeKay is Vice President Finance of our
company and has held such position since July 2001 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.
Martin G. Dew is President of IWG High Performance Conductors,
Inc. and has held this position with High Performance Conductors
since it was acquired by International Wire Group, Inc. in March
2006 and at its previous owner, Phelps Dodge Corporation, since
1999.
Risks
Related to Our Financial Position
We
have a history of losses, and we may not be able to sustain
profitability.
For the year ended December 31, 2006, we had net income of
$10.0 million but incurred net losses of
$10.8 million, $2.3 million, $46.7 and
$133.3 million for the four fiscal years ended
December 31, 2005, 2004 (pro forma), 2003 and 2002,
respectively. We may not sustain profitability in the near
future, or at all. 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.
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.
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, 2006 was approximately
$113.6 million, excluding amounts under letters of credit,
and can fluctuate significantly during the year. 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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10
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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.
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See Item 7. Managements Discussion and
Analysis of Financial Condition and Results of
Operation Liquidity and Capital Resources.
Risks
Related to Our Business
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
South America. 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 2006, the average price of copper
increased by 84% over the average price for the year 2005. 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
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.
Increases
in revenue may not reflect improvements in our business, because
the increases in revenue may be caused by increases in the price
of copper or acquisitions.
Our sales from continuing operations for the years ended
December 31, 2006 and 2005 increased by $324.2 million
and $85.1 million, respectively, however,
$221.1 million and $60.3 million of the increase
resulted from the increased average cost and selling price of
copper and $83.0 million of sales in 2006 resulted from the
HPC acquisition.
Disruptions
in the supply of copper and other raw materials used in our
products could cause us to be unable to meet customer demand,
which could result in the loss of customers and net
sales.
Copper rod is the primary raw material that we use to
manufacture our products. Other significant raw materials that
we use are silver, nickel and tin. There are a limited number of
domestic and foreign suppliers of copper rod and these other raw
materials. A significant percentage of total copper rod is
purchased from four major suppliers. If we are unable to
maintain good relations with our suppliers or if there are any
business interruptions at our suppliers, we may not have access
to a sufficient supply of raw materials. If we lose one or more
key suppliers and are unable to locate an alternative supply, we
may not be able to meet customer demand, which could result in
the loss of customers and net sales.
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 reduce our operating income and cash flows.
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
11
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 impair our ability to estimate our
future customer requirements accurately. As a consequence of the
above factors, many of which are beyond our control, our
operating results may vary significantly.
Demand
for a portion of our products is highly dependent on the
aerospace, automobile, appliance, electronics and data
communication, general industrial/energy and medical device
markets.
The demand for our products depends, in part, upon the general
economic conditions of the aerospace, automobile, appliance,
electronics and data communication, general industrial/energy
and medical device 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.
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 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.
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, or the time involved in,
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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12
The
loss of a significant customer could significantly reduce our
sales and impact our long-lived intangible assets as
well.
General Cable Corporation and AFL Automotive, LP represented 23%
and 10% of our consolidated net sales from continuing operations
for the year ended December 31, 2006, respectively. The
loss of General Cable Corporation, AFL Automotive, LP 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.
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. We do not have employment agreements with
any of our key employees, except for Rodney D. Kent and Glenn J.
Holler.
If our
relationship with our employees were to deteriorate, our
business could suffer.
Unions may attempt to organize our employees or we could 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.
A
significant portion of our business depends on sales outside the
U.S.
Approximately 8% of our net sales for the year ended
December 31, 2006 were attributable to production
facilities located outside of the United States. 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 Belgium, France and Italy. Our operations
may, therefore, be subject to volatility because of currency
fluctuations. Sales and expenses are denominated in the euro for
the Belgium, French and Italian 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.
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.
13
We are
subject to litigation claims that could reduce our operating
income.
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 18 to our consolidated financial
statements.
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 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.
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. Since some of our customers have in-house
or captive wire production facilities, we may be
disproportionately impacted by a downturn as our customers would
decrease orders to us before they reduce their in-house
production.
Risks
Related to Our Common Stock
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.
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 Sheet
Electronic Quotation Service (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 is 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
14
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.
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 hold a
significant portion of our 10 percent Secured Senior
Subordinated Notes due 2011 (Notes).
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 Revolver Credit Facility 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.
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 bylaws have limitations as to who may
call a special meeting of stockholders.
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Item 1B.
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Unresolved
Staff Comments.
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Not applicable.
We use owned or leased properties as manufacturing and
distribution facilities, warehouses and offices throughout the
United States, Belgium, France, and Italy. Our principal
executive offices are located in Camden, New York. All of our
domestic owned properties are pledged to secure our indebtedness
under our Revolver Credit Facility and the Notes.
Listed below are the principal manufacturing and distribution
facilities we operated as of December 31, 2006:
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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
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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
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Bremen, Indiana
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153,000
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Owned
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Bunched wire
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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
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15
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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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Jordan, New York
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117,000
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Leased(1)
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Single end, bunched, stranded,
shielding and cabled wire
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Rome, New York
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107,000
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Owned
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Bunched, stranded, cabled and
electroplated wire
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Cazenovia, New York
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54,000
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Owned
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Braided wire
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Sherrill, New York
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80,000
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Owned
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Production has not begun
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El Paso, Texas
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100,000
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Owned
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Bunched wire
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El Paso, Texas
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60,000
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Owned
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Bunched wire
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La Mirada, California
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19,000
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Leased(2)
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Distribution
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ENGINEERED WIRE
PRODUCTS EUROPE SEGMENT
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Saint-Chamond, France
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60,000
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Owned
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Specialty braids, rope and cable
products
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Saint-Chamond, France
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30,000
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Owned
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Specialty braids, rope and cable
products
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Vinovo, Italy
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25,000
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Owned
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Braided wire
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HIGH PERFORMANCE CONDUCTORS SEGMENT
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Inman, South Carolina
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315,000
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Owned
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Silver, nickel and tin plated
continuous cast copper rod and oxygen free wire
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Trenton, Georgia
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100,000
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Owned
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Ultra fine wire for tubing and
wire components
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Purrs, Belgium
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7,600
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Leased (3)
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Distribution
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(1) |
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The leases on our Camden, New York and Jordan, New York
facilities have remaining terms of approximately 5 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. |
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(2) |
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The lease expires April 30, 2007 and will not be renewed
and operations will cease. |
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(3) |
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The lease expires April 30, 2015 with early termination
provisions. |
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.
16
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Item 3.
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Legal
Proceedings.
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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
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. See Note 18 to
our consolidated financial statements.
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.
17
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 in 2006 and 2005.
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.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2006
|
|
|
|
|
|
|
|
|
Fourth quarter
|
|
$
|
18.35
|
|
|
$
|
17.05
|
|
Third quarter
|
|
|
18.00
|
|
|
|
16.25
|
|
Second quarter
|
|
|
16.00
|
|
|
|
14.00
|
|
First quarter
|
|
|
15.20
|
|
|
|
9.65
|
|
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
|
|
As of March 1, 2007, 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. Our Revolver Credit Facility and the indenture governing
the Notes contain covenants that restrict payment of cash
dividends.
18
Performance
Graph
The chart below shows the cumulative total stockholder return
assuming the investment of $100 from October 20, 2004 to
December 31, 2006 in each of our common stock, the S&P
500 and a peer group of International Wire (Peer
Group) and assumes that all dividends are reinvested. The
Peer Group consists of General Cable Corporation (NYSE:BGC),
Belden CDT Inc. (NYSE: BDC), Draka Holding, N.V. (Euronext
Amsterdam Stock Exchange) and Nexans (Paris Stock Exchange).
Returns in the Peer Group are weighted by capitalization.
The stock price performance shown on the graph only reflects the
change in our Companys stock price relative to the noted
indices and is not necessarily indicative of future price
performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/20/04
|
|
|
12/31/04
|
|
|
12/31/05
|
|
|
12/31/06
|
ITWG
|
|
|
|
100.0
|
|
|
|
|
104.6
|
|
|
|
|
62.3
|
|
|
|
|
113.7
|
|
S&P 500
|
|
|
|
100.0
|
|
|
|
|
101.8
|
|
|
|
|
104.9
|
|
|
|
|
119.2
|
|
Peer Group
|
|
|
|
100.0
|
|
|
|
|
103.5
|
|
|
|
|
122.7
|
|
|
|
|
281.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes securities authorized for
issuance under our equity compensation plans as of
December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Plan Category:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved
by security holders
|
|
|
1,089,300
|
|
|
$
|
15.12
|
|
|
|
510,700
|
|
Equity compensation plans not
approved by security holders(1)
|
|
|
25,000
|
|
|
$
|
11.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,114,300
|
|
|
$
|
15.03
|
|
|
|
510,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
(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 became
exercisable on August 1, 2006, and the remaining third
becomes exercisable on August 1, 2007. The option expires
on August 1, 2015. |
|
|
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 necessarily 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).
On December 2, 2005, we sold certain assets of our
U.S. Insulated Wire business to Copperfield, LLC and ceased
our insulated wire operations in the United States. On
July 3, 2006, we sold our Philippines and Mexican insulated
wire operations to Draka Holding N.V. and Draka Holdings Mexico,
S.A. and ceased our remaining Insulated Wire business. See
Item 1. Business Insulated Wire Business
Sale for information about our recent sales. Accordingly,
the results of operations for the Insulated Wire business have
been shown as discontinued operations in the
accompanying consolidated statements of operations data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
|
Predecessor Company
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
For the Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 20
|
|
|
|
January 1
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 19,
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
Consolidated Statements of
Operations Data (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
748,925
|
|
|
$
|
424,729
|
|
|
$
|
68,339
|
|
|
|
$
|
271,300
|
|
|
$
|
216,548
|
|
|
$
|
216,978
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of goods sold, exclusive of
depreciation expense and amortization shown below
|
|
|
661,182
|
|
|
|
363,878
|
|
|
|
57,983
|
|
|
|
|
220,087
|
|
|
|
160,259
|
|
|
|
153,462
|
|
Selling, general and administrative
expenses(1)
|
|
|
44,883
|
|
|
|
31,508
|
|
|
|
6,006
|
|
|
|
|
21,027
|
|
|
|
24,093
|
|
|
|
25,409
|
|
Depreciation
|
|
|
10,838
|
|
|
|
8,063
|
|
|
|
2,067
|
|
|
|
|
8,917
|
|
|
|
11,364
|
|
|
|
12,403
|
|
Amortization
|
|
|
3,164
|
|
|
|
3,169
|
|
|
|
712
|
|
|
|
|
1,288
|
|
|
|
2,016
|
|
|
|
2,102
|
|
Plant closing charges(2)
|
|
|
|
|
|
|
|
|
|
|
1,632
|
|
|
|
|
262
|
|
|
|
1,188
|
|
|
|
|
|
Reorganization expenses(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,062
|
|
|
|
2,172
|
|
|
|
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,973
|
|
|
|
3,853
|
|
(Gain)/loss on sale of property,
plant and equipment
|
|
|
24
|
|
|
|
(721
|
)
|
|
|
(10
|
)
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss)
|
|
|
28,834
|
|
|
|
18,832
|
|
|
|
(51
|
)
|
|
|
|
16,758
|
|
|
|
12,483
|
|
|
|
19,757
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
|
Predecessor Company
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
For the Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 20
|
|
|
|
January 1
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 19,
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
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)
|
|
|
(13,491
|
)
|
|
|
(11,455
|
)
|
|
|
(2,280
|
)
|
|
|
|
(12,088
|
)
|
|
|
(34,222
|
)
|
|
|
(29,272
|
)
|
Amortization of deferred financing
costs
|
|
|
(1,151
|
)
|
|
|
(646
|
)
|
|
|
(127
|
)
|
|
|
|
(6,813
|
)
|
|
|
(4,873
|
)
|
|
|
(2,123
|
)
|
Other, net
|
|
|
96
|
|
|
|
20
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
(210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing
operations before income tax provision/(benefit) and cumulative
effect of change in accounting principle
|
|
|
14,288
|
|
|
|
6,751
|
|
|
|
(2,392
|
)
|
|
|
|
244,399
|
|
|
|
(26,612
|
)
|
|
|
(11,848
|
)
|
Income tax provision/(benefit)
|
|
|
4,401
|
|
|
|
(179
|
)
|
|
|
|
|
|
|
|
335
|
|
|
|
236
|
|
|
|
33,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing
operations before cumulative effect of change in accounting
principle
|
|
|
9,887
|
|
|
|
6,930
|
|
|
|
(2,392
|
)
|
|
|
|
244,064
|
|
|
|
(26,848
|
)
|
|
|
(45,776
|
)
|
Income/(loss) from discontinued
operations, net of income taxes of ($137), ($2,407), ($34),
$331, $55, and $32 respectively(5)
|
|
|
121
|
|
|
|
(17,749
|
)
|
|
|
(8,370
|
)
|
|
|
|
(6,756
|
)
|
|
|
(19,890
|
)
|
|
|
(33,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before cumulative
effect of change in accounting principle
|
|
|
10,008
|
|
|
|
(10,819
|
)
|
|
|
(10,762
|
)
|
|
|
|
237,308
|
|
|
|
(46,738
|
)
|
|
|
(78,794
|
)
|
Cumulative effect of change in
accounting for goodwill net of tax benefit of $19,408(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54,504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
10,008
|
|
|
$
|
(10,819
|
)
|
|
$
|
(10,762
|
)
|
|
|
$
|
237,308
|
|
|
$
|
(46,738
|
)
|
|
$
|
(133,298
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income/(loss)
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
$
|
0.99
|
|
|
$
|
0.69
|
|
|
$
|
(0.24
|
)
|
|
|
$
|
244,064
|
|
|
$
|
(26,848
|
)
|
|
$
|
(45,776
|
)
|
Income/loss from discontinued
operations
|
|
|
0.01
|
|
|
|
(1.77
|
)
|
|
|
(0.84
|
)
|
|
|
|
(6,756
|
)
|
|
|
(19,890
|
)
|
|
|
(33,018
|
)
|
Cumulative effect of accounting
change
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(54,504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
1.00
|
|
|
$
|
(1.08
|
)
|
|
$
|
(1.08
|
)
|
|
|
$
|
237,308
|
|
|
$
|
(46,738
|
)
|
|
$
|
(133,298
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
|
Predecessor Company
|
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
2003
|
|
|
2002
|
|
Consolidated Balance Sheet
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,315
|
|
|
$
|
5,422
|
|
|
$
|
15,192
|
|
|
|
$
|
25,981
|
|
|
$
|
2,546
|
|
Working capital
|
|
|
110,198
|
|
|
|
123,540
|
|
|
|
122,503
|
|
|
|
|
(298,649
|
)
|
|
|
66,299
|
|
Total assets
|
|
|
375,565
|
|
|
|
368,686
|
|
|
|
394,207
|
|
|
|
|
392,335
|
|
|
|
363,510
|
|
Total debt
|
|
|
113,555
|
|
|
|
135,416
|
|
|
|
166,649
|
|
|
|
|
397,135
|
|
|
|
335,521
|
|
Total shareholders
equity/(deficit)
|
|
|
171,257
|
|
|
|
152,813
|
|
|
|
166,381
|
|
|
|
|
(88,628
|
)
|
|
|
(52,353
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
|
Predecessor Company
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
For the Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 20
|
|
|
|
January 1
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 19,
|
|
|
Year Ended December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
Other Financial
Data(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
15,179
|
|
|
$
|
15,144
|
|
|
$
|
3,594
|
|
|
|
$
|
18,786
|
|
|
$
|
25,138
|
|
|
$
|
27,645
|
|
Capital expenditures
|
|
|
11,879
|
|
|
|
6,973
|
|
|
|
2,088
|
|
|
|
|
7,775
|
|
|
|
13,970
|
|
|
|
11,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Information based on total cash flows. |
|
(1) |
|
Includes stock-based compensation expense under
SFAS No. 123(R) in the amount of $5,966 for the year
ended December 31, 2006. |
|
(2) |
|
Consists of charges related to the closure and consolidation of
certain facilities of $1,632 in the period from October 20
through December 31, 2004, $262 in the period from January
1 through October 19, 2004 and $1,188 in 2003. (See
Note 14 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 income/(loss) from discontinued operations of the
Insulated Wire business of $388, ($17,749), ($8,370), ($6,756),
($12,961) and ($29,018) for the years ended December 31,
2006 and 2005, the period October 20 through December 31,
2004, the period January 1 through October 19, 2004 and the
years ended December 31, 2003 and 2002, respectively.
Includes loss for the Wire Harness Product Liability (see
Note 18 to the consolidated financial
statements) claims of $267, $6,929 and $4,000 in the years
December 31, 2006, 2003 and 2002, respectively. |
|
(6) |
|
Cumulative effect recorded in connection with the adoption of
SFAS No. 142, Goodwill and other Intangible
Assets. |
|
|
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.
22
Overview
We, together with our subsidiaries, manufacture and market wire
products, including bare and tin-plated copper wire, engineered
wire products and high performance conductors 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 aerospace, appliance,
automotive, electronics and data communications, general
industrial/energy and medical device industries. We manufacture
and distribute our products at 16 facilities located in the
United States, Belgium, France and Italy. For the period year
ended December 31, 2006, we operated our business in the
following three segments:
|
|
|
|
|
Bare Wire. 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.
|
|
|
|
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.
|
|
|
|
High Performance Conductors. Our high
performance conductors segment manufactures specialty high
performance conductors which include tin, nickel and silver
plated copper and copper alloy conductors including standard and
customized high and low temperature conductors as well as
specialty film insulated conductors and miniature tubing
products. This segment resulted from our acquisition of Phelps
Dodge High Performance Conductors of SC & GA, Inc. (now
known as IWG High Performance Conductors, Inc.)
(HPC) on March 31, 2006.
|
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, 2006, automotive industry
production volumes decreased 2.3% compared to the same period
for 2005. In addition, major OEMs have announced first
quarter 2007 cut-backs in production levels.
|
|
|
|
With the HPC acquisition, additional factors include commercial
aircraft shipments, military aircraft deliveries and
electro-medical equipment demand rates. Orders and deliveries of
large civil aircraft in 2006 increased over 20% from 2005.
Demand for medical devices was also strong in 2006 due to the
broadening acceptance and products available for minimally
invasive procedures and increased product development.
|
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, research and
development so that we can continue to provide our customers
with the
23
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 revenue 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. The remainder of our
sales include non-customer owned copper (owned
copper). Accordingly, for these sales, copper is included
in both orders and cost of sales.
Our expenses in producing these products fall into three main
categories raw materials, including copper, silver,
nickel and tin, 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 2005 levels as a result of a
combination of higher demand in China, unprecedented fund
investment in commodities and disruption in mining production
from several factors including a rock slide and labor stoppages
at certain mines in Chile, Canada and the United States. The
average price of copper based upon The New York Mercantile
Exchange, Inc. (COMEX) increased to $3.09 per
pound for the year ended December 31, 2006 from
$1.68 per pound for the year ended December 31, 2005,
or 83.9%. 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. However, a severe
increase in the price of copper can have a negative impact on
our liquidity. Currently, a $0.10 per pound fluctuation in
the price of copper will have approximately a $2.7 million
impact on our working capital. Increased working capital
requirements cause us to increase our borrowings, which
increases our interest expense. With the HPC acquisition, other
raw materials used include silver and nickel. The cost of silver
and nickel, components in our products, is generally
passed-through to our customers. For the year ended
December 31, 2006, the average price of silver has
increased by 57.7% and the average price of nickel increased by
64.4% compared to the year ended December 31, 2005. 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 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.
Insulated
Wire Business Sale
On November 30, 2005, we entered into an Asset Purchase
Agreement with Copperfield, LLC. Pursuant to that agreement, on
December 2, 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 the 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
$15.0 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.
On June 28 and 30, 2006, the Company entered into Stock
Purchase Agreements (Cebu and Durango Purchase
Agreements) with Draka Holdings N.V. (Draka)
and Draka Holdings Mexico, S.A. (Draka
24
Mexico). Pursuant to the terms of the Cebu Purchase
Agreement, Draka purchased all the stock of the Companys
Philippines insulated wire subsidiary, IWG-Philippines,
Incorporated, for a purchase price of $30 million, plus an
additional sum of $0.9 million pursuant to a post closing
working capital adjustment. Additionally, we reimbursed Draka
$3.5 million for an accounts receivable collected related
to the business sold and Draka purchased approximately
$6.5 million of copper from the Company, which was being
held on consignment. Pursuant to the terms of the Durango
Purchase Agreement, Draka and Draka Mexico purchased all the
stock of the Companys Mexican insulated wire subsidiaries,
IWG Services Company, S. de R.L. de C.V., Cables Durango, S. de
R.L. de C.V. and IWG Durango, S. de R.L. de C.V., for a purchase
price of $5.0 million.
The disposition of the IWG-Philippines and the Mexican insulated
wire subsidiaries, which was completed on July 3, 2006,
together with the sale of certain U.S. insulated wire
assets to Copperfield, LLC in November 2005 and the subsequent
collection of retained accounts receivable, complete the exit
from the Insulated Wire business. Accordingly, the entire
Insulated Wire business has been presented as a discontinued
operation in the accompanying consolidated statements of
operations.
Acquisition
and Other
On March 4, 2006, we entered into a Stock Purchase
Agreement (HPC 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 standard and customized high and low
temperature 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 and a
sales/distribution facility in Belgium.
On March 31, 2006, we completed the acquisition of all of
the outstanding common stock of HPC for $42.0 million plus
a working capital adjustment of $4.3 million. We funded the
acquisition with borrowings under our Revolver Credit Facility.
Additionally, we purchased the copper inventory held on
consignment by HPC from PD for $5.1 million. In addition,
pursuant to the HPC 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 $3.0 million and the full amount will be paid in
2007. 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.
The future operating results and cash flows generated by HPC
will depend upon demand from the end markets, including
commercial aircraft shipments, military aircraft deliveries and
medical equipment demand rates as well as our ability to compete
with other suppliers. The continued increase in the costs to
obtain copper, silver and nickel will increase our working
capital requirements.
Additionally, on October 27, 2006, the Company announced
the purchase of a new plant site located in Sherrill, New York,
from a subsidiary of Oneida, LTD. The purchase of this facility,
which is approximately 80,000 square feet, for
approximately $0.6 million, will be used to expand and move
current bare wire production in the central New York region. New
and existing equipment will be installed in this facility over
the next 3 to 6 months. Total capital expenditures related
to the facility are expected to be approximately
$14 million. The City of Sherrill, New York provides
favorable hydroelectric power rates which should result in lower
production costs.
25
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 sale of the Insulated
Wire business, reduction of debt levels and expansion of our
product line and markets served.
During 2005 and 2006, we believe we have made progress towards
these strategic initiatives. The sale of the U.S. Insulated
Wire business in December 2005 and the sale of the Philippines
and Mexican insulated wire operations in 2006 allowed us to exit
a business faced with difficult market conditions and weakening
financial results and cash flows. The proceeds from the sales as
well as the collections of retained accounts receivable were
used to pay down outstanding indebtedness. The increased
liquidity was used in part to expand our business with the
acquisition of Phelps Dodge High Performance Conductors of
SC & GA, Inc. (now known as 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 sell into new markets, including
aerospace and medical, as we exited the insulated wire business.
We will continue to seek attractive acquisition candidates and
use excess cash flow to pay-down debt.
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 years
ended December 31, 2006 and 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.
The pro forma information for the year December 31, 2004
reflects 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
26
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 31.
The following table sets forth certain statement of operations
data in millions of dollars and percentage of net sales for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
Company
|
|
|
|
Successor Company
|
|
|
|
|
|
For the Period
|
|
|
|
For the Period
|
|
|
|
For the
|
|
|
For the
|
|
|
|
|
|
October 20
|
|
|
|
January 1
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Pro Forma Year
|
|
|
December 31,
|
|
|
|
October 19,
|
|
|
|
2006
|
|
|
2005
|
|
|
December 31, 2004
|
|
|
2004
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
748.9
|
|
|
|
100
|
%
|
|
$
|
424.7
|
|
|
|
100.0
|
%
|
|
$
|
339.6
|
|
|
|
100.0
|
%
|
|
$
|
68.3
|
|
|
|
100.0
|
%
|
|
|
$
|
271.3
|
|
|
|
100.0
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold, exclusive of
depreciation and amortization expense shown below
|
|
|
661.2
|
|
|
|
88.3
|
%
|
|
|
363.9
|
|
|
|
85.7
|
%
|
|
|
278.0
|
|
|
|
81.9
|
%
|
|
|
58.0
|
|
|
|
84.9
|
%
|
|
|
|
220.1
|
|
|
|
81.1
|
%
|
Selling, general and administrative
expenses
|
|
|
44.9
|
|
|
|
6.0
|
%
|
|
|
31.5
|
|
|
|
7.4
|
%
|
|
|
27.5
|
|
|
|
8.1
|
%
|
|
|
6.0
|
|
|
|
8.8
|
%
|
|
|
|
21.0
|
|
|
|
7.7
|
%
|
Depreciation and amortization
|
|
|
14.0
|
|
|
|
1.9
|
%
|
|
|
11.2
|
|
|
|
2.6
|
%
|
|
|
13.9
|
|
|
|
4.0
|
%
|
|
|
2.7
|
|
|
|
4.0
|
%
|
|
|
|
10.2
|
|
|
|
3.8
|
%
|
Plant closing charges
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
1.9
|
|
|
|
0.6
|
%
|
|
|
1.6
|
|
|
|
2.3
|
%
|
|
|
|
0.2
|
|
|
|
0.1
|
%
|
Reorganization expenses
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
3.1
|
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
3.1
|
|
|
|
1.1
|
%
|
Goodwill impairment
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
%
|
Gain on sale of property, plant and
equipment
|
|
|
|
|
|
|
|
%
|
|
|
(0.7
|
)
|
|
|
(0.1
|
)%
|
|
|
(0.1
|
)
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
(0.1
|
)
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
28.8
|
|
|
|
3.8
|
%
|
|
|
18.8
|
|
|
|
4.4
|
%
|
|
|
15.3
|
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
16.8
|
|
|
|
6.2
|
%
|
Bankruptcy reorganization items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankruptcy reorganization expenses
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
(12.7
|
)
|
|
|
(4.7
|
)%
|
Gain from debt forgiveness
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
259.2
|
|
|
|
95.6
|
%
|
Other income/(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (excluding
interest of $21.0 on liabilities subject to compromise at
October 19, 2004)
|
|
|
(13.4
|
)
|
|
|
(1.8
|
)%
|
|
|
(11.4
|
)
|
|
|
(2.7
|
)%
|
|
|
(10.7
|
)
|
|
|
(3.2
|
)%
|
|
|
(2.3
|
)
|
|
|
(3.4
|
)%
|
|
|
|
(12.1
|
)
|
|
|
(4.5
|
)%
|
Amortization of deferred financing
costs
|
|
|
(1.2
|
)
|
|
|
(0.1
|
)%
|
|
|
(0.6
|
)
|
|
|
(0.1
|
)%
|
|
|
(0.6
|
)
|
|
|
(0.1
|
)%
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)%
|
|
|
|
(6.8
|
)
|
|
|
(2.5
|
)%
|
Other, net
|
|
|
0.1
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing
operations before income tax provision (benefit)
|
|
|
14.3
|
|
|
|
1.9
|
%
|
|
|
6.8
|
|
|
|
1.6
|
%
|
|
|
4.0
|
|
|
|
1.2
|
%
|
|
|
(2.4
|
)
|
|
|
(3.5
|
)%
|
|
|
|
244.4
|
|
|
|
90.1
|
%
|
Income tax provisions/ (benefit)
|
|
|
4.4
|
|
|
|
0.6
|
%
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)%
|
|
|
1.6
|
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
0.3
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing
operations
|
|
|
9.9
|
|
|
|
1.3
|
%
|
|
|
6.9
|
|
|
|
1.6
|
%
|
|
|
2.4
|
|
|
|
0.7
|
%
|
|
|
(2.4
|
)
|
|
|
(3.5
|
)%
|
|
|
|
244.1
|
|
|
|
90.0
|
%
|
Income/(loss) from discontinued
operations, net of income taxes of ($0.1), ($2.4), ($0.1) and
$0.3, respectively
|
|
|
0.1
|
|
|
|
|
%
|
|
|
(17.7
|
)
|
|
|
(4.1
|
)%
|
|
|
(4.7
|
)
|
|
|
(1.4
|
)%
|
|
|
(8.4
|
)
|
|
|
(12.3
|
)%
|
|
|
|
(6.8
|
)
|
|
|
(2.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/ (loss)
|
|
$
|
10.0
|
|
|
|
1.3
|
%
|
|
$
|
(10.8
|
)
|
|
|
(2.5
|
)%
|
|
$
|
(2.3
|
)
|
|
|
(0.7
|
)%
|
|
$
|
(10.8
|
)
|
|
|
(15.8
|
)%
|
|
|
$
|
237.3
|
|
|
|
87.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
We have three reportable segments: Bare Wire, Engineered Wire
Products Europe and High Performance Conductors. The
following table sets forth net sales and operating income/(loss)
for the periods presented in millions of dollars and percentages
of totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
Company
|
|
|
|
Successor Company
|
|
|
|
|
|
For the
|
|
|
|
For the
|
|
|
|
For the
|
|
|
For the
|
|
|
|
|
|
Period
|
|
|
|
Period
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
October 20
|
|
|
|
January 1
|
|
|
|
December
|
|
|
December
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
|
31,
|
|
|
31,
|
|
|
Pro Forma Year
|
|
|
December
|
|
|
|
October 19,
|
|
|
|
2006
|
|
|
2005
|
|
|
December 31, 2004
|
|
|
31, 2004
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bare Wire
|
|
$
|
611.3
|
|
|
|
82
|
%
|
|
$
|
391.8
|
|
|
|
92
|
%
|
|
$
|
309.1
|
|
|
|
91
|
%
|
|
$
|
62.9
|
|
|
|
92
|
%
|
|
|
$
|
246.2
|
|
|
|
91
|
%
|
Engineered Wire
Products Europe
|
|
|
55.2
|
|
|
|
7
|
%
|
|
|
38.8
|
|
|
|
9
|
%
|
|
|
37.6
|
|
|
|
11
|
%
|
|
|
7.0
|
|
|
|
10
|
%
|
|
|
|
30.6
|
|
|
|
11
|
%
|
High Performance Conductors
|
|
|
83.0
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
%
|
Elimination
|
|
|
(0.6
|
)
|
|
|
|
%
|
|
|
(5.9
|
)
|
|
|
(1
|
)%
|
|
|
(7.1
|
)
|
|
|
(2
|
)%
|
|
|
(1.6
|
)
|
|
|
(2
|
)%
|
|
|
|
(5.5
|
)
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
748.9
|
|
|
|
100
|
%
|
|
$
|
424.7
|
|
|
|
100
|
%
|
|
$
|
339.6
|
|
|
|
100
|
%
|
|
$
|
68.3
|
|
|
|
100
|
%
|
|
|
$
|
271.3
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bare Wire
|
|
$
|
23.6
|
|
|
|
68
|
%
|
|
$
|
20.1
|
|
|
|
94
|
%
|
|
$
|
15.7
|
|
|
|
85
|
%
|
|
$
|
2.8
|
|
|
|
100
|
%
|
|
|
$
|
18.1
|
|
|
|
91
|
%
|
Engineered Wire
Products Europe
|
|
|
3.6
|
|
|
|
10
|
%
|
|
|
1.4
|
|
|
|
6
|
%
|
|
|
2.7
|
|
|
|
15
|
%
|
|
|
(2.8
|
)
|
|
|
(100
|
)%
|
|
|
|
1.8
|
|
|
|
9
|
%
|
High Performance Conductors
|
|
|
7.6
|
|
|
|
22
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
34.8
|
|
|
|
100
|
%
|
|
|
21.5
|
|
|
|
100
|
%
|
|
|
18.4
|
|
|
|
100
|
%
|
|
|
0.0
|
|
|
|
100
|
%
|
|
|
|
19.9
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28.8
|
|
|
|
|
|
|
$
|
18.8
|
|
|
|
|
|
|
$
|
15.3
|
|
|
|
|
|
|
$
|
0.0
|
|
|
|
|
|
|
|
$
|
16.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2006 versus Year Ended December 31,
2005
Net sales were $748.9 million and $424.7 million for
the years ended December 31, 2006 and 2005, respectively,
for an increase of $324.2 million, or 76.3% above
comparable 2005 levels. This increase was the result of an
increase in the average cost and selling price of copper
($221.1 million), an increase in volume
($10.8 million), higher customer pricing and product mix
($7.8 million), a reduced elimination of
28
intercompany sales ($5.3 million) and sales from HPC, which
was acquired on March 31, 2006 ($83.0 million),
partially offset by a lower level of owned pounds sold in 2006
compared to 2005 ($3.8 million). The average price of
copper based upon COMEX increased to $3.09 per pound for
the year ended December 31, 2006 from $1.68 per pound
for the year ended December 31, 2005.
Bare Wire segment net sales for the year ended December 31,
2006 were $611.3 million, or an increase of
$219.5 million or 56.0% from net sales of
$391.8 million for the year ended December 31, 2005.
This increase was primarily the result of the higher volume to
customers supplying the industrial/energy, electronic/data
communications and automotive markets ($5.1 million),
increases in the average cost and selling price of copper
($211.7 million), and an increase in customer pricing and
product mix ($7.8 million), partially offset by a lower
level of owned pounds sold in 2006 compared to 2005
($3.8 million) and lower volume in the appliance market
($1.3 million). Of the total pounds processed for the years
ended December 31, 2006 and 2005, respectively, 42.5% and
40.5% were from customers tolled copper.
Engineered Wire Products Europe sales of
$55.2 million for the year ended December 31, 2006
were $16.4 million, or 42.3%, higher than sales of
$38.8 million for the year ended December 31, 2005.
This increase was the result of an increase in the average cost
and selling price of copper ($9.4 million) and increased
volume from stronger customer demand ($7.0 million).
High Performance Conductor sales for the nine month period ended
December 31, 2006 were $83.0 million following the HPC
acquisition on March 31, 2006. There were no similar sales
for the year ended December 31, 2005.
Cost of goods sold, exclusive of depreciation and amortization,
as a percentage of sales increased from 85.7% for the year ended
December 31, 2005 to 88.3% for the year ended
December 31, 2006. The increase of 2.6 percentage
points was due to the increase in the average cost and selling
price of copper (4.9 percentage points), increased
material costs (0.8 percentage points) and increased
production costs (0.3 percentage points), partially offset
by increased customer pricing (1.4 percentage points), the
LIFO liquidation in 2006 (0.8 percentage points), the
favorable contribution of HPC sales (0.8 percentage points)
and lower costs in the European operations (0.4 percentage
points).
Selling, general and administrative expenses were
$44.9 million for the year ended December 31, 2006 and
$31.5 million for the year ended December 31, 2005.
This increase of $13.4 million was the result from selling,
general and administrative expenses of HPC, which was acquired
on March 31, 2006 ($6.9 million), stock-based
compensation ($6.0 million), higher personnel costs
($0.9 million), volume related amounts ($1.0 million)
and increased bad debt expenses ($0.6 million), partially
offset by the absence of payments to be made to our former Chief
Executive Officer under his employment agreement
($1.2 million) and the absence of
S-1
registration statement costs ($0.8 million). These
expenses, as a percent of net sales, decreased to 6.0% for the
year ended December 31, 2006 from 7.4% for the year ended
December 31, 2005, primarily from the effect of higher
costs and selling prices of copper.
Depreciation and amortization was $14.0 million for the
year ended December 31, 2006 compared to $11.2 million
for the year 2005. This increase of $2.8 million was the
result of depreciation from the HPC acquisition
($1.8 million) and higher depreciation on other property,
plant and equipment additions.
Operating income for the year ended December 31, 2006 was
$28.8 million compared to $18.8 million for the year
ended December 31, 2005, or an increase of
$10.0 million, or 53.2%. This increase resulted primarily
from increased sales volume and higher customer pricing in the
Bare Wire segment, increased contribution from Engineered Wire
Products Europe and the HPC acquisition. Bare Wire
segments operating income was $23.6 million for the
year ended December 31, 2006 for an increase of
$3.5 million over 2005 operating income of
$20.1 million. Engineered Wire Products Europe
operating income was $3.6 million in 2006, or an increase
of $2.2 million, or 157% over the year ended
December 31, 2005. This increase was primarily from
increased sales volume, higher overhead absorption and lower
manufacturing costs. High Performance Conductors operating
income was $7.6 million for the nine months ended
December 31, 2006 after being acquired on March 31,
2006. Operating income for the year ended December 31, 2006
also decreased by $3.3 million due to higher stock-based
compensation expense in 2006
29
compared to 2005 ($6.0 million), partially offset by the
absence of payments made to our former Chief Executive Officer
($1.2 million), the absence of
S-1
registration statement costs incurred in 2005
($0.8 million) and of other cost reductions
($0.7 million).
Interest expense was $13.4 million for the year ended
December 31, 2006 compared to $11.4 million for the
year ended December 31, 2005. This increase of
$2.0 million was the result of higher interest rates in
2006 and the impact of higher levels of borrowings for the HPC
acquisition partially offset by higher proceeds from the sale of
the Insulated Wire business in 2006 compared to 2005.
Amortization of deferred financing fees was $1.2 million
for the year ended December 31, 2006 and $0.6 million
for the year ended December 31, 2005, for an increase of
$0.6 million. The increase was primarily the result of the
write-off of financing fees related to the Term Credit Facility
that was terminated in August 2006.
Income tax provision/(benefit) was $4.4 million and
($0.1) million for the years ended December 31, 2006
and 2005, respectively. The Companys effective tax rate
for the years ended December 31, 2006 and 2005 was 30.8%
and (0.3%), respectively. The 2006 effective tax rate includes
the impact of state tax credits and international tax
strategies. The 2005 benefit includes the impact of the reversal
of certain valuation allowances.
Income from continuing operations was $9.9 million for the
year 2006 and $6.9 million for the year ended
December 31, 2005. This increase of $3.0 million was
the result of higher operating income ($10.0 million),
partially offset by increased interest expenses
($2.0 million), higher amortization of deferred financing
fees ($0.6 million) and increased income tax provisions
($4.4 million).
Income/(loss) from discontinued operations was $0.1 million
and ($17.7) million for the years ended December 31,
2006 and 2005, respectively. The year 2006 included
$1.3 million from the gain on the disposition of assets,
and there was no gain on the disposition of assets in 2005. The
year 2005 included $11.8 million of impairment charges and
a tax provision of $4.3 million from the impact of no
longer considering the unremitted earnings of the Philippines
operation to be permanently reinvested outside the United
States, both of which did not occur in 2006. In addition,
results from discontinued operations in 2006 were not affect by
the U.S. Insulated Wire business, since it was sold in
December of 2005.
Net income/(loss) of $10.0 million and ($10.8) million
were recorded for the years ended December 31, 2006 and
2005, respectively. The improvement of $20.8 million in
2006 was the result of higher operating income, the contribution
of the HPC acquisition, the favorable effect of the income from
discontinued operations partially offset by higher interest
expense, increased amortization of deferred financing fees and
increased income taxes.
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 $424.7 million for the year ended
December 31, 2005 and pro forma sales for the year
December 31, 2004 were $339.6 million. Sales for 2005
were $85.1 million, or 25.1% greater than 2004 pro forma
sales due to a net volume increase ($2.0 million), an
increase in customer pricing and product mix
($1.1 million), an increase in the average selling price of
copper in 2005 compared to 2004 ($60.3 million), and a
lower proportion of customers tolled copper in 2005
compared to 2004 ($21.7 million). 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.
30
Bare Wire segment net sales for the year ended December 31,
2005 were $391.8 million, or an increase of
$82.7 million, or 26.8% from pro forma sales of
$309.1 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 ($58.7 million), a lower proportion of
customers tolled copper in 2005 compared to 2004
($21.7 million), higher volume to customers supplying the
automotive and industrial/energy markets ($4.5 million),
and higher customer pricing and product mix ($1.1 million).
These factors were partially offset by lower volume to customers
supplying the electronics/data communications and appliance
markets ($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 Products 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 an increase in the average
selling price and cost of copper ($1.6 million), partially
offset by volume decline ($0.4 million).
Cost of goods sold, exclusive of depreciation and amortization,
as a percentage of sales increased to 85.7% for the year ended
December 31, 2005 from 81.9% pro forma for the year ended
December 31, 2004. The increase of 3.8 percentage
points was primarily due to the increase in the average cost and
selling price of copper (2.4 percentage points), a lower
percentage of customers tolled copper in 2005 compared to
2004 (1.1 percentage points), increased utility rates in
the third and fourth quarters (0.6 percentage points),
higher costs in the European operations (0.4 percentage
points), partially offset by customer pricing
(0.3 percentage points) and product mix and other cost
reductions (0.4 percentage points).
Selling, general and administrative expenses were
$31.5 million for the year ended December 31, 2005 and
$27.5 million for the pro forma year ended
December 31, 2004. Included in the year ended
December 31, 2005 was a charge for payments to be made to
our former Chief Executive Officer under his employment
agreement ($1.2 million), expenses related to our
S-1
registration statement ($0.8 million), costs associated
with Sarbanes-Oxley compliance ($0.7 million) and severance
costs in Europe ($0.6 million). 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 7.4% in 2005 and 8.1% 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 $11.2 million for the
year ended December 31, 2005, compared to
$13.9 million pro forma for the year ended
December 31, 2004. This decrease of $2.7 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), which was partially offset by increased
amortization of identifiable intangibles.
Plant closing charges for the pro forma year ended
December 31, 2004 was $1.9 million, comprised of a
charge for the closing of the plant located in Beynost, France.
There were no similar charges in 2005.
Reorganization expenses related to the process preceding the
Chapter 11 bankruptcy filing were $3.1 million for the
pro forma year ended December 31, 2004. There were no
similar expenses in 2005.
Operating income was $18.8 million for the year ended
December 31, 2005 and $15.3 million pro forma for the
year ended December 31, 2004 for an increase of
$3.5 million. Lower reorganization costs, impairment
charges and depreciation and amortization offset higher cost of
goods sold and increased selling, general and administrative
expenses in 2005 compared to 2004. The Bare Wire segments
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 partially offset by increased costs of the
utilities and higher depreciation and amortization. The
Engineered Wire Products Europe segments
operating income for the year ended December 31, 2005 was
$1.4 million compared to $2.7 million for the pro
forma year 2004. This decrease of $1.3 million was the
result of slightly lower sales volume and increased production
costs. Operating income also increased in 2005 by
$0.4 million over 2004 due to lower reorganization expenses
in
31
2005 ($3.1 million), partially offset by the absence of the
charge for payments to be made to our former Chief Executive
Officer ($1.2 million), expenses related to our
S-1
Registration Statement ($0.8 million) and costs associated
with Sarbanes-Oxley compliance ($0.7 million).
Interest expense was $11.4 million and $10.7 million
for the years ended December 31, 2005 and the pro forma
year ended December 31, 2004, respectively, for an increase
of $0.7 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 remained the same during
the year 2005 and the pro forma year 2004 at $0.6 million.
The income tax benefit of $0.1 million for the year ended
December 31, 2005 includes the reversal of the domestic
valuation allowance of $3.7 million. For the pro forma year
ended December 31, 2004, the tax provision of
$1.6 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 $17.7 million and
$4.7 million for the year ended December 31, 2005 and
the pro forma year ended December 31, 2004, respectively.
These amounts represent the results of operations of the entire
Insulated Wire business that was sold in December 2005 and July
2006. The increase in the loss of $13.0 million was
primarily the result of a lower sales volume, increased cost for
insulating compound materials and $11.8 million impairment
of property, plant and equipment and 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 in net loss of $8.5 million
in 2005 was due to increased income tax effects related to the
pro forma adjustments and the losses from discontinued
operations partially offset by higher operating income.
32
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
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
for the Period
|
|
|
|
for the Period
|
|
|
|
|
|
|
|
|
|
October 20
|
|
|
|
January 1
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
through
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
October 19,
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
2004
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
68,339
|
|
|
|
$
|
271,300
|
|
|
$
|
|
|
|
$
|
339,639
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of good sold, exclusive of
depreciation and amortization expense shown below
|
|
|
57,983
|
|
|
|
|
220,087
|
|
|
|
|
|
|
|
278,070
|
|
Selling, general and
administrative expenses
|
|
|
6,006
|
|
|
|
|
21,027
|
|
|
|
481
|
(1)
|
|
|
27,514
|
|
Depreciation
|
|
|
2,067
|
|
|
|
|
8,917
|
|
|
|
(209
|
)(2)
|
|
|
10,775
|
|
Amortization
|
|
|
712
|
|
|
|
|
1,288
|
|
|
|
1,160
|
(3)
|
|
|
3,160
|
|
Reorganization expenses
|
|
|
|
|
|
|
|
3,062
|
|
|
|
|
|
|
|
3,062
|
|
Plant closing charges
|
|
|
1,632
|
|
|
|
|
262
|
|
|
|
|
|
|
|
1,894
|
|
Gain on sale of property, plant
and equipment
|
|
|
(10
|
)
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss)
|
|
|
(51
|
)
|
|
|
|
16,758
|
|
|
|
(1,432
|
)
|
|
|
15,275
|
|
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)
|
|
|
(2,280
|
)
|
|
|
|
(12,088
|
)
|
|
|
3,667
|
(6)
|
|
|
(10,701
|
)
|
Amortization of deferred financing
fees
|
|
|
(127
|
)
|
|
|
|
(6,813
|
)
|
|
|
6,300
|
(7)
|
|
|
(640
|
)
|
Other, net
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income tax
provision
|
|
|
(2,392
|
)
|
|
|
|
244,399
|
|
|
|
(238,007
|
)
|
|
|
4,000
|
|
Income tax provision/(benefit)
|
|
|
|
|
|
|
|
335
|
|
|
|
1,265
|
(8)
|
|
|
1,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing
operations
|
|
|
(2,392
|
)
|
|
|
|
244,064
|
|
|
|
(239,272
|
)
|
|
|
2,400
|
|
Income/(loss) from discontinued
operations
|
|
|
(8,370
|
)
|
|
|
|
(6,756
|
)
|
|
|
10,404
|
|
|
|
(4,722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. |
33
|
|
|
(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
|
|
$
|
(10,984
|
)
|
Depreciation expense on fixed
assets restated at fair value as of January 1, 2004
|
|
|
10,775
|
|
|
|
|
|
|
|
|
$
|
(209
|
)
|
|
|
|
(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
|
|
|
|
|
|
|
|
|
|
$
|
14,368
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on new credit facility
|
|
$
|
47,008
|
|
|
|
6.05
|
%
|
|
|
(2,844
|
)
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
|
(640
|
)
|
|
|
|
|
|
|
|
$
|
6,300
|
|
|
|
|
|
|
|
|
|
(8) |
|
Reflects income/(loss) before income taxes at a 40% effective
rate. No consideration has been given to 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 differ 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.
Revenue
Recognition
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 collectibles is reasonably assured. A
provision for product returns is recorded based on historical
experience
34
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.
Accounts
Receivable
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 collectibles of our
accounts receivables and our future operating results.
Inventories
Inventories in the Bare Wire and High Performance Conductors
segments are valued at the lower of cost, determined using the
last in, first out (LIFO) method, or the current
estimated market value. Inventories in the Engineered Wire
Products Europe segment are valued at the lower of
cost, using the
first-in,
first-out (FIFO) method, or current estimated
market. 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
reserve. During 2006, inventory 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 2006 purchases.
Long-Lived
Assets
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. 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.
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 2006 as of December 31, 2006.
Stock-based
Compensation
Effective January 1, 2006, the Company adopted Statement of
Financial Accounting Standards No. 123(R), Share-Based
Payment (SFAS No. 123(R)), which
requires measurement of compensation cost for all stock awards
at fair value on the date of grant and recognition of
compensation cost spread over the service periods for awards
expected to vest. SFAS No. 123(R) has been adopted
using the modified-prospective transition method. Prior to the
adoption of SFAS No. 123(R), the Company accounted for
stock-based compensation
35
plans under the recognition and measurement principles of
Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations.
Under the modified-prospective transition method, compensation
cost recognized in 2006 includes: (a) compensation cost for
all unvested share-based awards granted prior to January 1,
2006, based on the grant date fair value estimated in accordance
with SFAS No. 123, Accounting For Stock-Based
Compensation, and (b) compensation cost for all
share-based awards granted subsequent to December 31, 2005,
based on the grant date fair value estimated in accordance with
SFAS No. 123(R). Prior periods were not restated to
reflect the impact of adopting the new standard.
Income
Taxes
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.
The reversal of the valuation allowance that existed at
October 20, 2004 reduced goodwill by $0.2 million and
$9.1 million in 2006 and 2005, respectively.
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 $8.0 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 reduced 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 has federal
NOL carryforwards of approximately $38 million as of
December 31, 2006, available to offset future federal
taxable income, of which $11.3 million is subject to the
$8.0 million annual limitation. These NOL carryforwards
expire in varying amounts in the years 2023 to 2026 if not
utilized.
Recently
Issued Accounting Standards
In November 2004 (revised in December 2004), the Financial
Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 151, Inventory
Costs an amendment of ARB No. 43,
Chapter 4 (SFAS No. 151) 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 Bulletin No. 43 (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 No. 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,
SFAS 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 adoption of
SFAS No. 151 did not have a material impact on the
Companys consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123(R),
Shared 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
36
performed. Prior to SFAS No. 123(R), only certain pro
forma disclosures of fair value were required. The Company
adopted the provisions of SFAS No. 123(R) on
January 1, 2006.
In July 2006, the FASB issued Financial Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement
No. 109 (FIN No. 48), which
clarifies the criteria that must be met prior to recognition of
the financial statement benefit of a position taken in a tax
return. Using a two-step approach, FIN No. 48 requires
an entity to determine whether it is more likely than not that a
tax position will be sustained upon examination, based on the
technical merits of the position. A tax position that meets the
more-likely-than-not recognition threshold is then measured to
determine the amount of benefit to recognize in the financial
statements. The tax position is measured at the largest amount
of benefit that is greater than 50 percent likely of being
realized upon ultimate settlement. FIN No. 48 also
requires the recognition of liabilities created by differences
between tax positions taken in a tax return and amounts
recognized in the financial statements. FIN No. 48 is
effective for fiscal years beginning after December 15,
2006. The Company is currently evaluating the impact, if any,
that the adoption of FIN No. 48 will have on its
consolidated financial statements.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements
(SFAS No. 157). This statement defines
fair value, established a framework for using fair value to
measure assets and liabilities and expands disclosures about
fair value measurements. The statement applies whenever other
pronouncements require or permit assets or liabilities to be
measured at fair value. SFAS No. 157 is effective for
the Companys fiscal year beginning January 1, 2008.
The Company is evaluating the impact the adoption of
SFAS No. 157 will have on the Companys
consolidated financial statements.
In September 2006, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 108, Considering the
Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements
(SAB No. 108), to address diversity in
practice in quantifying financial statement misstatements.
SAB No. 108 requires that the Company quantify
misstatements based on their impact on each of its financial
statements and related disclosures. The application of
SAB No. 108 in 2006 did not have any impact on the
Companys consolidated financial statements.
In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Liabilities including an
amendment to FASB Statement No. 115
(SFAS No. 159). This statement permits
entities to choose to measure many financial instruments and
certain other items at fair value. SFAS No. 159 is
effective for the Companys fiscal year beginning
January 1, 2008. The Company is currently evaluating the
impact of adopting SFAS No. 159.
Liquidity
and Capital Resources
Working
Capital and Cash Flows
Net cash provided by operating activities before cash flows used
for reorganization expenses was $46.0 million for the year
ended December 31, 2006, compared to net cash provided by
operating activities of $28.9 million for the year ended
December 31, 2005. This improvement of $17.1 million
was primarily the result of increased net income of
$20.8 million, non-cash stock-based compensation expense of
$6.0 million, lower accounts receivable of
$34.0 million, increased deferred income tax impact of
$5.8 million, and higher accrued payroll and related items
of $3.2 million. These factors were partially offset by
lower impairment charges of $11.8 million,
$16.9 million impact for inventory levels,
$23.9 million for lower accounts payable and
$0.1 million for other, net.
Accounts receivable decreased $0.4 million from year-end
2005 as collections for the remaining Insulated Wire business
offset other changes. Included in the year-end 2006 accounts
receivable were $13.8 million of accounts receivable from
HPC. Included in the December 31, 2005 accounts receivable
were $28.3 million from the Insulated Wire business.
Excluding these two impacts, accounts receivable for the Bare
Wire and Engineered Wire Products Europe segments
increased $14.1 million, or 19.3%, from December 31,
2005 to December 31, 2006. This increase was primarily due
to a 57.1% increase in average copper prices in the
37
fourth quarter of 2006 compared to the fourth quarter of 2005,
partially offset by slightly lower fourth quarter sales.
Inventories of $58.8 million as of December 31, 2006
increased by $1.9 million from December 31, 2005.
Included in this increase was $17.6 million from HPC.
Included in the December 31, 2005 inventory was
$16.8 million for the Insulated Wire business. Excluding
these two impacts, inventory for the Bare Wire segment and
Engineered Wire Products Europe increased by
$1.1 million. This increase was from a $5.3 million
increase to support higher European sales partially offset by a
2.5 million pound decrease of copper in the U.S. or
$4.1 million. In the domestic bare wire inventory, there
was an impact of $21.1 million in increased copper prices
offset by a $21.1 million increase in the LIFO reserve as a
result of higher copper prices. Inventory turns in 2006 were
slightly better than 2005 levels.
Accounts payable were $33.5 million as of December 31,
2006, or a decrease of $0.4 million from December 31,
2005 levels. Included in 2006 amounts were $2.4 million
from HPC and $3 million due for the HPC acquisition.
Included in 2005 amounts were $5.4 million related to the
Insulated Wire business. Excluding these changes, accounts
payable for domestic bare wire and Europe decreased by
$0.6 million related to the decrease in year-end
inventories. As of December 31, 2006, we had a reserve of
$1.3 million for the settlement and costs of the hose
claims. During the 2006 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 $1.3 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. There were no similar
activities in 2006.
Net cash used in investing activities was $24.9 million for
the year ended December 31, 2006, compared to
$0.7 million for the year ended December 31, 2005.
Included in 2006 was $52.1 million for the acquisition of
HPC partially offset by $37.0 million of net proceeds that
resulted from the exit from the Insulated Wire business. Capital
expenditures were $11.9 million in 2006, including
$3.9 million for the new plant site in Sherrill, New York,
compared to $7.0 million in 2005 that were for normal
replacement and cost reduction expenditures. Proceeds from the
sale of fixed assets were $1.8 million in 2006 including
$1.5 million from remaining U.S. Insulated Wire
assets. These proceeds were $0.9 million greater than in
2005. Restricted cash reductions provided cash of
$0.4 million in 2006 compared to $1.2 million in 2005.
Net cash used in financing activities was $23.5 million for
the year ended December 31, 2006 compared to
$31.3 million for the year ended December 31, 2005. In
2006, we incurred $1.6 million of financing fees related to
the extension of our Revolver Credit Facility. The lower level
of net reduction in long-term obligations in 2006 compared to
2005 of $9.4 million was primarily the result of the
acquisition of HPC, net of proceeds for the sale of the
Insulated Wire business and assets.
Financing
Arrangements
On August 28, 2006, the Company and the domestic
subsidiaries entered into an agreement with Wachovia Capital
Finance Corporation (Central) to amend the Companys
existing Credit Facility. Under the amendment, the existing
Revolver Credit Facility was increased to $200 million
subject to borrowing availability (including a $25 million
letter of credit facility), the maturity was extended until
August 22, 2011, the interest rate margin was reduced in
connection with the amendment, and the existing Term Credit
Facility was terminated.
We also issued the Notes to the former holders of our
subordinated notes in connection with our reorganization in
October 2004. For a description of Revolver Credit Facility and
the Notes, see Note 12 to the consolidated financial
statements.
Liquidity
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
38
silver, nickel and tin material costs increase significantly or
rapidly. Currently, a $0.10 per pound fluctuation in the
price of copper will have approximately a $2.7 million
impact on our working capital. The average price of copper based
upon COMEX increased to $3.09 per pound for the year ended
December 31, 2006 from $1.68 per pound for the year ended
December 31, 2005.
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 Revolver Credit
Facility.
As of December 31, 2006, we had $3.3 million of
unrestricted cash and cash equivalents. Actual borrowings
availability under our Revolver 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, 2006, our borrowing base was
$122.7 million and our outstanding indebtedness under the
Revolver Credit Facility (including outstanding letters of
credit) was $51.5 million, resulting in a remaining
availability as of such date of $71.2 million. We were able
to reduce our debt levels in the fourth quarter of 2006 due to a
decline in the price of copper ($3.46 per pound COMEX on
September 30, 2006 to $2.85 per pound on
December 31, 2006). As of March 31, 2007, letters of
credit in the amount of $13.5 million were outstanding and
$5.6 million was drawn under the Revolver Credit Facility,
and availability under the Revolver Credit Facility was
$115.5 million. The reductions of borrowings from the
December 31, 2006 levels were primarily the result of
increased vendor terms from a copper supplier beginning in 2007
and an increased level of tolled copper in the Bare Wire segment
in early 2007.
On March 31, 2006, we increased our Revolver Credit
Facility by $20.0 million. The Company funded the
acquisition of Phelps Dodge High Performance Conductors of
SC & GA, Inc. with borrowings under the Revolver Credit
Facility. On August 28, 2006, we increased our Revolver
Credit facility by another $45.0 million and terminated our
Term Loan Facility of $30.0 million.
We expect our cash on hand, operating cash flow, together with
available borrowings under the Revolver Credit Facility, will be
sufficient to meet our anticipated future operating expenses,
capital expenditures and debt service requirements for the next
twelve months and the foreseeable future. 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
United States 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, 2006. 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, 2006, the future minimum
lease payments under these arrangements totaled
$7.1 million.
39
Contractual
Obligations
The following table sets forth our contractual obligations as of
December 31, 2006 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)
|
|
$
|
113.5
|
|
|
$
|
0.5
|
|
|
$
|
0.0
|
|
|
$
|
113.0
|
|
|
$
|
0.0
|
|
Estimated interest on debt(2)
|
|
|
36.7
|
|
|
|
8.3
|
|
|
|
15.0
|
|
|
|
13.4
|
|
|
|
0.0
|
|
Open purchase orders
|
|
|
20.5
|
|
|
|
20.5
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
Operating leases
|
|
|
7.1
|
|
|
|
1.7
|
|
|
|
2.9
|
|
|
|
1.9
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
177.8
|
|
|
$
|
31.0
|
|
|
$
|
17.9
|
|
|
$
|
128.3
|
|
|
$
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Debt obligations are exclusive of interest. |
|
(2) |
|
Interest was estimated using the debt balance outstanding at
December 31, 2006 and the interest rates in effect on
December 31, 2006. |
|
(3) |
|
Deferred compensation of $1.9 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, 2006, approximately $38.6 million of
$113.6 million of long-term debt, specifically,
$38.0 million of borrowings under our Revolver Credit
Facility, bear interest at variable rates. A hypothetical 1%
increase in variable interest rates would increase our interest
rate expense by $0.4 million based on the debt outstanding
as of December 31, 2006. We are not currently engaged in
any hedging activities.
Foreign
Currency Risk
We have continuing operations in France, Italy and Belgium. Our
operations may, therefore, be subject to volatility because of
currency fluctuations. Sales and expenses are denominated in the
euro for the French, Italian and Belgium 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.
In terms of foreign currency translation risk, we are exposed
primarily to the euro. Our net foreign currency investment in
foreign subsidiaries and affiliates translated into
U.S. dollars using year-end exchange rates at
December 31, 2006 and 2005 was $22.0 million and
$86.9 million (including Mexico and the Philippines),
respectively.
At December 31, 2006, we had no financial instruments
outstanding that were sensitive to changes in foreign currency
rates.
40
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
South America. 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.
41
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
INTERNATIONAL
WIRE GROUP, INC.
INDEX
|
|
|
|
|
Consolidated Financial Statements
|
|
|
|
|
|
|
|
43
|
|
|
|
|
46
|
|
|
|
|
47
|
|
|
|
|
48
|
|
|
|
|
49
|
|
|
|
|
50
|
|
42
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of International Wire
Group, Inc.
Camden, New York
We have audited the accompanying consolidated balance sheet of
International Wire Group, Inc. and subsidiaries
(Successor or the Company) as of
December 31, 2006, and the related consolidated statements
of operations, changes in stockholders equity, and cash
flows for the year ended December 31, 2006. Our audit also
included the financial statement schedule listed in Item 15
(a)(2). These financial statements and financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on
our audit.
We conducted our audit 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. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also 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, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
International Wire Group, Inc. and subsidiaries at
December 31, 2006, and the results of their operations and
their cash flows for the year ended December 31, 2006, in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such 2006
financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set
forth therein.
/s/ Deloitte &
Touche LLP
Rochester, New York
April 27, 2007
43
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 the
results of their operations and their cash flows for the year
ended December 31, 2005 and for the period from October 20
through December 31, 2004 in conformity with accounting
principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule
for the year ended December 31, 2005 and for the period
from October 20 through December 31, 2004 listed in
the accompanying index presents fairly, in all material
respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are
the responsibility of the Companys management; our
responsibility is to express an opinion on these financial
statements and financial statement schedule 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.
/s/ PricewaterhouseCoopers
LLP
Syracuse, New York
April 11, 2006, except for the restatement described in
Note 1A (not presented herein) to the consolidated
financial statements appearing under Item 8 of the
Companys 2005 Annual Report on
Form 10-K/A,
as of which the date is April 27, 2007, and except as to
Note 10 to the consolidated financial statements
as to which the date is April 27, 2007.
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 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 in conformity with
accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule for the period from January 1 through
October 19, 2004 listed in the accompanying index presents
fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial
statement schedule are the responsibility of the Companys
management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on
our audit. We conducted our audit 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
audit provides a reasonable basis for our opinion.
As discussed in Note 2 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, except as to Note 10 to the
consolidated financial statements
as to which the date is April 27,2007.
45
INTERNATIONAL
WIRE GROUP, INC.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except
|
|
|
|
share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,315
|
|
|
$
|
5,422
|
|
Accounts receivable, less
allowance of $1,738 and $3,036
|
|
|
97,896
|
|
|
|
98,296
|
|
Inventories
|
|
|
58,808
|
|
|
|
56,874
|
|
Prepaid expenses and other
|
|
|
7,135
|
|
|
|
10,112
|
|
Asset held for sale
|
|
|
|
|
|
|
1,975
|
|
Deferred income taxes
|
|
|
16,701
|
|
|
|
20,218
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
183,855
|
|
|
|
192,897
|
|
Property, plant and equipment, net
|
|
|
103,889
|
|
|
|
85,440
|
|
Goodwill
|
|
|
62,148
|
|
|
|
62,307
|
|
Identifiable intangibles, net
|
|
|
18,369
|
|
|
|
21,358
|
|
Deferred financing costs, net
|
|
|
2,955
|
|
|
|
2,457
|
|
Restricted cash
|
|
|
1,559
|
|
|
|
1,922
|
|
Other assets
|
|
|
2,790
|
|
|
|
2,305
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
375,565
|
|
|
$
|
368,686
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current maturities of long-term
debt
|
|
$
|
535
|
|
|
$
|
228
|
|
Accounts payable and other
|
|
|
33,513
|
|
|
|
33,865
|
|
Accrued and other liabilities
|
|
|
14,264
|
|
|
|
13,670
|
|
Accrued payroll and payroll
related items
|
|
|
10,401
|
|
|
|
8,131
|
|
Customers deposits
|
|
|
12,086
|
|
|
|
11,428
|
|
Accrued income taxes
|
|
|
1,011
|
|
|
|
197
|
|
Accrued interest
|
|
|
1,847
|
|
|
|
1,838
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
73,657
|
|
|
|
69,357
|
|
Long-term debt, less current
maturities
|
|
|
113,020
|
|
|
|
135,188
|
|
Other long-term liabilities
|
|
|
4,029
|
|
|
|
3,558
|
|
Deferred income taxes
|
|
|
13,602
|
|
|
|
7,770
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
204,308
|
|
|
|
215,873
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value,
20,000,000 shares authorized, 10,000,002 issued and
outstanding
|
|
|
100
|
|
|
|
100
|
|
Contributed capital
|
|
|
181,566
|
|
|
|
175,600
|
|
Accumulated deficit
|
|
|
(11,573
|
)
|
|
|
(21,581
|
)
|
Accumulated other comprehensive
income/(loss)
|
|
|
1,164
|
|
|
|
(1,306
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
171,257
|
|
|
|
152,813
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
375,565
|
|
|
$
|
368,686
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
46
INTERNATIONAL
WIRE GROUP, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Company
|
|
|
Company
|
|
|
Company
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
For the Period
|
|
|
|
For the Year
|
|
|
For the Year
|
|
|
October 20
|
|
|
|
January 1
|
|
|
|
Ended
|
|
|
Ended
|
|
|
through
|
|
|
|
through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 19,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
2004
|
|
|
|
(In thousands, except share data)
|
|
Net sales
|
|
$
|
748,925
|
|
|
$
|
424,729
|
|
|
$
|
68,339
|
|
|
|
$
|
271,300
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold, exclusive of
depreciation and amortization expense shown below
|
|
|
661,182
|
|
|
|
363,878
|
|
|
|
57,983
|
|
|
|
|
220,087
|
|
Selling, general and
administrative expenses
|
|
|
44,883
|
|
|
|
31,508
|
|
|
|
6,006
|
|
|
|
|
21,027
|
|
Depreciation
|
|
|
10,838
|
|
|
|
8,063
|
|
|
|
2,067
|
|
|
|
|
8,917
|
|
Amortization
|
|
|
3,164
|
|
|
|
3,169
|
|
|
|
712
|
|
|
|
|
1,288
|
|
Plant closing charges
|
|
|
|
|
|
|
|
|
|
|
1,632
|
|
|
|
|
262
|
|
Reorganization expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,062
|
|
(Gain)/loss on sale of property
plant and equipment
|
|
|
24
|
|
|
|
(721
|
)
|
|
|
(10
|
)
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
28,834
|
|
|
|
18,832
|
|
|
|
(51
|
)
|
|
|
|
16,758
|
|
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)
|
|
|
(13,491
|
)
|
|
|
(11,455
|
)
|
|
|
(2,280
|
)
|
|
|
|
(12,088
|
)
|
Amortization of deferred financing
costs
|
|
|
(1,151
|
)
|
|
|
(646
|
)
|
|
|
(127
|
)
|
|
|
|
(6,813
|
)
|
Other income, net
|
|
|
96
|
|
|
|
20
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing
operations before income tax provision/(benefit)
|
|
|
14,288
|
|
|
|
6,751
|
|
|
|
(2,392
|
)
|
|
|
|
244,399
|
|
Income tax provision/(benefit)
|
|
|
4,401
|
|
|
|
(179
|
)
|
|
|
|
|
|
|
|
335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing
operations
|
|
|
9,887
|
|
|
|
6,930
|
|
|
|
(2,392
|
)
|
|
|
|
244,064
|
|
Income/(loss) from discontinued
operations, net of income taxes of ($137), ($2,407), ($34) and
$331, respectively
|
|
|
121
|
|
|
|
(17,749
|
)
|
|
|
(8,370
|
)
|
|
|
|
(6,756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
10,008
|
|
|
$
|
(10,819
|
)
|
|
$
|
(10,762
|
)
|
|
|
$
|
237,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net
income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing
operations
|
|
$
|
0.99
|
|
|
$
|
0.69
|
|
|
$
|
(0.24
|
)
|
|
|
$
|
244,064
|
|
Income/(loss) from discontinued
operations
|
|
|
0.01
|
|
|
|
(1.77
|
)
|
|
|
(0.84
|
)
|
|
|
|
(6,756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
1.00
|
|
|
$
|
(1.08
|
)
|
|
$
|
(1.08
|
)
|
|
|
$
|
237,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average basic shares
outstanding
|
|
|
10,000,002
|
|
|
|
10,000,002
|
|
|
|
10,000,002
|
|
|
|
|
1,000
|
|
Weighted-average diluted shares
outstanding
|
|
|
10,003,973
|
|
|
|
10,000,002
|
|
|
|
10,000,002
|
|
|
|
|
1,000
|
|
See accompanying notes to the consolidated financial statements.
47
INTERNATIONAL
WIRE GROUP, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Carryover of
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common
|
|
|
Contributed
|
|
|
Predecessor
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Basis
|
|
|
Deficit
|
|
|
Income/(Loss)
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,819
|
)
|
|
|
|
|
|
|
(10,819
|
)
|
Foreign currency translation
adjustments, net of taxes of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,749
|
)
|
|
|
(2,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Successor
December 31, 2005
|
|
|
100
|
|
|
|
175,600
|
|
|
|
|
|
|
|
(21,581
|
)
|
|
|
(1,306
|
)
|
|
|
152,813
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,008
|
|
|
|
|
|
|
|
10,008
|
|
Foreign currency translation
adjustments, net of taxes of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,470
|
|
|
|
2,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,478
|
|
Stock-based compensation
|
|
|
|
|
|
|
5,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Successor
December 31, 2006
|
|
$
|
100
|
|
|
$
|
181,566
|
|
|
$
|
|
|
|
$
|
(11,573
|
)
|
|
$
|
1,164
|
|
|
$
|
171,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
48
INTERNATIONAL
WIRE GROUP, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
For the Year
|
|
|
For the Year
|
|
|
For the Period
|
|
|
|
For the Period
|
|
|
|
Ended
|
|
|
Ended
|
|
|
October 20 through
|
|
|
|
January 1 through
|
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
December 31, 2004
|
|
|
|
October 19, 2004
|
|
|
|
(In thousands)
|
|
Cash flows provided by/(used in)
operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
10,008
|
|
|
$
|
(10,819
|
)
|
|
$
|
(10,762
|
)
|
|
|
$
|
237,308
|
|
Adjustments to reconcile net
income/(loss) to net cash provided by/(used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from debt forgiveness
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(259,252
|
)
|
Depreciation
|
|
|
11,684
|
|
|
|
10,531
|
|
|
|
2,467
|
|
|
|
|
16,320
|
|
Amortization
|
|
|
3,495
|
|
|
|
4,613
|
|
|
|
1,127
|
|
|
|
|
2,466
|
|
Amortization of deferred financing
costs
|
|
|
1,151
|
|
|
|
646
|
|
|
|
127
|
|
|
|
|
6,813
|
|
Provision for doubtful accounts
|
|
|
1,024
|
|
|
|
417
|
|
|
|
83
|
|
|
|
|
242
|
|
Stock based compensation expense
|
|
|
5,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of businesses
|
|
|
(787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of property, plant and
equipment
|
|
|
(526
|
)
|
|
|
(721
|
)
|
|
|
(16
|
)
|
|
|
|
(192
|
)
|
Impairment of long-lived assets
|
|
|
|
|
|
|
11,846
|
|
|
|
4,671
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
2,414
|
|
|
|
(3,396
|
)
|
|
|
|
|
|
|
|
|
|
Change in operating assets and
liabilities net of acquisitions and divestitures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
4,213
|
|
|
|
(29,767
|
)
|
|
|
4,541
|
|
|
|
|
(8,483
|
)
|
Inventories
|
|
|
8,667
|
|
|
|
25,561
|
|
|
|
4,337
|
|
|
|
|
(20,072
|
)
|
Prepaid expenses and other assets
|
|
|
(1,290
|
)
|
|
|
568
|
|
|
|
(978
|
)
|
|
|
|
(3,844
|
)
|
Accounts payable
|
|
|
(2,115
|
)
|
|
|
21,770
|
|
|
|
(4,658
|
)
|
|
|
|
2,976
|
|
Accrued and other liabilities
|
|
|
342
|
|
|
|
484
|
|
|
|
5,671
|
|
|
|
|
(4,098
|
)
|
Accrued payroll and payroll related
items
|
|
|
1,968
|
|
|
|
(1,249
|
)
|
|
|
558
|
|
|
|
|
2,999
|
|
Customers deposits
|
|
|
(964
|
)
|
|
|
(948
|
)
|
|
|
(1,982
|
)
|
|
|
|
1,915
|
|
Accrued interest
|
|
|
9
|
|
|
|
135
|
|
|
|
1,667
|
|
|
|
|
7,224
|
|
Accrued income taxes
|
|
|
759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
2
|
|
|
|
(767
|
)
|
|
|
529
|
|
|
|
|
(139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in)
operating activities before reorganization activities
|
|
|
46,020
|
|
|
|
28,904
|
|
|
|
7,382
|
|
|
|
|
(17,817
|
)
|
Cash flows provided by (used in)
reorganization activities
|
|
|
|
|
|
|
(6,439
|
)
|
|
|
(3,489
|
)
|
|
|
|
6,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in)
operating activities
|
|
|
46,020
|
|
|
|
22,465
|
|
|
|
3,893
|
|
|
|
|
(10,841
|
)
|
Cash flows used in investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(11,879
|
)
|
|
|
(6,973
|
)
|
|
|
(2,088
|
)
|
|
|
|
(7,775
|
)
|
Net proceeds from sale of property,
plant and equipment
|
|
|
1,758
|
|
|
|
875
|
|
|
|
16
|
|
|
|
|
192
|
|
Restricted cash
|
|
|
363
|
|
|
|
1,186
|
|
|
|
|
|
|
|
|
(1,492
|
)
|
Proceeds from sale of businesses
|
|
|
36,959
|
|
|
|
4,225
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Phelps Dodge High
Performance Conductors of SC & GA, Inc., net of $45
cash received
|
|
|
(52,143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(24,942
|
)
|
|
|
(687
|
)
|
|
|
(2,072
|
)
|
|
|
|
(9,075
|
)
|
Cash flows provided by/(used in)
financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under long-term
obligations
|
|
|
453,583
|
|
|
|
61,091
|
|
|
|
(6,317
|
)
|
|
|
|
91,593
|
|
Repayment under long term
obligations
|
|
|
(475,444
|
)
|
|
|
(92,324
|
)
|
|
|
6,979
|
|
|
|
|
(82,000
|
)
|
Financing fees
|
|
|
(1,649
|
)
|
|
|
(28
|
)
|
|
|
(523
|
)
|
|
|
|
(2,642
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in)
financing activities
|
|
|
(23,510
|
)
|
|
|
(31,261
|
)
|
|
|
139
|
|
|
|
|
6,951
|
|
Effects of exchange rate changes on
cash and cash equivalents
|
|
|
325
|
|
|
|
(287
|
)
|
|
|
(99
|
)
|
|
|
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash
equivalents
|
|
|
(2,107
|
)
|
|
|
(9,770
|
)
|
|
|
1,861
|
|
|
|
|
(12,650
|
)
|
Cash and cash equivalents at
beginning of the period
|
|
|
5,422
|
|
|
|
15,192
|
|
|
|
13,331
|
|
|
|
|
25,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
the period
|
|
$
|
3,315
|
|
|
$
|
5,422
|
|
|
$
|
15,192
|
|
|
|
$
|
13,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash
flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
14,377
|
|
|
$
|
13,361
|
|
|
$
|
915
|
|
|
|
$
|
8,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net taxes paid (including taxes
refunded of $129, $186, $0 and $47)
|
|
$
|
738
|
|
|
$
|
810
|
|
|
$
|
48
|
|
|
|
$
|
761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount included in accounts payable
and other for acquisition and capital expenditures
|
|
$
|
3,185
|
|
|
$
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
49
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
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,
tin-plated, nickel-plated and silver-plated copper 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 16 facilities located in the United States, Belgium,
France and Italy.
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 Notes 11 and 18 for further
discussion of the Wire Harness Sale and transactions with
Viasystems.
Over the last several years, the Companys Insulated Wire
business operating results have been adversely impacted by
industry wide over capacity and increased material costs, that,
with the exception of copper price increases, could not 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
business. On December 2, 2005, the Company sold and leased
selected assets of the U.S. Insulated Wire business to
Copperfield, LLC and ceased operations. On July 3, 2006, we
sold our remaining insulated wire operations which included
facilities in Cebu, Philippines and Durango, Mexico to
Draka Holdings N.V. and Draka Holdings Mexico, S.A.. The
disposition of the Philippines and the Mexican insulated wire
subsidiaries, which together with the sale of certain
U.S. insulated wire assets to Copperfield, LLC in December
2005 and the subsequent collection of retained accounts
receivable, completed the Companys exit from the Insulated
Wire business. Accordingly, the entire Insulated Wire business
has been presented as a discontinued operation in the
accompanying consolidated statements of operations.
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. and its subsidiaries through October 19,
2004. References to Successor refer to International
Wire Group, Inc. and its subsidiaries on and after
October 20, 2004.
50
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
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 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
(DIP) financing agreement with Highbridge/Zwirn
Special Opportunities Fund, L.P. and a group of senior lenders.
Such financing agreement provided for $140,000 of DIP financing
consisting of a $90,000 revolving loan and a $50,000 term loan.
The DIP financing 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 uncompromised 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 of the U.S. Bankruptcy Code, certain
claims against the debtors in existence prior to the filing of
the petition for relief under federal bankruptcy laws are stayed
while the debtors continue business operations as a DIP. 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.
51
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Predecessor incurred reorganization expenses primarily
related to professional fees as follows:
|
|
|
|
|
|
|
January 1
|
|
|
|
through
|
|
|
|
October 19,
|
|
|
|
2004
|
|
|
Consulting
|
|
$
|
1,439
|
|
Legal
|
|
|
1,410
|
|
Other
|
|
|
213
|
|
|
|
|
|
|
|
|
$
|
3,062
|
|
|
|
|
|
|
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
52
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 Revolver
Credit Facility and Term Loan Facility (as defined below)
(Note 12) and $75,000 of Senior Secured Subordinated
Notes. The Successors consolidated 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.
53
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
|
Current 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 liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. |
54
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 DIP 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 and Use of Estimates
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 preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the
United States 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.
Certain amounts from prior years have been reclassified to
conform to the current year presentation.
Revenue
Recognition
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 or 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 generally for the Bare Wire
segment and primarily with invoice terms F.O.B. shipping point
for the Engineered Wire Products Europe and the High
Performance Conductors segments. 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.
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 all segments are included in selling, general and
administrative expenses and totaled $13,882 for the year ended
December 31, 2006, $11,074 for the year ended
December 31, 2005, $1,952 for the period from October 20
through December 31, 2004 and $8,489 for the period from
January 1 through October 19, 2004.
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.
55
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted
Cash
At December 31, 2006 and 2005, the Company maintained
restricted cash in the amount of $1,559 and $1,922,
respectively, associated with deposits for self-insured
workers compensation programs.
Concentrations
of Credit Risk
Financial instruments that potentially expose the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents in bank deposit accounts and accounts receivable.
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. 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.
Inventories
Inventories in the Bare Wire and High Performance Conductors
segments are valued at the lower of cost, using the
last-in,
first-out (LIFO) method, or current estimated
market. The LIFO method is utilized in determining inventory
value as it results in better matching of costs and revenues.
Inventories in the Engineered Wire Products Europe
segment are valued at the lower of cost, using the
first-in,
first-out (FIFO) method, or current estimated market.
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.
After October 20, 2004, property, plant and equipment
acquired in connection with acquisitions are recorded at fair
market value; all other additions 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
Goodwill represents the excess of the reorganization value of
the Successor over the fair value of net assets and costs in
excess of fair values assigned to the underlying net assets of
acquired businesses. Under the provisions of Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets
(SFAS No. 142), goodwill is not
amortized but is reviewed at least annually for impairment using
a fair-value-based test. The Company tests for impairment of
goodwill using a two-step approach in the fourth quarter of each
fiscal year or at any other time when impairment indicators
exist. 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
56
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
Identifiable
Intangibles
Identifiable intangible assets represent the fair market value
of alloys, customer contracts, customer relationships, trade
names, trademarks and favorable leases. Under the provisions of
SFAS No. 142, identifiable intangible assets are
amortized over their projected useful lives of 15 years for
customer contracts and relationships, 20 years for trade
names and trademarks and alloys (formulation of two or more
metals) 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. 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, 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. There were no impairment charges recorded in
continuing operations for the years ended December 31, 2006
and 2005, the period from October 20, 2004 through
December 31, 2004 and the period from January 1, 2004
through December 31, 2004, respectively.
Deferred
Financing Costs
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.
Stock-based
Compensation
Effective January 1, 2006, the Company adopted Statement of
Financial Accounting Standards No. 123(R), Share-Based
Payment (SFAS No. 123(R)) which
requires measurement of compensation cost for all stock awards
at fair value on the date of grant and recognition of
compensation cost spread over the service periods for awards
expected to vest. SFAS No. 123(R) has been adopted
using the modified-prospective transition method. Prior to the
adoption of SFAS No. 123(R), the Company accounted for
stock-based compensation plans under the recognition and
measurement principles of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations.
Under the modified-prospective transition method, compensation
cost recognized in 2006 includes: (a) compensation cost for
all unvested share-based awards granted prior to January 1,
2006, based on the grant date fair value estimated in accordance
with SFAS No. 123, Accounting For Stock-Based
Compensation, and (b) compensation cost for all
share-based awards granted subsequent to December 31, 2005,
based on the grant date fair value estimated in accordance with
SFAS No. 123(R). Prior periods were not restated to
reflect the impact of adopting the new standard.
57
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Compensation cost arising from stock options granted to
employees and non-employee directors is recognized as expense
using the straight-line method over the vesting period. The
Company estimates a 5% forfeiture rate in recording stock-based
compensation expense. As of December 31, 2006, there was
$3,350 of total unrecognized compensation expense related to
stock options. That cost is expected to be recognized over a
weighted-average period of 1.1 years. As a result of
adopting SFAS No. 123(R) on January 1, 2006, the
Company recorded stock-based compensation expense of $5,966
(decreased net income by $4,128 or $0.41 per basic and diluted
share), in 2006, which is included in selling, general and
administrative expenses in the accompanying consolidated
statement of operations. The stock options are non-qualified
which results in the creation of a deferred tax asset until the
time the option is exercised. As of December 31, 2006, no
awards have been exercised.
The fair values of the options under SFAS No. 123(R)
in 2006 were estimated at the date of the grants using the
Black-Scholes option pricing model with the following
weighted-average assumptions:
|
|
|
|
|
Risk-free interest rate
|
|
|
4.9
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
Expected life
|
|
|
6 years
|
|
Expected volatility
|
|
|
58
|
%
|
The Company calculates expected volatility for stock options
using historical volatility of a group of companies in the wire
and cable industry. The risk-free interest rate is estimated
based on the Federal Reserves historical data for the
maturity of nominal treasury investments that corresponds to the
expected life of the option. The expected life was determined
using the simplified method as these awards meet the definition
of plain-vanilla options under the rules proscribed
by Staff Accounting Bulletin No. 107.
Income
Taxes
The Company accounts for certain items of income and expense in
different periods for financial reporting and income tax
purposes. Deferred income taxes are provided to recognize the
effect of temporary differences between financial reporting and
income tax purposes. Such taxes are provided for using enacted
tax rates expected to be in place when such temporary
differences are realized. A valuation allowance is recorded to
reduce deferred tax assets if it is determined that it is more
likely than not that the full deferred tax asset would not be
realized.
Foreign
Currency Translation
The Company has operations in Belgium, France and Italy. The
euro is the functional currency for the Companys foreign
subsidiaries located in Europe. Accordingly, assets and
liabilities of these foreign subsidiaries are translated at the
rate of exchange in effect at the balance sheet date. Income and
expense items and cash flows of these subsidiaries are
translated at the average monthly rate of exchange. Resulting
translation gains and losses are reported in other comprehensive
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.
Fair
Value of Financial Instruments
SFAS No. 107, Disclosure about Fair Value of
Financial Instruments, requires disclosure of the fair value
of certain financial instruments. The Companys financial
instruments are carried at face amounts. The Company has
estimated the fair value of its Secured Senior Subordinated
Notes using current market data. The fair value of the Secured
Senior Subordinated Notes was approximately $75,750 and $72,750
at December 31,
58
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2006 and 2005, respectively. The carrying value of the
borrowings under the Revolver Credit Facility approximates fair
value due to its variable interest rate.
Allocation
of Interest to Expense to Discontinued Operations
Interest expense has been allocated to discontinued operations
under the provisions of Emerging Issues Task Force
(EITF)
87-24,
Allocation of Interest to Discontinued Operations.
Interest expense allocated to discontinued operations was $895,
$2,706, $434 and $3,417 for the years ended December 31,
2006 and 2005, the period from October 20 through
December 31, 2004, and the period from January 1 through
October 19, 2004, respectively.
Net
Income/(Loss) Per Share
SFAS No. 128, Earnings per Share, requires the
computation of basic and diluted earnings per share. Basic
earnings per share is computed by dividing net income/(loss) by
the weighted-average number of shares of common stock
outstanding during the year. Diluted earnings per share is
determined by giving effect to the exercise of diluted stock
options using the treasury stock method. The following table
provides a reconciliation of the number of shares outstanding
for basic and dilutive earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Year Ended
|
|
|
For Period Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Oct 20 Dec 31,
|
|
|
Jan 1, 2004
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Oct 19, 2004
|
|
|
Weighted-average shares
outstanding-basic
|
|
|
10,000,002
|
|
|
|
10,000,002
|
|
|
|
10,000,002
|
|
|
|
1,000
|
|
Dilutive effect of stock options
|
|
|
3,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares
outstanding dilutive
|
|
|
10,003,973
|
|
|
|
10,000,002
|
|
|
|
10,000,002
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding for the years ended
December 31, 2006 and 2005 exclude 706,200 and 10,417
options, respectively, and exclude 3,257,354 of Predecessor
Options and 4,202,744 of Predecessor Performance Options for the
period January 1 through October 19, 2004 because they are
antidilutive since the exercise price plus any unearned
compensation of these options was greater than the average
market price of the common shares in the periods.
Significant
Customers
The Company had sales to a significant customers in the periods
included in the accompanying consolidated statements of
operations. Sales to General Cable Corporation represented 23%
of net sales from continuing operations for the years ended
December 31, 2006 and 2005, 28% for the period
October 20, 2004 to December 31, 2004 and 14% for the
period January 1, 2004 through October 19, 2004. Sales
to AFL Automotive, LP were 10% of our net sales from continuing
operations for the year ended December 31, 2006, 12% for
the year ended December 31, 2005, 9% for the period from
October 20 through December 31, 2004 and 10% for the period
from January 1 through October 19, 2004.
Concentration
of Copper Suppliers
The Companys principal raw material used in our products
is copper, which is purchased in the form of 5/16 inch rod
from major copper producers in North America, Europe and South
America. A significant percentage of total copper is purchased
from four major suppliers.
59
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Segment
Information
The Company is in the business of manufacturing and marketing
wire and wire products. The Chief Executive Officer, who is the
Chief Operating Decision Maker, evaluates its business
activities 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 Products Europe and High Performance
Conductors. See Note 17.
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, 2006 and 2005, the period from
October 20, 2004 through December 31, 2004 and the
period from January 1, 2004 through October 19, 2004,
the Company had two components of comprehensive income or loss:
net income/(loss) and foreign currency translation adjustments.
Recently
Issued Accounting Standards
In November 2004 (revised in December 2004), the Financial
Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 151, Inventory
Costs an amendment of ARB No. 43,
Chapter 4 (SFAS No. 151) 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 Bulletin No. 43 (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 No. 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,
SFAS 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 adoption of
SFAS No. 151 did not have a material impact on the
Companys consolidated financial statements.
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 the Companys adoption
SFAS No. 123(R), only certain pro forma disclosures of
fair value were required. The Company adopted the provisions of
SFAS No. 123(R) on January 1, 2006. See
Note 15.
In July 2006, the FASB issued Financial Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement
No. 109 (FIN No. 48), which
clarifies the criteria that must be met prior to recognition of
the financial statement benefit of a position taken in a tax
return. Using a two-step approach, FIN No. 48 requires
an entity to determine whether it is more likely than not that a
tax position will be sustained upon examination, based on the
technical merits of the position. A tax position that meets the
more-likely-than-not recognition threshold is then measured to
determine the amount of benefit to recognize in the financial
statements. The tax position is measured at the largest amount
of benefit that is greater than 50 percent likely of being
realized upon ultimate settlement. FIN No. 48 also
requires the recognition of liabilities created by differences
between tax positions taken in a tax return and amounts
recognized in the financial statements. FIN No. 48 is
effective for fiscal years beginning after December 15,
2006. The Company is currently evaluating the impact, if any,
that the adoption of FIN No. 48 will have on its
consolidated financial statements.
60
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements
(SFAS No. 157). This statement defines
fair value, established a framework for using fair value to
measure assets and liabilities and expands disclosures about
fair value measurements. The statement applies whenever other
pronouncements require or permit assets or liabilities to be
measured at fair value. SFAS No. 157 is effective for
the Companys fiscal year beginning January 1, 2008.
The Company is evaluating the impact the adoption of
SFAS No. 157 will have on the Companys
consolidated financial statements.
In September 2006, the Securities and Exchange Commission issued
Staff Accounting Bulletin 108, Considering the Effects
of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements
(SAB No. 108) to address diversity in
practice in quantifying financial statement misstatements.
SAB No. 108 requires that the Company quantify
misstatements based on their impact on each of its financial
statements and related disclosures. The application of
SAB No. 108 in 2006 did not have any impact on the
Companys consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and
Liabilities including an amendment to FASB Statement
No. 115. This statement permits entities to choose to
measure many financial instruments and certain other items at
fair value. SFAS No. 159 is effective for the
Companys fiscal year beginning January 1, 2008. The
Company is currently evaluating the impact of adopting
SFAS No. 159.
On March 4, 2006, the Company entered into a Stock Purchase
Agreement (HPC 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 standard and customized high and low
temperature 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 original equipment
manufacturers (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 and a sales/distribution facility in Belgium.
On March 31, 2006, the Company completed the acquisition of
all of the outstanding common stock of HPC for $42,000 plus an
estimated working capital adjustment payment at closing of
$1,676. An additional working capital adjustment of $2,671 was
paid in August 2006. The acquisition was funded with borrowings
under the Companys Revolver Credit Facility. Additionally,
we purchased the copper inventory held on consignment by HPC
from PD for $5,057. 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 HPC Purchase Agreement) exceeds
$9,400. The contingency payment is capped at $3,000 and the full
amount will be paid in 2007. Phelps Dodge High Performance
Conductors of SC & GA, Inc. changed it name to IWG High
Performance Conductors, Inc. This acquisition continues the
execution of our strategy to expand our product offerings and
sell into new markets.
This acquisition has been accounted for as a purchase on
March 31, 2006. Results of operations of HPC are included
in the accompanying consolidated statement of operations
beginning April 1, 2006.
61
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The total purchase price of the HPC acquisition was $55,188 and
the payment of related purchase price, fees and costs is
summarized as follows:
|
|
|
|
|
Purchase of common stock and
estimated working capital adjustment at closing
|
|
$
|
43,676
|
|
Additional working capital
adjustment
|
|
|
2,671
|
|
Purchase of consigned inventory
|
|
|
5,057
|
|
Contingent payment
|
|
|
3,000
|
|
Fees and costs
|
|
|
784
|
|
|
|
|
|
|
|
|
$
|
55,188
|
|
|
|
|
|
|
The total acquisition costs have been allocated to the acquired
net assets at fair value as follows:
|
|
|
|
|
Current assets
|
|
$
|
34,288
|
|
Property, plant and equipment
|
|
|
30,789
|
|
Identifiable intangibles
|
|
|
460
|
|
Current liabilities, excluding
deferred income taxes
|
|
|
(3,065
|
)
|
Deferred income taxes
|
|
|
(6,937
|
)
|
Other liabilities
|
|
|
(347
|
)
|
|
|
|
|
|
|
|
$
|
55,188
|
|
|
|
|
|
|
The allocation of total acquisition cost was based on fair
values as required under SFAS No. 141, Business
Combinations, including inventory, property, plant and
equipment, identifiable intangibles and certain liabilities. The
Company finalized this allocation in the fourth quarter of 2006.
Based upon the fair value of assets acquired and liabilities
assumed compared to the total purchase price, there was an
excess of fair value of net assets acquired over purchase price,
or negative goodwill of $2,686. Pursuant to the
provisions of SFAS No. 141, the excess was allocated
on a pro rata basis to the acquired property, plant and
equipment and identifiable intangible assets.
Identifiable intangibles represent the fair market value of
alloys (formulation of two or more metals) and trade names and
trademarks. The fair market values were determined using a
discount rate to compute the present value of the income of the
identifiable intangible assets. A discount rate of 17% was used.
The identifiable intangibles of $460 consist of alloys of $92
and trade names and trademarks of $368. Each of the identifiable
intangibles will be amortized over 20 years.
62
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table shows summary unaudited pro forma results of
operations as if the Company and HPC had been combined as of the
beginning of the periods presented. The unaudited pro forma
results of operations are based on estimates and assumptions and
have been made solely for purposes of developing such pro forma
information. The pro forma information for the years ended
December 31, 2006 and 2005 reflects adjustments including:
elimination of intercompany sales; reduction of expenses for
pension and post-retirement medical; adjustment to depreciation
relating to the adjustment to the fair market value and adjusted
useful lives of existing property, plant and equipment;
additional amortization of identifiable intangibles; adjustment
of interest expense for additional borrowings and reflects a 38%
effective tax rate. The pro forma information is presented for
illustrative purposes only and is not necessarily indicative of
the operating results or financial position that would have
occurred if the acquisition had been consummated as of the
beginning of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
For the Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
Net sales
|
|
$
|
775,819
|
|
|
$
|
509,885
|
|
Income from continuing operations
|
|
|
10,942
|
|
|
|
8,759
|
|
Net income/(loss)
|
|
|
11,063
|
|
|
|
(8,990
|
)
|
Basic and diluted net
income/(loss) per share
|
|
|
1.11
|
|
|
|
(0.90
|
)
|
Additionally, on October 27, 2006, the Company announced
the purchase of a new plant site located in Sherrill, New York,
from a subsidiary of Oneida, LTD. The purchase of this facility,
which is approximately 80,000 square feet, for
approximately $600, will be used to expand and move current bare
wire production in the central New York region. New and existing
equipment will be installed in this facility over the next 3 to
6 months. Total capital expenditures related to the
facility are expected to be approximately $14,000. The City of
Sherrill, New York provides favorable hydroelectric power rates
which should result in lower production costs.
The composition of inventories is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Raw materials
|
|
$
|
16,960
|
|
|
$
|
18,274
|
|
Work-in-process
|
|
|
13,827
|
|
|
|
14,400
|
|
Finished goods
|
|
|
28,021
|
|
|
|
24,200
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
58,808
|
|
|
$
|
56,874
|
|
|
|
|
|
|
|
|
|
|
Inventories in the Bare Wire and High Performance Conductors
segments are valued at the lower of cost, using the
last-in,
first-out (LIFO) method, or current estimated
market. The primary components of inventory costs include raw
materials used in the production process (copper, tin, nickel,
silver, alloys and other) and production related labor and
overhead costs net of scrap sales. The LIFO method is utilized
in determining inventory value as it results in a better
matching of costs and revenues. Had Bare Wire and High
Performance Conductors inventories been valued using the
first-in,
first-out (FIFO) method, inventories would have been
$37,245 and $20,641 higher as of December 31, 2006 and
2005, respectively. Inventories in the Engineered Wire
Products Europe segment are valued at the lower of
cost, determined using the FIFO method, or current estimated
market. During 2006, inventory quantities were reduced which
resulted in a liquidation of LIFO inventory quantities carried
at lower costs prevailing in the prior year and at the HPC
acquisition date as
63
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
compared with the cost of 2006 purchases. The effect of this
reduction in inventory decreased cost of goods sold by $4,587
and increased the net income by $3,174 or $0.32 per share.
7. Property,
Plant and Equipment
The composition of property, plant and equipment is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Land
|
|
$
|
5,356
|
|
|
$
|
5,954
|
|
Building and improvements
|
|
|
28,825
|
|
|
|
25,609
|
|
Machinery and equipment
|
|
|
83,832
|
|
|
|
69,131
|
|
Construction in progress
|
|
|
6,493
|
|
|
|
1,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124,506
|
|
|
|
101,911
|
|
Less: accumulated depreciation
|
|
|
(20,617
|
)
|
|
|
(16,471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
103,889
|
|
|
$
|
85,440
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for continuing operations was $10,838,
$8,063, $2,067 and $8,917 for the years ended December 31,
2006 and 2005, the period from October 20 through
December 31, 2004 and the period from January 1 through
October 19, 2004, respectively.
|
|
8.
|
Goodwill
and Intangible Assets
|
The changes in the carrying amounts of goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Balance, beginning of period
|
|
$
|
62,307
|
|
|
$
|
71,359
|
|
Reduction of deferred income tax
valuation allowance
|
|
|
(159
|
)
|
|
|
(9,052
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
62,148
|
|
|
$
|
62,307
|
|
|
|
|
|
|
|
|
|
|
All goodwill is included in the Bare Wire segment. In accordance
with
SOP 90-7,
the reductions in the valuation allowance established in
fresh-start reporting upon emergence from bankruptcy of $159 in
2006 and $9,052 in 2005, have offset goodwill. The Company
completed its annual impairment test at December 31, 2006
and 2005 and concluded that goodwill was not impaired.
The components of identifiable intangibles are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Accumulated
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Cost
|
|
|
Amortization
|
|
|
Customer contracts and
relationships
|
|
$
|
9,534
|
|
|
$
|
1,400
|
|
|
$
|
11,292
|
|
|
$
|
1,125
|
|
Trade names and trademarks
|
|
|
10,568
|
|
|
|
1,135
|
|
|
|
10,200
|
|
|
|
612
|
|
Favorable leases
|
|
|
2,671
|
|
|
|
1,958
|
|
|
|
2,671
|
|
|
|
1,068
|
|
Alloys
|
|
|
92
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable intangible
assets
|
|
$
|
22,865
|
|
|
$
|
4,496
|
|
|
$
|
24,163
|
|
|
$
|
2,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for continuing operations was $2,054,
$2,036, $407 and $0 for the years ended December 31, 2006
and December 31, 2005, for the period October 20 through
December 31, 2004 and for
64
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the period January 1 through October 19, 2004,
respectively. The estimated amortization expense for
identifiable intangible assets held as of December 31, 2006
is as follows:
|
|
|
|
|
2007
|
|
$
|
1,876
|
|
2008
|
|
|
1,163
|
|
2009
|
|
|
1,163
|
|
2010
|
|
|
1,163
|
|
2011
|
|
|
1,163
|
|
Thereafter
|
|
|
11,841
|
|
As of August 22, 2006, the Company amended its Revolver
Credit Facility and terminated its Senior Term Loan. In
connection with the amendment, the Company incurred additional
deferred financing fees of $1,649 and wrote off $480 of
remaining deferred financing fees related to the Senior Term
Loan.
As of October 20, 2004, the Successor recorded deferred
financing fees of $3,202 in connection with the Revolver Credit
Facility and Senior Term Loan (Note 12). 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.
|
|
10.
|
Discontinued
Operations
|
Over the last several years, the Companys Insulated Wire
business operating results have been adversely impacted by
industry wide over capacity and increased material costs, that,
with the exception of copper price increases, could not 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 December 2, 2005, the
Company 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 Revolver Credit Facility. On June 28 and 30,
2006, the Company entered into Stock Purchase Agreements
(Cebu and Durango Purchase Agreements) with Draka
Holdings N.V. (Draka) and Draka Holdings Mexico,
S.A. (Draka Mexico). The sales were completed on
July 3, 2006. Pursuant to the terms of the Cebu Purchase
Agreement, Draka purchased all the stock of the Companys
Philippines insulated wire subsidiary, IWG-Philippines,
Incorporated, for a purchase price of $30,000, plus an
additional sum of $881 pursuant to a post closing working
capital adjustment. Additionally, in August 2006, the Company
reimbursed Drake $3,510 for an accounts receivable collateral
related to the business sold and in September 2006, Draka
purchased approximately $6,478 of copper from the Company, which
was being held on consignment. Pursuant to the terms of the
Durango Purchase Agreement, Draka and Draka Mexico purchased all
the stock of the Companys Mexican insulated wire
subsidiaries, IWG Services Company, S. de R.L. de C.V., Cables
Durango, S. de R. L. de C. V. and IWG Durango, S. de R.L. de
C.V., for a purchase price of $5,000. Accordingly, the entire
Insulated Wire business has been presented as a discontinued
operation in the accompanying consolidated statements of
operations for the years ended December 31, 2006 and
December 31, 2005, the period from October 20 through
December 31, 2004 and the period from January 1 through
October 19, 2004.
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 at that time, the Company continued to operate these
assets, and based on these discussions and other factors, the
Company determined
65
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, a significant customer of the
Insulated Wire business 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
business, excluding the cost of copper, increased significantly
primarily due to higher world oil prices. As the Companys
customer contracts do not allow for pass-through of these
component costs, the Company 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 business 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.
The Insulated Wire business operating results included in
discontinued operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
For the Period
|
|
|
|
For the Year
|
|
|
For the Year
|
|
|
October 20
|
|
|
|
January 1
|
|
|
|
Ended
|
|
|
Ended
|
|
|
through
|
|
|
|
through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 19,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
2004
|
|
Net sales
|
|
$
|
53,195
|
|
|
$
|
238,819
|
|
|
$
|
37,805
|
|
|
|
$
|
181,696
|
|
Income/(loss) before income tax
provision/(benefit)
|
|
|
365
|
|
|
|
(20,156
|
)
|
|
|
(8,404
|
)
|
|
|
|
(6,425
|
)
|
Income/(loss), net of income taxes
|
|
|
388
|
|
|
|
(17,749
|
)
|
|
|
(8,370
|
)
|
|
|
|
(6,756
|
)
|
66
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The major classes of assets and liabilities of the discontinued
operations remaining on the consolidated balance sheets are as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
|
|
|
$
|
870
|
|
Accounts receivable
|
|
|
93
|
|
|
|
28,345
|
|
Inventory
|
|
|
|
|
|
|
16,803
|
|
Assets held for sale
|
|
|
|
|
|
|
1,975
|
|
Other current assets
|
|
|
|
|
|
|
2,831
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
93
|
|
|
$
|
50,824
|
|
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
|
|
|
$
|
14,334
|
|
Identifiable intangibles
|
|
|
|
|
|
|
1,397
|
|
Other non-current assets
|
|
|
200
|
|
|
|
520
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
$
|
200
|
|
|
$
|
16,251
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
232
|
|
|
$
|
5,445
|
|
Accrued expenses
|
|
|
499
|
|
|
|
3,031
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
$
|
731
|
|
|
$
|
8,476
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations for the year ended December 31,
2006 includes charges of $381 ($267 net of tax) for product
liability claims related to the Wire Harness business sold in
2000. See Note 18.
|
|
11.
|
Related
Party Transactions
|
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 Company holds a minority ownership interest and
is a director. Sales to Prime for the years ended
December 31, 2006 and 2005, the period from October 20
through December 31, 2004 and the period from January 1
through October 19, 2004 were $24,059, $8,828, $2,351 and
$10,811, respectively. The Company had outstanding accounts
receivable from Prime related to those sales of $2,564 and $823
at December 31, 2006 and 2005, respectively. Sales to Prime
were made on terms comparable to those of other companies in the
industry.
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, $8,048 and $33,355 for the year ended December 31,
2005, the period from October 20 through December 31, 2004
and for the period from January 1 through October 19, 2004,
respectively. The outstanding trade receivables due from
Viasystems were $6,098 at December 31, 2005. See
Note 18.
67
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The composition of long-term debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Revolver Credit Facility
|
|
$
|
38,020
|
|
|
$
|
30,188
|
|
Senior Term Loan
|
|
|
|
|
|
|
30,000
|
|
10% Secured Senior Subordinated
Notes
|
|
|
75,000
|
|
|
|
75,000
|
|
Other
|
|
|
535
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
113,555
|
|
|
|
135,416
|
|
Less current maturities
|
|
|
535
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
Long-term portion of long-term debt
|
|
$
|
113,020
|
|
|
$
|
135,188
|
|
|
|
|
|
|
|
|
|
|
Senior
Revolver Credit Facility and Term Loan
The Company and its domestic subsidiaries are parties to a
credit agreement (the Revolver Credit Facility) with
among Wachovia Capital Financial Corporation (Central), formerly
known as Congress Financial Corporation (Central), as
administrative agent, and several banks and financial
institutions parties. The Revolver Credit Facility is a senior
revolver credit facility in the amount of up to $200,000 subject
to borrowing availability (including, as a
sub-facility
of the Revolver Credit Facility, a $25,000 letter of credit
facility). Previously, the Company and its domestic subsidiaries
were parties to a credit agreement with 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) agreement, but the Term Credit Facility
was paid off in connection with the August 28, 2006
amendment to the Revolver Credit Facility.
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
was in the amount of $30,000. As of December 31, 2006,
letters of credit in the amount of $13,472 were outstanding and
$38,020 was drawn under the Revolver Credit Facility.
Availability under the Revolver Credit Facility was $71,232 as
of December 31, 2006.
The Company may choose to pay interest on advances under the
Revolver Credit Facility at either a Eurodollar rate or a base
rate plus the following applicable margin: (1) for base
rate Revolver Credit Facility advances, 0.00 percent
(2) for Eurodollar rate advances, 1.25 percent to
1.75 percent per annum, subject to adjustment in accordance
with a pricing grid based on excess availability and
(3) for letters of credit, 1.50 percent per annum. 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 Revolver Credit
Facility and an issuance letter of credit fee equal to
2.00 percent.
The Companys domestic subsidiaries are the primary parties
to the Revolver Credit Facility. The Company has guaranteed
their obligations under the Revolver Credit Facility. The
collateral for the Revolver 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 Companys Revolver Credit Facility requires the Company
to observe conditions, affirmative covenants and negative
covenants (including financial covenants). These covenants
include limitations on the Companys ability to pay
dividends, make acquisitions, dispose of assets, incur
additional indebtedness, incur guarantee obligations, create
liens, make investments, engage in mergers, make negative
pledges, change the nature of its business or engage in certain
transactions with affiliates. In addition, the Companys
subsidiaries
68
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
are restricted from making dividends and other restricted
payments (which may include payments of intercompany
indebtedness) to the Company for purposes other than the payment
of reasonable compensation to officers, employees and directors
for services rendered to the Companys subsidiaries in the
ordinary course of business, payments by the Companys
subsidiaries for actual and necessary reasonable
out-of-pocket
legal and accounting, insurance, marketing, payroll and similar
types of services paid for by the Company on behalf of the
Companys subsidiaries, in the ordinary course of their
respective businesses or as the same may be directly
attributable to the Companys subsidiaries, for the payment
of taxes by or on behalf of the Company, and the payments by the
Companys subsidiaries for the payment of fees, principal
and interest on the Notes described below. As a result of the
contractual restrictions on the Companys subsidiaries to
pay dividends to the Company, the restricted net assets of the
Companys consolidated subsidiaries exceeded 25% of the
Companys total consolidated net assets as of
December 31, 2006. The Company must also comply with a
fixed charge coverage ratio when either (1) the minimum
availability under the credit facility falls below $30,000 or
(2) there is a default or event of default.
The Companys Revolver Credit Facility commitment expires
on August 22, 2011.
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
Revolver Credit Facility. The commitments under the Revolver
Credit Facility may not be reduced by more than $10,000 in any
twelve-month period.
The Company must prepay the loans under the Revolver 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.
|
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.
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
69
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
|
|
|
|
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 Revolver 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.
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.
70
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Scheduled
Maturities of Debt
Scheduled maturities of debt at December 31, 2006 are as
follows:
|
|
|
|
|
2007
|
|
$
|
535
|
|
2008
|
|
|
|
|
2009
|
|
|
|
|
2010
|
|
|
|
|
2011
|
|
|
113,020
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
113,555
|
|
|
|
|
|
|
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes
(SFAS No. 109). Under
SFAS No. 109, deferred tax assets and liabilities are
recognized based on temporary differences between the financial
statement and tax basis of assets and liabilities using enacted
tax rates in effect in the years in which the differences are
expected to reverse. SFAS No. 109 requires current
recognition of net deferred tax assets to the extent that it is
more likely than not that such net assets will be realized. To
the extent that the Company believes that its net deferred tax
assets will not be realized, a valuation allowance must be
recorded against those assets.
The provision/(benefit) for income taxes consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
For the Year
|
|
|
For the Year
|
|
|
October 20
|
|
|
|
January 1
|
|
|
|
Ended
|
|
|
Ended
|
|
|
through
|
|
|
|
through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 19,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
2004
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
859
|
|
|
$
|
8,542
|
|
|
$
|
|
|
|
|
$
|
|
|
State
|
|
|
198
|
|
|
|
1,223
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
468
|
|
|
|
348
|
|
|
|
|
|
|
|
|
335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,525
|
|
|
|
10,113
|
|
|
|
|
|
|
|
|
335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
2,826
|
|
|
|
(9,859
|
)
|
|
|
|
|
|
|
|
|
|
State
|
|
|
(109
|
)
|
|
|
(433
|
)
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,876
|
|
|
|
(10,292
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision/(benefit) for
continuing operations
|
|
|
4,401
|
|
|
|
(179
|
)
|
|
|
|
|
|
|
|
335
|
|
Tax expense/(benefit) on
discontinued operations
|
|
|
(137
|
)
|
|
|
(2,407
|
)
|
|
|
(34
|
)
|
|
|
|
331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision/(benefit)
|
|
$
|
4,264
|
|
|
$
|
(2,586
|
)
|
|
$
|
(34
|
)
|
|
|
$
|
666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The U.S. and foreign components of income/(loss) from continuing
operations before income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
For the Year
|
|
|
For the Year
|
|
|
October 20
|
|
|
|
January 1
|
|
|
|
Ended
|
|
|
Ended
|
|
|
through
|
|
|
|
through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 19,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
2004
|
|
Domestic
|
|
$
|
12,472
|
|
|
$
|
5,127
|
|
|
$
|
400
|
|
|
|
$
|
242,614
|
|
Foreign
|
|
|
1,816
|
|
|
|
1,624
|
|
|
|
(2,792
|
)
|
|
|
|
1,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income tax
provision/(benefit)
|
|
$
|
14,288
|
|
|
$
|
6,751
|
|
|
$
|
(2,392
|
)
|
|
|
$
|
244,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation between the statutory income tax rate and
effective tax rate in dollars is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
For the Year
|
|
|
For the Year
|
|
|
October 20
|
|
|
|
January 1
|
|
|
|
Ended
|
|
|
Ended
|
|
|
through
|
|
|
|
through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 19,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
2004
|
|
Federal income tax at statutory
rate of 35%
|
|
$
|
4,995
|
|
|
$
|
(4,692
|
)
|
|
$
|
(3,779
|
)
|
|
|
$
|
83,291
|
|
State income taxes, net of federal
tax benefit
|
|
|
404
|
|
|
|
(579
|
)
|
|
|
(461
|
)
|
|
|
|
(415
|
)
|
Foreign rate differential
|
|
|
128
|
|
|
|
6,046
|
|
|
|
(539
|
)
|
|
|
|
(1,378
|
)
|
Disregarded entity loss deductible
in U.S.
|
|
|
(713
|
)
|
|
|
(660
|
)
|
|
|
|
|
|
|
|
|
|
State tax credits
|
|
|
(525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-deductible expenses
|
|
|
108
|
|
|
|
322
|
|
|
|
147
|
|
|
|
|
4,265
|
|
Non-deductible amortization of
intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
286
|
|
Non-includable reorganization
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88,813
|
)
|
Change in U.S. valuation
allowance
|
|
|
|
|
|
|
(3,692
|
)
|
|
|
4,724
|
|
|
|
|
(27,799
|
)
|
Reduction in available net
operating loss carryforward
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,011
|
|
Change in effective rate on
deferred income taxes
|
|
|
|
|
|
|
975
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(133
|
)
|
|
|
(306
|
)
|
|
|
(126
|
)
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,264
|
|
|
$
|
(2,586
|
)
|
|
$
|
(34
|
)
|
|
|
$
|
666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
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,
|
|
|
|
2006
|
|
|
2005
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accounts receivable reserves
|
|
$
|
480
|
|
|
$
|
1,069
|
|
Inventories
|
|
|
|
|
|
|
5,198
|
|
Accrued liabilities not yet
deductible
|
|
|
7,721
|
|
|
|
6,655
|
|
Net operating loss carryforward
|
|
|
15,934
|
|
|
|
22,479
|
|
Alternative minimum tax credit
carryforward
|
|
|
859
|
|
|
|
|
|
State tax credits
|
|
|
525
|
|
|
|
|
|
Postretirement benefits
|
|
|
88
|
|
|
|
89
|
|
Stock-based compensation
|
|
|
2,234
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,841
|
|
|
|
35,605
|
|
Valuation allowance
|
|
|
(1,530
|
)
|
|
|
(2,493
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
26,311
|
|
|
|
33,112
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
21,549
|
|
|
|
16,377
|
|
Unremitted earnings in the
Philippines
|
|
|
|
|
|
|
4,287
|
|
Inventories
|
|
|
1,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,212
|
|
|
|
20,664
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
3,099
|
|
|
$
|
12,448
|
|
|
|
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
$
|
16,701
|
|
|
$
|
20,218
|
|
Net non-current deferred
liabilities
|
|
|
(13,602
|
)
|
|
|
(7,770
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred tax asset
|
|
$
|
3,099
|
|
|
$
|
12,448
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006, the Company has federal net
operating loss carryforwards of $37,900 that are available to
offset future taxable income which expire in fiscal years
ranging from 2023 to 2026. As a result of the reorganization,
the Company underwent an ownership change within the meaning of
Section 382 of the Internal Revenue Code. 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 $11,300, which the Company may utilize in the
U.S. Additionally, the Company has foreign net operating
loss carryforwards of $4,635 and alternative minimum tax credit
carryforwards of $859 which are available to further reduce
income taxes over an infinite period.
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
73
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 the 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 $1,530, $2,493,
$14,707 and $9,983 at December 31, 2006, December 31,
2005, December 31, 2004 and October 20, 2004,
respectively. The Company recorded net changes to the valuation
allowance of ($963), ($12,214) and $4,724 for the years ended
December 31, 2006 and 2005 and the period from October 20
through December 31, 2004, respectively.
In 2005, the Company had unremitted earnings of foreign
subsidiaries that related to its operations in the Philippines,
which included its operations in the Philippines. Given the
Companys plans to exit the remainder of its Insulated Wire
business, these unremitted earnings were no longer considered to
be permanently reinvested outside the United States and a
deferred tax liability of approximately $4,300 was provided
thereon as of December 31, 2005.
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 federal
NOL carryovers by approximately $84,300 as a result of its
emergence from bankruptcy.
|
|
14.
|
Plant
Closing Charges
|
In December 2004, the Company 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 was $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.
|
|
15.
|
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 years ended December 31, 2006 and December 31,
2005, the period from October 20 through December 31, 2004
and the period from January 1 through October 19, 2004
amounted to $983, $835, $181 and $893, respectively.
On May 11, 2006, the Companys stockholders approved
the 2006 Management Stock Option Plan and the 2006 Stock Option
Plan for Non-Employee Directors. Under the 2006 Management Stock
Option Plan, options for up to 1,300,000 shares of common
stock are available for grant to the eligible members of
management. All other material terms of the stock options,
including without limitation, vesting and exercisability, will
be determined by the Compensation Committee of the Board of
Directors. On May 12, 2006, the Compensation Committee and
the Board of Directors approved the issuance of 972,000 options
to members of management at an exercise price of $15.00 per
share, a life of 10 years, and a vesting schedule of
one-third of the award to each employee at each anniversary date
in May 2007 through 2009. On October 28, 2006, an
additional 48,000 options were issued at an exercise price of
$17.83, a life of 10 years and vesting over three years.
The weighted-average estimated grant date fair value per option
was $8.85 for the 972,000 options granted in May and $10.46 for
the 48,000 options issued in October 2006.
On November 9, 2006, the Compensation Committee of the
Board of Directors accelerated the vesting of the 861,000
management options granted May 12, 2006 such that
two-thirds of the options granted vested immediately and
one-third of the options granted vest on October 20, 2007.
Accordingly, additional stock-
74
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
based compensation expense of approximately $3,632 ($2,506, net
of tax) was recorded in the fourth quarter of 2006.
Under the 2006 Stock Option Plan for Non-Employee Directors,
options for up to 300,000 shares of common stock are
available for grant to non-employee directors. The options will
be granted at no less than 100% of the fair market value of the
Companys stock on the date of the grant and have a life of
no longer than 10 years. On May 19, 2006, stock option
awards of 69,300 were granted to current non-employee directors
at an exercise price of $15.00 per share with a
10-year life
and a vesting schedule of one-third on the date of grant,
one-third on October 20, 2006 and the remaining one-third
on October 20, 2007. The weighted-average estimated grant
date fair value of these options was $8.85 per option.
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. The estimated grant date fair value of these options was
$6.38. One-third of the shares underlying the option became
exercisable on August 1, 2005, the second-third became
exercisable on August 1, 2006, and the remaining third
becomes exercisable on August 1, 2007. The option expires
on August 1, 2015.
Information regarding the Companys stock options is
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term in Years
|
|
|
Value
|
|
|
Outstanding at January 1, 2006
|
|
|
25,000
|
|
|
$
|
11.00
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,089,300
|
|
|
$
|
15.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2006
|
|
|
1,114,300
|
|
|
$
|
15.03
|
|
|
|
9.3
|
|
|
$
|
2,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at
December 31, 2006
|
|
|
1,058,585
|
|
|
$
|
15.03
|
|
|
|
9.3
|
|
|
$
|
2,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31,
2006
|
|
|
636,867
|
|
|
$
|
14.90
|
|
|
|
9.3
|
|
|
$
|
1,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006, there were options available for
grants to purchase 280,000 shares of Common Stock under the
2006 Management Stock Option Plan and 230,700 shares under
the 2006 Stock Option Plan for Non-Employee Directors.
Details regarding options to purchase common stock outstanding
as of December 31, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
Number of Options
|
|
|
Weighted-Average
|
|
|
Contractual
|
|
|
Options
|
|
Outstanding
|
|
|
Exercise Prices
|
|
|
Life in Years
|
|
|
Exercisable
|
|
|
|
25,000
|
|
|
$
|
11.00
|
|
|
|
0.6
|
|
|
|
16,667
|
|
|
1,041,300
|
|
|
$
|
15.00
|
|
|
|
0.8
|
|
|
|
620,200
|
|
|
48,000
|
|
|
$
|
17.83
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,114,300
|
|
|
|
|
|
|
|
|
|
|
|
636,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Predecessor and its parent had stock option plans. All
outstanding options totaling 7,460,098 under the plans were
terminated in bankruptcy in 2004. There were no other option
transactions in 2004.
75
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
16.
|
Commitments
and Contingencies
|
The Company leases certain property, transportation vehicles and
other equipment under operating leases. Total rental expense
under operating leases was $4,427, $3,939, $2,719 and $4,209 for
the years ended December 31, 2006 and December 31,
2005, for the period from October 20 through December 31,
2004 and for the period from January 1 through October 19,
2004, respectively. Future minimum lease payments under
operating leases for the years ended December 31 are:
|
|
|
|
|
2007
|
|
$
|
1,750
|
|
2008
|
|
|
1,552
|
|
2009
|
|
|
1,300
|
|
2010
|
|
|
1,131
|
|
2011
|
|
|
806
|
|
Thereafter
|
|
|
579
|
|
|
|
|
|
|
Total
|
|
$
|
7,118
|
|
|
|
|
|
|
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 was
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
|
|
|
|
October 19,
|
|
|
|
2004
|
|
|
Interest cost
|
|
$
|
7
|
|
Amortization of prior service cost
|
|
|
(525
|
)
|
Amortization of unrecognized net
loss
|
|
|
37
|
|
|
|
|
|
|
Net periodic postretirement income
|
|
$
|
(481
|
)
|
|
|
|
|
|
76
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The change in the projected postretirement benefit obligation
was as follows:
|
|
|
|
|
|
|
Successor
|
|
|
|
December 31,
|
|
|
|
2004
|
|
|
Beginning benefit obligation
balance
|
|
$
|
154
|
|
Interest cost
|
|
|
7
|
|
Plan participants contribution
|
|
|
254
|
|
Benefits paid
|
|
|
(304
|
)
|
Fresh-start reporting adjustment
|
|
|
(111
|
)
|
|
|
|
|
|
Ending benefit obligation balance
|
|
$
|
|
|
|
|
|
|
|
The discount rate used in determining the accumulated
postretirement benefit obligation was 6 percent for the
period from January 1 through October 19, 2004. 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 18 to the Companys consolidated
financial statements included herein.
|
|
17.
|
Business
Segment Information
|
At December 31, 2005, the Company had three reportable
segments: Bare Wire, Engineered Wire Products
Europe, and Insulated Wire. As a result of the HPC acquisition
on March 31, 2006 (Note 5) and the discontinued
operations of the Insulated Wire business (See Note 10), at
December 31, 2006 the Companys three reportable
segments are Bare Wire, Engineered Wire Products-Europe, and
High Performance Conductors. These segments are strategic
business units organized around three product categories that
follow managements internal organization structure. The
Company evaluates segment performance based on 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 original equipment
manufacturers (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 practical
to provide such disclosure.
The Engineered Wire Products Europe segment
manufactures and engineers connections and 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 High Performance Conductors segment, which resulted from the
Companys acquisition described in Note 5,
manufactures specialty high performance conductors which include
tin, nickel and silver plated copper and copper alloy conductors
including high and low temperature standard and customized
conductors as well as specialty film, insulated conductors and
miniature tubing products.
77
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Summarized financial information for the Companys
reportable segments from continuing operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wire
|
|
|
High
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products-
|
|
|
Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
BareWire
|
|
|
Europe
|
|
|
Conductors
|
|
|
Corporate
|
|
|
Elimination
|
|
|
Total
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31, 2006
|
|
$
|
611,356
|
|
|
$
|
55,151
|
|
|
$
|
82,980
|
|
|
$
|
|
|
|
$
|
(562
|
)
|
|
$
|
748,925
|
|
For the year ended
December 31, 2005
|
|
|
391,795
|
|
|
|
38,845
|
|
|
|
|
|
|
|
|
|
|
|
(5,911
|
)
|
|
|
424,729
|
|
For the period October 20 through
December 31, 2004
|
|
|
62,850
|
|
|
|
7,039
|
|
|
|
|
|
|
|
|
|
|
|
(1,550
|
)
|
|
|
68,339
|
|
For the period January 1 through
October 19, 2004
|
|
|
246,201
|
|
|
|
30,584
|
|
|
|
|
|
|
|
|
|
|
|
(5,485
|
)
|
|
|
271,300
|
|
Operating
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31, 2006
|
|
|
23,634
|
|
|
|
3,592
|
|
|
|
7,583
|
|
|
|
(5,975
|
)
|
|
|
|
|
|
|
28,834
|
|
For the year ended
December 31, 2005
|
|
|
20,158
|
|
|
|
1,378
|
|
|
|
|
|
|
|
(2,704
|
)
|
|
|
|
|
|
|
18,832
|
|
For the period October 20 through
December 31, 2004
|
|
|
2,761
|
|
|
|
(2,812
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
For the period January 1 through
October 19, 2004
|
|
|
18,161
|
|
|
|
1,785
|
|
|
|
|
|
|
|
(3,188
|
)
|
|
|
|
|
|
|
16,758
|
|
Income from continuing
operations before income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31, 2006
|
|
|
23,658
|
|
|
|
3,592
|
|
|
|
7,583
|
|
|
|
(20,545
|
)
|
|
|
|
|
|
|
14,288
|
|
For the year ended
December 31, 2005
|
|
|
20,158
|
|
|
|
1,378
|
|
|
|
|
|
|
|
(14,785
|
)
|
|
|
|
|
|
|
6,751
|
|
For the period October 20 through
December 31, 2004
|
|
|
2,761
|
|
|
|
(2,812
|
)
|
|
|
|
|
|
|
(2,341
|
)
|
|
|
|
|
|
|
(2,392
|
)
|
For the period January 1 through
October 19, 2004
|
|
|
18,161
|
|
|
|
1,785
|
|
|
|
|
|
|
|
224,453
|
|
|
|
|
|
|
|
244,399
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006
|
|
|
62,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,148
|
|
As of December 31, 2005
|
|
|
62,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,307
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006
|
|
|
247,778
|
|
|
|
40,115
|
|
|
|
62,863
|
|
|
|
32,161
|
|
|
|
(7,352
|
)
|
|
|
375,565
|
|
As of December 31, 2005
|
|
|
246,217
|
|
|
|
36,529
|
|
|
|
|
|
|
|
90,541
|
(a)
|
|
|
(4,601
|
)
|
|
|
368,686
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31, 2006
|
|
|
9,406
|
|
|
|
1,057
|
|
|
|
1,375
|
|
|
|
1
|
|
|
|
|
|
|
|
11,839
|
|
For the year ended
December 31, 2005
|
|
|
4,282
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,351
|
|
For the period October 20 through
December 31, 2004
|
|
|
1,627
|
|
|
|
216
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
1,853
|
|
For the period January 1 through
October 19, 2004
|
|
|
4,610
|
|
|
|
140
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
4,805
|
|
Depreciation and
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31, 2006
|
|
|
11,314
|
|
|
|
903
|
|
|
|
1,776
|
|
|
|
9
|
|
|
|
|
|
|
|
14,002
|
|
For the year ended
December 31, 2005
|
|
|
10,346
|
|
|
|
841
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
11,232
|
|
For the period October 20 through
December 31, 2004
|
|
|
2,596
|
|
|
|
165
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
2,779
|
|
For the period January 1 through
October 19, 2004
|
|
|
9,137
|
|
|
|
862
|
|
|
|
|
|
|
|
206
|
|
|
|
|
|
|
|
10,205
|
|
|
|
|
(a) |
|
Includes assets of the Insulated Wire business of $67,075. |
78
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents sales from continuing operations by
period and by geographic region based on the country or region
in which the legal subsidiary is domiciled.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
For the Year
|
|
|
For the Year
|
|
|
October 20
|
|
|
|
January 1
|
|
|
|
Ended
|
|
|
Ended
|
|
|
through
|
|
|
|
through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 19,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
2004
|
|
United States
|
|
$
|
687,672
|
|
|
$
|
385,884
|
|
|
$
|
61,300
|
|
|
|
$
|
240,716
|
|
Europe
|
|
|
61,253
|
|
|
|
38,845
|
|
|
|
7,039
|
|
|
|
|
30,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
748,925
|
|
|
$
|
424,729
|
|
|
$
|
68,339
|
|
|
|
$
|
271,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents property, plant and equipment by
geographic region based on the location of the asset:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
United States
|
|
$
|
94,568
|
|
|
$
|
64,693
|
|
Europe
|
|
|
9,321
|
|
|
|
7,916
|
|
Mexico
|
|
|
|
|
|
|
5,118
|
|
Philippines
|
|
|
|
|
|
|
7,713
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
103,889
|
|
|
$
|
85,440
|
|
|
|
|
|
|
|
|
|
|
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
79
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 of and for the periods
ending December 31, 2006, 2005, 2004 and October 19,
2004 (in thousands except number of claims):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
|
No. of
|
|
|
Alleged
|
|
|
|
Claims
|
|
|
Damages
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
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
(Successor)
|
|
|
310
|
|
|
|
3,611
|
|
For the year ended
December 31, 2006 (Successor)
|
|
|
|
|
|
|
|
|
New uninsured claims
|
|
|
668
|
|
|
|
6,956
|
|
Resolved uninsured claims
|
|
|
(681
|
)
|
|
|
(6,386
|
)
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006
(Successor)
|
|
|
297
|
|
|
$
|
4,181
|
|
|
|
|
|
|
|
|
|
|
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, 2006 the total of such
claims was less than $1,000 with an estimated liability related
to these claims of less than $250 During 2006, new additional
insured claims of approximately $100 were brought and the
insurance providers settled them at no expense to the Company.
In 2005, new additional insured claims of approximately $200
were brought and the insurance providers settled approximately
$1,100 of claims at no expense to the Company. 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, 2006, 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.
80
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the periods ended December 31, 2006, December 31,
2005, December 31, 2004 and October 19, 2004, the
aggregate settlement costs, cost of administering and litigating
and average cost per resolved claim were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
For the Year
|
|
|
For the Year
|
|
|
October 20
|
|
|
|
January 1
|
|
|
|
Ended
|
|
|
Ended
|
|
|
through
|
|
|
|
through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 19,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
2004
|
|
Aggregate settlement costs
|
|
$
|
482
|
|
|
$
|
340
|
|
|
$
|
|
|
|
|
$
|
3,294
|
|
Cost of administering and
litigating
|
|
$
|
215
|
|
|
$
|
360
|
|
|
$
|
5
|
|
|
|
$
|
392
|
|
Average cost per resolved claim
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
|
$
|
1
|
|
The Company had a reserve of $1,250 and $1,566 as of
December 31, 2006 and December 31, 2005, respectively,
related to the estimated future payments to be made to the
claimants in the settlement of the remaining incurred claims and
claims incurred but not reported. The majority of payments are
expected to be made over approximately the next three 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
consolidated financial statements 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.
|
|
19.
|
Quarterly
Financial Information (unaudited)
|
Selected unaudited quarterly financial data for the years ended
December 31, 2006 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
4th Qtr.
|
|
|
3rd Qtr.
|
|
|
2nd Qtr.
|
|
|
1st Qtr.
|
|
|
|
(In thousands, except share data)
|
|
|
Net sales
|
|
$
|
183,913
|
|
|
$
|
206,372
|
|
|
$
|
214,077
|
|
|
$
|
144,563
|
|
Operating income
|
|
|
4,443
|
(a)
|
|
|
8,439
|
|
|
|
8,892
|
|
|
|
7,060
|
|
Income/(loss) from continuing
operations (b)
|
|
|
615
|
|
|
|
3,651
|
|
|
|
3,138
|
|
|
|
2,483
|
|
Income/(loss) from discontinued
operations
|
|
|
323
|
|
|
|
294
|
|
|
|
126
|
|
|
|
(622
|
)
|
Net income/(loss)
|
|
|
938
|
|
|
|
3,945
|
|
|
|
3,264
|
|
|
|
1,861
|
|
Earnings/(loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.09
|
|
|
$
|
0.39
|
|
|
$
|
0.33
|
|
|
$
|
0.19
|
|
81
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
4th Qtr.
|
|
|
3rd Qtr.
|
|
|
2nd Qtr.
|
|
|
1st Qtr.
|
|
|
|
(In thousands, except share data)
|
|
|
Net sales
|
|
$
|
118,871
|
|
|
$
|
107,569
|
|
|
$
|
102,261
|
|
|
$
|
96,028
|
|
Operating income
|
|
|
3,935
|
|
|
|
5,938
|
|
|
|
3,392
|
|
|
|
5,567
|
|
Income/(loss) from continuing
operations
|
|
|
4,020
|
|
|
|
1,593
|
|
|
|
(202
|
)
|
|
|
1,519
|
|
Income/loss from discontinued
operations
|
|
|
(5,043
|
)
|
|
|
(5,241
|
)
|
|
|
(5,485
|
)
|
|
|
(1,980
|
)
|
Net income/(loss)
|
|
|
(1,023
|
)
|
|
|
(3,648
|
)
|
|
|
(5,687
|
)
|
|
|
(461
|
)
|
Earnings/(loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.57
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
(a) |
|
Includes $4,587 of LIFO liquidation effect. |
|
(b) |
|
Includes $4,404, $1,018, $544 and $0 of stock-based compensation
expense. |
82
|
|
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 the International Wire Group, Inc.
Key Management Incentive Plan, 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 preparation of
83
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.
We filed with our Quarterly Report on
Form 10-Q
filed with the SEC on April 30, 2007, a summary of the
International Wire Group, Inc. Key Management Incentive Plan.
Changes
In Internal Control Over Financial Reporting
Except as otherwise discussed above, we made no changes in our
internal control over financial reporting that occurred in the
fourth quarter of fiscal 2006 that has materially affected, or
is reasonably likely to materially affect, our internal control
over financial reporting.
|
|
Item 9B.
|
Other
Information.
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance.
|
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 2007
Annual Meeting of Shareholders (the Proxy
Statement). That information is incorporated herein by
reference.
The information in the Proxy Statement set forth under the
captions Section 16(a) Beneficial Ownership Reporting
Compliance and Information about the Board and its
Committees Committees of the Board of
Directors is incorporated herein by reference.
We have adopted the Code of Business Conduct, a code of ethics
that applies to our Chief Executive Officer, Chief Financial
Officer and other salaried 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.
In addition, we will make available, free of charge upon
request, a copy of our Code of Business Conduct. For a copy of
this code, please contact Glenn Holler, International Wire
Group, Inc., 11116 South Towne Square, Suite 101,
St. Louis, Missouri 63123.
|
|
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
Compensation Committee Interlocks and Insider Participation in
Compensation Decisions is incorporated herein by reference.
84
|
|
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.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
The information set forth under the captions Certain
Relationships and Related Person Transactions,
Proposal 1: Election of Directors and
Information about the Board and its Committees
Committees of the Board of Directors 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.
FINANCIAL
STATEMENT SCHEDULE
INTERNATIONAL WIRE GROUP, INC. (Successor)
SCHEDULE II VALUATION AND QUALIFYING
ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collection of
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
Allowance for Doubtful Accounts Deducted
|
|
Beginning
|
|
|
Acquisition
|
|
|
|
|
|
|
|
|
Written
|
|
|
Balance at
|
|
from Accounts Receivables in the Balance Sheet
|
|
of Period
|
|
|
of HPC
|
|
|
Provision
|
|
|
Write-Offs
|
|
|
off Accounts
|
|
|
End of Period
|
|
|
Year ended December 31, 2006
|
|
$
|
3,036
|
|
|
$
|
104
|
|
|
$
|
1,024
|
|
|
$
|
(2,426
|
)
|
|
$
|
|
|
|
$
|
1,738
|
|
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
|
|
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 of
|
|
|
|
|
|
|
|
|
Written
|
|
|
Balance at
|
|
from Accounts Receivables in the Balance Sheet
|
|
Period
|
|
|
Provision
|
|
|
Write-Offs
|
|
|
off Accounts
|
|
|
End of Period
|
|
|
Period January 1 through
October 19, 2004
|
|
$
|
4,899
|
|
|
$
|
242
|
|
|
$
|
(972
|
)
|
|
$
|
|
|
|
$
|
4,169
|
|
85
|
|
|
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 (filed as
Exhibit T3E-2
to the Companys Application for Qualification of
Trust Indentures on Form T3 filed on July 29,
2004 and incorporated herein by reference).
|
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 (filed as Exhibit 2.1 to the Companys
Current Report on
Form 8-K
filed March 7, 2006 and incorporated herein by reference).
|
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 (filed as
Exhibit 2.1 to the Companys Current Report on
Form 8-K
filed April 4, 2006 and incorporated herein by reference).
|
3.1
|
|
Amended and Restated Certificate
of Incorporation of International Wire Group, Inc. (filed as
Exhibit 3.1 to the Companys Registration Statement
Form S-1
filed November 24, 2004 and incorporated herein by
reference).
|
3.2
|
|
Amended and Restated Bylaws of
International Wire Group, Inc. (filed as Exhibit 3.1 to the
Companys Current Report on
Form 8-K
filed February 28, 2007 and incorporated herein by
reference).
|
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 (filed as Exhibit 4.1 to the Companys
Registration Statement
Form S-1
filed November 24, 2004 and incorporated herein by
reference).
|
4.2
|
|
Form of 10% Secured Senior
Subordinated Note due 2011 (filed as Exhibit A to the
Indenture filed as Exhibit 4.1 to the Companys
Registration Statement
Form S-1
filed November 24, 2004 and incorporated herein by
reference).
|
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
(filed as Exhibit 10.1 to the Companys Registration
Statement
Form S-1
filed November 24, 2004 and incorporated herein by
reference).
|
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 (filed as
Exhibit 10.2 to the Companys Registration Statement
Form S-1
filed November 24, 2004, and incorporated herein by
reference).
|
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
(filed as Exhibit 10.3 to the Companys Registration
Statement
Form S-1
filed November 24, 2004, and incorporated herein by
reference).
|
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 (filed as Exhibit 10.4 to
the Companys Registration Statement
Form S-1
filed November 24, 2004, and incorporated herein by
reference).
|
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 (filed as Exhibit 10.5 to the Companys
Registration Statement
Form S-1
filed November 24, 2004, and incorporated herein by
reference).
|
10.6
|
|
International Wire Group, Inc.
2004 Stock Option Plan (filed as Exhibit 10.6 to the
Companys Registration Statement
Form S-1
filed November 24, 2004, and incorporated herein by
reference).*
|
10.7
|
|
Amended and Restated Registration
Rights Agreement, dated as of November 24, 2004, among
International Wire Group, Inc. and the holders specified therein
(filed as Exhibit 10.7 to the Companys Registration
Statement
Form S-1
filed November 24, 2004, and incorporated herein by
reference).
|
86
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibit Description
|
|
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 (filed as Exhibit 10.1 to the Companys
Quarterly Report on
Form 10-Q
filed November 14, 2003, and incorporated herein by
reference).*
|
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 (filed as Exhibit 10.10 to the
Companys Registration Statement
Form S-1
filed July 21, 2005 and incorporated herein by reference).*
|
10.10
|
|
Amended and Restated Employment
Agreement, dated March 14, 1995, between Omega Wire, Inc.
and Rodney D. Kent (filed with the Companys Registration
Statement
Form S-1
filed September 29, 1995, and incorporated herein by
reference).*
|
10.11
|
|
Supply Contract, dated
January 1, 2003, between Viasystems, Inc. and International
Wire Group, Inc. (filed as Exhibit 10.2 to the
Companys Quarterly Report on
Form 10-Q
filed November 14, 2003, and incorporated herein by
reference).
|
10.12
|
|
First Amendment to Supply
Contract, dated February 1, 2004, between Viasystems, Inc.
and International Wire Group, Inc. (filed as Exhibit 10.13
to the Companys Registration Statement
Form S-1
filed May 10, 2005, and incorporated herein by reference).+
|
10.13
|
|
Letter Agreement regarding supply
agreement, dated June 9, 2004, between Viasystems, Inc. and
International Wire Group, Inc. (filed as Exhibit 10.14 to
the Companys Registration Statement
Form S-1
filed May 10, 2005, and incorporated herein by reference).+
|
10.14
|
|
International Wire Group, Inc. Key
Employee Retention Plan (filed as Exhibit 10.13 to the
Companys Registration Statement
Form S-1
filed November 24, 2004, and incorporated herein by
reference).*
|
10.15
|
|
International Wire Group, Inc.
Insulated Wire Division Retention Plan (filed as
Exhibit 10.16 to the Companys Registration Statement
Form S-1
filed May 10, 2005, and incorporated herein by reference).*
|
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 (filed as Exhibit 10.16
to the Companys Registration Statement
Form S-1
filed September 29, 1995, and incorporated herein by
reference).
|
10.17
|
|
Consulting Agreement, dated
November 15, 2004, between International Wire Group, Inc.
and Whiterock Affiliates LLC (filed as Exhibit 10.18 to the
Companys Registration Statement
Form S-1
filed May 10, 2005, and incorporated herein by reference).*
|
10.18
|
|
Compensation for William Lane
Pennington (filed as Exhibit 10.19 to the Companys
Registration Statement
Form S-1
filed May 10, 2005, and incorporated herein by reference).*
|
10.19
|
|
Nonqualified Stock Option
Agreement, dated August 1, 2005, between International Wire
Group, Inc. and William Lane Pennington (filed with the
Companys Registration Statement
Form S-1
filed August 2, 2005, and incorporated herein by
reference).*
|
10.20
|
|
Form of Indemnification Agreement
(filed as Exhibit 10.1 to the Companys Quarterly
Report on
Form 10-Q
filed on September 14, 2005, and incorporated herein by
reference).
|
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 (filed as Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed December 5, 2005, and incorporated herein by
reference).
|
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) (filed as Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed April 4, 2006, and incorporated herein by reference).
|
87
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibit Description
|
|
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
(filed as Exhibit 10.2 to the Companys Current Report
on
Form 8-K
filed April 4, 2006, and incorporated herein by reference).
|
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 (filed as
Exhibit 10.3 to the Companys Current Report on
Form 8-K
filed April 4, 2006, and incorporated herein by reference).
|
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 (filed as Exhibit 10.4 to the
Companys Current Report on
Form 8-K
filed April 4, 2006, and incorporated herein by reference).
|
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 (filed as
Exhibit 10.5 to the Companys Current Report on
Form 8-K
filed April 4, 2006, and incorporated herein by reference).
|
10.27
|
|
Letter agreement, dated
April 4, 2006, between International Wire Group, Inc. and
William Lane Pennington (filed as Exhibit 10.6 to the
Companys Current Report on
Form 8-K
filed April 4, 2006, and incorporated herein by reference).*
|
10.28
|
|
International Wire Group, Inc.
2006 Management Stock Option Plan (filed as Exhibit 10.1 to
the Companys Current Report on
Form 8-K
filed May 17, 2006, and incorporated herein by reference).*
|
10.29
|
|
International Wire Group, Inc.
2006 Stock Option Plan for Nonemployee Directors (filed as
Exhibit 10.2 to the Companys Current Report on
Form 8-K
filed May 17, 2006, and incorporated herein by reference).*
|
10.30
|
|
Amendment Number 1 to
International Wire Group, Inc. 2006 Stock Option Plan for
Nonemployee Directors (filed as Exhibit 10.3 to the
Companys Current Report on
Form 8-K
filed May 17, 2006, and incorporated herein by reference).*
|
10.31
|
|
Letter agreement regarding Amended
and Restated Registration Rights Agreement, dated June 14,
2006, among International Wire Group, Inc., GSCP (NJ), Inc.,
Special Value Absolute Return Fund, LLC and Special Value
Opportunities Fund, LLC (filed as Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed June 19, 2006, and incorporated herein by reference).
|
10.32
|
|
Amendment No. 2 Loan and
Security Agreement, dated as of June 28, 2006, by and among
International Wire Group, Inc., its domestic subsidiaries, the
parties to the Loan Agreement as lenders and Wachovia Capital
Finance Corporation (Central), formerly known as Congress
Financial Corporation (Central) (filed as Exhibit 10.1 to
the Companys Current Report on
Form 8-K
filed July 5, 2006, and incorporated herein by reference).
|
10.33
|
|
Amendment No. 2 Loan and
Security Agreement, dated as of June 28, 2006, by and among
International Wire Group, Inc., its domestic subsidiaries, the
parties to the Loan Agreement as lenders and Silver Point
Finance LLC (filed as Exhibit 10.2 to the Companys
Current Report on
Form 8-K
filed July 5, 2006, and incorporated herein by reference).
|
10.34
|
|
Amendment No. 2 to
Intercreditor Agreement, dated as of June 28, 2006, by and
between Wachovia Capital Finance Corporation (Central), formerly
known as Congress Financial Corporation (Central), in its
capacity as agent for the lenders who are party from time to
time and Silver Point Finance LLC, in its capacity as collateral
agent for the lenders who are party from time to time (filed as
Exhibit 10.3 to the Companys Current Report on
Form 8-K
filed July 5, 2006, and incorporated herein by reference).
|
88
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibit Description
|
|
10.35
|
|
Amendment No. 3 to Loan and
Security Agreement, dated as of August 22, 2006, by and
among International Wire Group, Inc., its domestic subsidiaries,
the parties to the Loan Agreement and Security as lenders and
Wachovia Capital Finance Corporation (Central), formerly known
as Congress Financial Corporation (Central) (filed as
Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed August 28, 2006, and incorporated herein by
reference).
|
10.36
|
|
International Wire Group Inc. Key
Management Incentive Plan Summary (filed as Exhibit 10.2 to
the Companys Quarterly Report on
Form 10-Q
filed April 30, 2007, and incorporated herein by
reference).*
|
10.37
|
|
Termination of Intercreditor
Agreement, dated as of August 23, 2006, by and between
Wachovia Capital Finance Corporation (Central), formerly known
as Congress Financial Corporation (Central), in its capacity as
agent for the lenders who are party from time to time, and
Silver Point Finance LLC, in its capacity as collateral agent
for the lenders who are party from time to time (filed as
Exhibit 10.3 to the Companys Quarterly Report on
Form 10-Q
filed April 30, 2007, and incorporated herein by reference).
|
10.38
|
|
Amended Form of Stock Agreement
(filed as Exhibit 10.3 to the Companys Current Report
on
Form 8-K
filed November 14, 2006, and incorporated herein by
reference).*
|
10.39
|
|
Letter agreement, dated
March 26, 2007, between International Wire Group, Inc. and
William Lane Pennington (filed herewith).*
|
21.1
|
|
Subsidiaries of International Wire
Group, Inc. (filed herewith).
|
31.1
|
|
Certification of Principal
Executive Officer Required by
Rule 13a-14(a)
of the Securities Exchange Act of 1934, as amended (filed
herewith).
|
31.2
|
|
Certification of Principal
Financial Officer Required by
Rule 13a-14(a)
of the Securities Exchange Act of 1934, as amended (filed
herewith).
|
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 (filed
herewith).
|
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 (filed
herewith).
|
|
|
|
* |
|
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. |
89
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this annual report on
Form 10-K
for the fiscal year ended December 31, 2006 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
|
90
EXHIBIT INDEX
|
|
|
|
|
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 (filed as
Exhibit T3E-2
to the Companys Application for Qualification of
Trust Indentures on Form T3 filed on July 29,
2004 and incorporated herein by reference).
|
|
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 (filed as Exhibit 2.1 to the Companys
Current Report on
Form 8-K
filed March 7, 2006 and incorporated herein by reference).
|
|
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 (filed as
Exhibit 2.1 to the Companys Current Report on
Form 8-K
filed April 4, 2006 and incorporated herein by reference).
|
|
3
|
.1
|
|
Amended and Restated Certificate
of Incorporation of International Wire Group, Inc. (filed as
Exhibit 3.1 to the Companys Registration Statement
Form S-1
filed November 24, 2004 and incorporated herein by
reference).
|
|
3
|
.2
|
|
Amended and Restated Bylaws of
International Wire Group, Inc. (filed as Exhibit 3.1 to the
Companys Current Report on
Form 8-K
filed February 28, 2007 and incorporated herein by
reference).
|
|
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 (filed as Exhibit 4.1 to the Companys
Registration Statement
Form S-1
filed November 24, 2004 and incorporated herein by
reference).
|
|
4
|
.2
|
|
Form of 10% Secured Senior
Subordinated Note due 2011 (filed as Exhibit A to the
Indenture filed as Exhibit 4.1 to the Companys
Registration Statement
Form S-1
filed November 24, 2004 and incorporated herein by
reference).
|
|
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
(filed as Exhibit 10.1 to the Companys Registration
Statement
Form S-1
filed November 24, 2004 and incorporated herein by
reference).
|
|
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 (filed as
Exhibit 10.2 to the Companys Registration Statement
Form S-1
filed November 24, 2004, and incorporated herein by
reference).
|
|
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
(filed as Exhibit 10.3 to the Companys Registration
Statement
Form S-1
filed November 24, 2004, and incorporated herein by
reference).
|
|
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 (filed as Exhibit 10.4 to
the Companys Registration Statement
Form S-1
filed November 24, 2004, and incorporated herein by
reference).
|
|
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 (filed as Exhibit 10.5 to the Companys
Registration Statement
Form S-1
filed November 24, 2004, and incorporated herein by
reference).
|
|
10
|
.6
|
|
International Wire Group, Inc.
2004 Stock Option Plan (filed as Exhibit 10.6 to the
Companys Registration Statement
Form S-1
filed November 24, 2004, and incorporated herein by
reference).*
|
|
10
|
.7
|
|
Amended and Restated Registration
Rights Agreement, dated as of November 24, 2004, among
International Wire Group, Inc. and the holders specified therein
(filed as Exhibit 10.7 to the Companys Registration
Statement
Form S-1
filed November 24, 2004, and incorporated herein by
reference).
|
91
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibit Description
|
|
|
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 (filed as Exhibit 10.1 to the Companys
Quarterly Report on
Form 10-Q
filed November 14, 2003, and incorporated herein by
reference).*
|
|
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 (filed as Exhibit 10.10 to the
Companys Registration Statement
Form S-1
filed July 21, 2005 and incorporated herein by reference).*
|
|
10
|
.10
|
|
Amended and Restated Employment
Agreement, dated March 14, 1995, between Omega Wire, Inc.
and Rodney D. Kent (filed with the Companys Registration
Statement
Form S-1
filed September 29, 1995, and incorporated herein by
reference).*
|
|
10
|
.11
|
|
Supply Contract, dated
January 1, 2003, between Viasystems, Inc. and International
Wire Group, Inc. (filed as Exhibit 10.2 to the
Companys Quarterly Report on
Form 10-Q
filed November 14, 2003, and incorporated herein by
reference).
|
|
10
|
.12
|
|
First Amendment to Supply
Contract, dated February 1, 2004, between Viasystems, Inc.
and International Wire Group, Inc. (filed as Exhibit 10.13
to the Companys Registration Statement
Form S-1
filed May 10, 2005, and incorporated herein by reference).+
|
|
10
|
.13
|
|
Letter Agreement regarding supply
agreement, dated June 9, 2004, between Viasystems, Inc. and
International Wire Group, Inc. (filed as Exhibit 10.14 to
the Companys Registration Statement
Form S-1
filed May 10, 2005, and incorporated herein by reference).+
|
|
10
|
.14
|
|
International Wire Group, Inc. Key
Employee Retention Plan (filed as Exhibit 10.13 to the
Companys Registration Statement
Form S-1
filed November 24, 2004, and incorporated herein by
reference).*
|
|
10
|
.15
|
|
International Wire Group, Inc.
Insulated Wire Division Retention Plan (filed as
Exhibit 10.16 to the Companys Registration Statement
Form S-1
filed May 10, 2005, and incorporated herein by reference).*
|
|
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 (filed as Exhibit 10.16
to the Companys Registration Statement
Form S-1
filed September 29, 1995, and incorporated herein by
reference).
|
|
10
|
.17
|
|
Consulting Agreement, dated
November 15, 2004, between International Wire Group, Inc.
and Whiterock Affiliates LLC (filed as Exhibit 10.18 to the
Companys Registration Statement
Form S-1
filed May 10, 2005, and incorporated herein by reference).*
|
|
10
|
.18
|
|
Compensation for William Lane
Pennington (filed as Exhibit 10.19 to the Companys
Registration Statement
Form S-1
filed May 10, 2005, and incorporated herein by reference).*
|
|
10
|
.19
|
|
Nonqualified Stock Option
Agreement, dated August 1, 2005, between International Wire
Group, Inc. and William Lane Pennington (filed with the
Companys Registration Statement
Form S-1
filed August 2, 2005, and incorporated herein by
reference).*
|
|
10
|
.20
|
|
Form of Indemnification Agreement
(filed as Exhibit 10.1 to the Companys Quarterly
Report on
Form 10-Q
filed on September 14, 2005, and incorporated herein by
reference).
|
|
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 (filed as Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed December 5, 2005, and incorporated herein by
reference).
|
|
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) (filed as Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed April 4, 2006, and incorporated herein by reference).
|
|
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
(filed as Exhibit 10.2 to the Companys Current Report
on
Form 8-K
filed April 4, 2006, and incorporated herein by reference).
|
92
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibit Description
|
|
|
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 (filed as
Exhibit 10.3 to the Companys Current Report on
Form 8-K
filed April 4, 2006, and incorporated herein by reference).
|
|
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 (filed as Exhibit 10.4 to the
Companys Current Report on
Form 8-K
filed April 4, 2006, and incorporated herein by reference).
|
|
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 (filed as
Exhibit 10.5 to the Companys Current Report on
Form 8-K
filed April 4, 2006, and incorporated herein by reference).
|
|
10
|
.27
|
|
Letter agreement, dated
April 4, 2006, between International Wire Group, Inc. and
William Lane Pennington (filed as Exhibit 10.6 to the
Companys Current Report on
Form 8-K
filed April 4, 2006, and incorporated herein by reference).*
|
|
10
|
.28
|
|
International Wire Group, Inc.
2006 Management Stock Option Plan (filed as Exhibit 10.1 to
the Companys Current Report on
Form 8-K
filed May 17, 2006, and incorporated herein by reference).*
|
|
10
|
.29
|
|
International Wire Group, Inc.
2006 Stock Option Plan for Nonemployee Directors (filed as
Exhibit 10.2 to the Companys Current Report on
Form 8-K
filed May 17, 2006, and incorporated herein by reference).*
|
|
10
|
.30
|
|
Amendment Number 1 to
International Wire Group, Inc. 2006 Stock Option Plan for
Nonemployee Directors (filed as Exhibit 10.3 to the
Companys Current Report on
Form 8-K
filed May 17, 2006, and incorporated herein by reference).*
|
|
10
|
.31
|
|
Letter agreement regarding Amended
and Restated Registration Rights Agreement, dated June 14,
2006, among International Wire Group, Inc., GSCP (NJ), Inc.,
Special Value Absolute Return Fund, LLC and Special Value
Opportunities Fund, LLC (filed as Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed June 19, 2006, and incorporated herein by reference).
|
|
10
|
.32
|
|
Amendment No. 2 Loan and
Security Agreement, dated as of June 28, 2006, by and among
International Wire Group, Inc., its domestic subsidiaries, the
parties to the Loan Agreement as lenders and Wachovia Capital
Finance Corporation (Central), formerly known as Congress
Financial Corporation (Central) (filed as Exhibit 10.1 to
the Companys Current Report on
Form 8-K
filed July 5, 2006, and incorporated herein by reference).
|
|
10
|
.33
|
|
Amendment No. 2 Loan and
Security Agreement, dated as of June 28, 2006, by and among
International Wire Group, Inc., its domestic subsidiaries, the
parties to the Loan Agreement as lenders and Silver Point
Finance LLC (filed as Exhibit 10.2 to the Companys
Current Report on
Form 8-K
filed July 5, 2006, and incorporated herein by reference).
|
|
10
|
.34
|
|
Amendment No. 2 to
Intercreditor Agreement, dated as of June 28, 2006, by and
between Wachovia Capital Finance Corporation (Central), formerly
known as Congress Financial Corporation (Central), in its
capacity as agent for the lenders who are party from time to
time and Silver Point Finance LLC, in its capacity as collateral
agent for the lenders who are party from time to time (filed as
Exhibit 10.3 to the Companys Current Report on
Form 8-K
filed July 5, 2006, and incorporated herein by reference).
|
|
10
|
.35
|
|
Amendment No. 3 to Loan and
Security Agreement, dated as of August 22, 2006, by and
among International Wire Group, Inc., its domestic subsidiaries,
the parties to the Loan Agreement and Security as lenders and
Wachovia Capital Finance Corporation (Central), formerly known
as Congress Financial Corporation (Central) (filed as
Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed August 28, 2006, and incorporated herein by
reference).
|
|
10
|
.36
|
|
International Wire Group Inc. Key
Management Incentive Plan Summary (filed as Exhibit 10.2 to
the Companys Quarterly Report on
Form 10-Q
filed April 30, 2007, and incorporated herein by
reference).*
|
|
10
|
.37
|
|
Termination of Intercreditor
Agreement, dated as of August 23, 2006, by and between
Wachovia Capital Finance Corporation (Central), formerly known
as Congress Financial Corporation (Central), in its capacity as
agent for the lenders who are party from time to time, and
Silver Point Finance LLC, in its capacity as collateral agent
for the lenders who are party from time to time (filed as
Exhibit 10.3 to the Companys Quarterly Report on
Form 10-Q
filed April 30, 2007, and incorporated herein by
reference).
|
93
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibit Description
|
|
|
10
|
.38
|
|
Amended Form of Stock Agreement
(filed as Exhibit 10.3 to the Companys Current Report
on
Form 8-K
filed November 14, 2006, and incorporated herein by
reference).*
|
|
10
|
.39
|
|
Letter agreement, dated
March 26, 2007, between International Wire Group, Inc. and
William Lane Pennington (filed herewith).*
|
|
21
|
.1
|
|
Subsidiaries of International Wire
Group, Inc. (filed herewith).
|
|
31
|
.1
|
|
Certification of Principal
Executive Officer Required by
Rule 13a-14(a)
of the Securities Exchange Act of 1934, as amended (filed
herewith).
|
|
31
|
.2
|
|
Certification of Principal
Financial Officer Required by
Rule 13a-14(a)
of the Securities Exchange Act of 1934, as amended (filed
herewith).
|
|
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 (filed
herewith).
|
|
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 (filed
herewith).
|
|
|
|
* |
|
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. |
94