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, 2007
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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
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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12 Masonic Ave.
Camden, NY
(Address of principal
executive offices)
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13316
(Zip Code)
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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, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting
company)
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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, 2007, the aggregate market value of the
registrants common stock held by non-affiliates of the
registrant was $83,672,780 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 February 29, 2008
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Common Stock, $0.01 par value per share
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9,923,002 shares
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DOCUMENTS
INCORPORATED BY REFERENCE
The definitive proxy statement relating to the registrants
2008 annual meeting of stockholders is incorporated by reference
in Part III.
CAUTIONARY
STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS
International Wire Group, Inc. and its subsidiaries (which we
refer to as we, us, our or
other variations thereof or comparable terminology) makes
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,
except as required by Federal Securities laws. 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, distributors 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 15 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, electronics
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. These products are used by a variety of customers in
the commercial and military aerospace and defense, electronics
and data communication, industrial and automotive and medical
electronics and device markets.
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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
Through the sales to Copperfield, LLC (Copperfield)
in 2005 and Draka Holdings N.V. (Draka) in 2006, the
Company exited from its Insulated Wire business. Accordingly,
the entire Insulated Wire business has been presented as a
discontinued operation in the accompanying consolidated
statements of operations.
Acquisitions
and Other
On March 4, 2006, we entered into a Stock Purchase
Agreement (Purchase Agreement) to acquire HPC from
Phelps Dodge Corporation (PD). 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, there was a contingency payment capped at
$3.0 million based on performance, and in May 2007, the
$3.0 million payment was made. 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.
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. The City of
Sherrill, New York provides favorable hydroelectric power rates
which should result in lower production costs. Production at
this facility began in the fourth quarter 2007.
In late 2007, the Company completed an expansion of its braided
wire facility located in Cazenovia, New York. The facility was
expanded from 54,000 square feet to 74,000 square feet
with related capital expenditures of approximately
$1.2 million. The expanded space became operational in the
fourth quarter of 2007.
Additionally, on January 2, 2008, the Company announced
that it acquired the assets and operations of Hamilton Products,
Inc. and the related real estate owned by JPS Holdings, LLC
(collectively Hamilton Products). Hamilton Products
was formed in 1994 and is a manufacturer and marketer of copper
braided wire products serving the aerospace and industrial
markets. Under the asset purchase agreement, the Company
purchased the assets, operations and certain liabilities for
$9.3 million in cash, subject to a working capital
adjustment. Hamilton Products manufacturing facility is
located in Sherburne, New York.
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. 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. 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 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.
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In fiscal 2006, the Company temporarily idled one of its
facilities in Texas due to a decrease in sales demand in that
region. The property was sold on August 2, 2007 for
$2.4 million. A net gain on the sale of $0.4 million
was recorded in the third quarter of fiscal 2007.
In the second quarter of 2007, the Company did not renew the
lease for its distribution center in La Mirada, California
but continues to serve that market with direct customer
shipments.
Products
and Markets
At December 31, 2007, the Company had three reportable
segments: 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 15 to our consolidated financial
statements for segment reporting. The following is a description
of our primary products and markets served:
Bare
Wire Segment (74% of 2007 Consolidated Net Sales)
Our external sales of bare wire products are primarily to wire
insulators, who apply insulating materials to the bare wire
through an extrusion process. These wire insulators are located
primarily in the United States, Canada and Mexico and sell their
insulated wire to a variety of customers in the following
markets:
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appliance (approximately 10% of total 2007 Bare Wire net sales);
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automotive (approximately 22% of total 2007 Bare Wire net sales);
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electronics and data communications (approximately 27% of total
2007 Bare Wire net sales) including broadcast/video cables,
audio/microphone/sound for entertainment, medical, safety and
security control, local area network (LAN) and
computer systems; and
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industrial/energy (approximately 41% of total 2007 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, utility power distribution
applications, wind turbine, oil and water well, transformers and
fuse links, welding cable and irrigation.
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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 and automobile 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 (9% of 2007
Consolidated Net Sales)
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 40% of total 2007
Engineered Wire Products Europe net sales);
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power supply (approximately 29% of total 2007 Engineered Wire
Products Europe net sales);
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aircraft and railway (approximately 12% of total 2007 Engineered
Wire Products Europe net sales); and
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automotive (approximately 19% of total 2007 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.
High
Performance Conductors Segment (17% of 2007 Consolidated Net
Sales)
Our High Performance Conductors segment, which resulted from the
Companys acquisition described in Note 3 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 distributors
and 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 which are
sold under our MinVasive brand. HPCs products
are used by a variety of customers in the following markets:
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commercial and military aerospace and defense (approximately 46%
of total 2007 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 total
2007 High Performance Conductors net sales) including consumer
electronics, test equipment, data and voice communication;
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industrial and automotive (approximately 19% of total 2007 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 14% of total 2007
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,
distributors and OEMs who then sell to a diverse array of
end users. For the year ended December 31, 2007, we had
significant sales to General Cable Corporation and AFL
Automotive, LP, which represented 12% and 10% of our
consolidated net sales, respectively.
International
Operations
We currently have operations in Belgium, France and Italy. For
the years ended December 31, 2007, 2006 and 2005,
approximately 10%, 9% and 9% of our consolidated net sales
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 15 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.
Raw
Materials
The principal raw material used in our products is 5/16 inch
copper rod, which is sourced either directly from world copper
producers or through rod mill operators in North America and
Europe. 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. 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 therefore
prices. 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.
Tin is also a component in our products in the Bare Wire and HPC
segments. The HPC segment also uses silver and nickel. The cost
of silver, nickel and tin is generally passed-through to our
customers through a variety of pricing mechanisms. Our price of
silver includes a margin and consequently market fluctuations in
the price of silver can result in an increase or decrease in
profitability at a given volume.
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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. Generally,
we do not have long-term purchase agreements with our suppliers.
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, 2007, we had nine facilities dedicated
to the production and distribution of bare wire products in the
United States. Seven of these facilities are located in New
York, one in Indiana and one in Texas. The manufacturing of bare
wire consists of one or more of the following four processes:
wire drawing, plating, bunching and stranding and cabling.
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Wire Drawing Process. Wire drawing is a
multi-step process in which raw copper material, primarily
5/16-inch
copper rod, is drawn through a series of dies of decreasing
diameter.
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Plating Process. After being drawn, our wire
products may be plated through an electroplating process. We
have the capability to plate copper wire with tin. Approximately
28% of our bare wire products are plated with tin. The plating
process prevents the bare copper from oxidizing and also allows
the wire to be soldered, which is an important quality in many
electrical applications.
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Bunching and Stranding Process. Bunching and
stranding is the process of twisting together single strand
wires to form a construction ranging from seven to over 200
strands. If the wire is bunched, the individual strands of wire
are twisted together in a random pattern. Stranded wire is
composed of a number of single end wires twisted together in a
specific geometric pattern where each strands relative
position is maintained throughout the length of the wire.
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Cabling Process. Cabling is the process of
twisting bunched wire to form a construction ranging from 49 to
47,000 strands.
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Engineered
Wire Products Europe
As of December 31, 2007, 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 device
products in the United States, one located in South Carolina and
one located in Georgia. In addition, there is a
sales/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, and we sell to
them to meet needs in excess of their internal production
capacity.
Backlog
Due to the manner in which we process orders, we have no
significant order backlog. We follow the industry practice of
producing our products on an ongoing basis to meet customer
demand without significant delay. Management believes the
ability to supply orders in a timely fashion is a competitive
factor in our market, and therefore, attempts to minimize order
backlog to the extent practicable.
Patents
and Trademarks
We have one patent and a number of 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, 2007, we employed approximately 1,550
full time employees. We believe that we have a good relationship
with our employees. None of our employees are represented by a
labor union.
Seasonality
We do not believe that our business is subject to significant
seasonal fluctuations.
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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. We have been, and may be in the future, identified as
potentially responsible parties with respect to several sites
designated for cleanup under CERCLA or similar state laws, which
impose liability for cleanup of certain waste sites and for
related natural resource damages without regard to fault or the
legality of waste generation or disposal. Persons liable for
such costs and damages generally include the site owner or
operator and persons that disposed or arranged for the disposal
of hazardous substances found at those sites. Although CERCLA
imposes joint and several liability on all potentially
responsible parties, in application, the potentially responsible
parties typically allocate the investigation and cleanup costs
based upon, among other things, the volume of waste contributed
by each potentially responsible party. Also, 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, 2007.
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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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60
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Director and Chief Executive Officer
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Glenn J. Holler
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60
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Senior Vice President, Chief Financial Officer and Secretary
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Donald F. DeKay
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53
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Vice President Finance
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Chrysant E. Makarushka
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67
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Vice President Purchasing and Logistics
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Martin G. Dew
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45
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President of IWG High Performance Conductors, Inc.
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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.
9
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.
Available
Information
We file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange
Commission (SEC). These reports, proxy statements and other
information contain additional information about us. You may
read and copy these materials at the SECs Public Reference
Room at 100 F Street, N.E., Washington, D.C.
20549. Please call the SEC at
1-800-SEC-0330
for more information about the operation of the Public Reference
Room. The SEC also maintains a web site that contains reports,
proxy and information statements, and other information about
issuers who file electronically with the SEC. The Internet
address of the site is
http://www.sec.gov.
We maintain an Internet website at www.iwg.com where our Annual
Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and all amendments to those reports are available without
charge, as soon as reasonably practicable following the time
they are filed with or furnished to the SEC.
We will provide upon written request and without charge a
printed copy of our Annual Report on
Form 10-K.
To obtain such a copy, please write to Secretary, International
Wire Group, Inc., 12 Masonic Avenue, Camden, New York 13316.
Risks
Related to Our Financial Position
We
have experienced losses in prior fiscal years and may not be
able to maintain our current profitability.
For the years ended December 31, 2007 and December 31,
2006, we had net income of $15.9 million and
$10.0 million but incurred net losses of
$10.8 million, $2.3 million and $46.7 million for
the three fiscal years ended December 31, 2005, 2004 (pro
forma), and 2003, respectively. We cannot assure you that we
will maintain 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.
10
Our
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, 2007 was
$93.1 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 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, acquisitions and other general corporate purposes;
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increase the amount of interest expense that we have to pay,
because certain of our borrowings are at variable rates of
interest, which, if interest rates increase, could result in
higher interest expense;
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increase our vulnerability to adverse general economic or
industry conditions;
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limit our flexibility in planning for, or reacting to, changes
in our business or the industry in which we operate; or
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place us at a competitive disadvantage compared to our
competitors that have less debt.
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See Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources.
We may
not have the ability to repurchase our Notes upon a change of
control as required by the indenture governing our
Notes.
Upon the occurrence of specific kinds of change of control
events, we will be required to offer to repurchase all of our
outstanding 10 percent Secured Senior Subordinated
Notes due 2011 (Notes) at 101% of the principal
amount plus accrued and unpaid interest to the date of
repurchase. Our existing credit facility limits the amount of
Notes that can be purchased in any year. In addition, our
ability to repurchase our Notes in cash may be limited by law or
the terms of other agreements relating to our debt outstanding
at the time. If we fail to repurchase any of our Notes submitted
in a change of control offer, it would constitute an event of
default under the indenture, which could, in turn, constitute an
event of default under our other debt instruments, even if the
change of control itself would not cause a default. This could
result in the acceleration of our payment obligations under all
of our debt instruments and, if we are unable to meet those
payment obligations, this could have an adverse material effect
on our business, financial condition and results of operations.
Risks
Related to Our Business
The
price of copper, the principal raw material used in our
products, as well as silver, nickel, and tin, which are also
used in our products, are 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 5/16 inch
copper rod, which is sourced either directly from world copper
producers or through rod mill operators in North America and
Europe. 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 and 2007, the average price of
copper increased by 84% and 4% over the average price for the
year 2005 and 2006, respectively. 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. Additionally, there can be no assurance that we
will continue to be able to pass-through the costs of copper and
other raw materials.
11
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 or
seek to purchase substitute products.
Changes
in revenue may not correlate with changes in our business,
because the changes in revenue may be caused by changes in the
price of copper and other raw materials or the proportion of
tolled copper.
We include the cost of copper and other raw materials in both
net sales and costs of good sold even though we have price
pass-through arrangements with our customers for copper and
certain other raw materials. This may result in our net sales
not correlating with changes in our business. For example, our
2007 net sales decreased by $18.1 million compared to
2006, but if copper prices had been the same as 2006, our net
sales would have decreased by $53.5 million assuming
nothing else in 2007 would have changed. Additionally, our
2006 net sales increased by $324.2 million compared to
2005, but if copper prices had been the same as 2005, our net
sales would have increased by $103.1 million assuming
nothing else in 2006 would have changed.
A portion of our revenue is derived from processing
customer-owned (tolled) copper, which means that our
customer supplies us the copper (instead of us buying the
copper). Unlike the remainder of our sales that are from
non-customer owned copper (owned 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. This may result in our
net sales not correlating with changes in our business. For
example, our 2007 net sales decreased by $18.1 million
compared to 2006, but if the proportion of tolled copper had
remained the same as 2006, our net sales would have increased by
$78.2 million assuming nothing else in 2007 would have
changed. Additionally, our 2006 net sales increased by
$324.2 million compared to 2005, but if the proportion of
tolled copper had remained the same as 2006, our net sales would
have increased by $328.0 million assuming nothing else in
2005 would have changed.
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.
The principal raw material used in our products is 5/16 inch
copper rod, which is sourced either directly from world copper
producers or through rod mill operators in North America and
Europe. 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 is purchased from four
major suppliers. Generally, we do not have long-term purchase
agreements with our suppliers. If we are unable to maintain good
relations with our suppliers or if there are any business
interruptions at our suppliers for any reason, including,
without limitation, natural catastrophes, their business
failure, financial difficulties, strikes or an inability to
obtain raw materials, 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 manufacture
in-house the products we offer and can also sell products that
compete with us. 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
12
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.
We
have risks associated with inventory.
Our business requires us to maintain substantial levels of
inventory. We must identify the right mix and quantity of
products to keep in our inventory to meet customer orders.
Failure to do so could adversely affect our sales and earnings.
If our inventory levels are too high, we are at risk that an
unexpected change in circumstances, such as a shift in market
demand, drop in prices, or default or loss of a customer, could
have an unfavorable impact on the net realizable value of our
inventory.
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. 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. Furthermore, an increase in imports of products
competitive with our products could adversely affect our sales.
Our
inability to continue to achieve productivity improvements may
adversely affect profitability.
We have experienced pricing pressures over the past few years
and expect pricing pressure to continue for the foreseeable
future. A component of our business strategy is to increase our
profitability by lowering costs through improving our processes
and productivity. In the event we are unable to continue to
implement measures improving our manufacturing techniques and
processes, we may not achieve desired efficiency or productivity
levels and our profitability may decline. In addition,
productivity increases are related in part to factory
utilization rates.
Growth
through acquisitions is a significant part of our strategy and
we may not be able to successfully identify, finance or
integrate acquisitions in order to grow our
business.
Growth through acquisitions has been, and we expect it to
continue to be, a significant part of our strategy. 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. Any of
these transactions could be material to our financial condition
and results of operations. We may not be successful in
identifying, financing and closing acquisitions on favorable
terms. Potential acquisitions may require us to obtain
additional financing or issue additional equity securities or
securities convertible into equity securities, and any such
financing and issuance of equity may not be available on terms
acceptable to us or at all. If we finance acquisitions by
issuing equity securities or securities convertible into equity
securities, our existing
13
shareholders could be diluted, which, in turn, could adversely
affect the market price of our stock. If we finance an
acquisition with debt, it could result in higher leverage and
interest costs.
Our
acquisition and expansion plans may fail to perform as
expected.
The process of integrating our acquisitions or expanding our
business may create unforeseen operating difficulties and
expenditures and is risky. We may not be able to realize the
benefits expected from such acquisitions. 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. Integration
may pose risks with respect to production, customer service and
market share of existing operations.
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The property or asset may fail to meet our estimate of
profitability, either temporarily or for a longer time. We may
fail to achieve potential revenue enhancements and potential
cost savings.
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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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We may acquire businesses that are subject to technological or
competitive risks.
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We may incur future goodwill impairment charges with respect to
the acquired assets.
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The
loss of a significant customer could significantly reduce our
sales and impact our long-lived assets as well.
General Cable Corporation and AFL Automotive, LP represented 12%
and 10% of our consolidated net sales for the year ended
December 31, 2007, 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. The loss of our key employees who have
intimate knowledge of our manufacturing process could lead to
increased competition to the extent that those employees are
hired by a competitor and are able to recreate our manufacturing
process. 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 10% of our net sales for the year ended
December 31, 2007 were attributable to production
facilities located outside of the United States. Because we have
broad geographic coverage, we
14
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 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.
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 16 to our consolidated financial
statements.
We
might have difficulty protecting our intellectual property from
use by competitors, or competitors might accuse us of violating
their intellectual property rights.
Disagreements about patents and intellectual property rights
occur in our industry. Sometimes these disagreements are settled
through an agreement for one party to pay royalties to another.
The unfavorable resolution of an intellectual property dispute
could preclude us from manufacturing and selling certain
products, could require us to pay a royalty on the sale of
certain products, or could impair our competitive advantage if a
competitor wins the right to sell products we believe we
invented. Intellectual property disputes could result in legal
fees and other costs.
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
15
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.
Changes
in industry standards and regulatory requirements may adversely
affect our business.
As a manufacturer of wire products, we are subject to a number
of industry standard setting authorities. In addition, some of
our products and our customers products are subject to the
requirements of federal, state, local or foreign regulatory
authorities. Changes in the standards and requirements imposed
by such authorities could have an adverse effect on us. In the
event that we are unable to meet any such standards when
adopted, our business could be adversely affected. In addition,
changes in the legislative environment could affect the growth
and other aspects of important markets served by us.
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
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.
16
Our
principal stockholders could exercise their influence over us to
your detriment.
Substantially all of our company is owned by a few shareholders.
The interests of those shareholders may differ from your
interests, and, as such, they may take actions which may not be
in your interest because, among other reasons, they may hold a
significant portion of our Notes.
We
cannot assure our stockholders that our stock repurchase program
will result in a positive return of capital to our stockholders
and stock repurchases could increase the volatility of the price
of our common stock.
On September 4, 2007, the Company announced that its Board
of Directors approved a stock repurchase program whereby the
Company was authorized to repurchase $3.7 million of its
common stock through open market or privately negotiated
transactions from time to time. The share repurchase program may
be increased in the future or suspended or terminated at any
time. The funding for the stock repurchases will be from the
Companys operating cash flow
and/or
borrowings under its Revolver Credit Facility.
Any repurchases pursuant to our stock repurchase program could
affect our stock price and add volatility. There can be no
assurance that the repurchases will be made at the best possible
price. The existence of a stock repurchase program could also
cause our stock price to be higher than it would be in the
absence of such a program and could potentially reduce the
market liquidity for our stock.
There can be no assurance that stock repurchases will create
value for stockholders because the market price of the stock may
decline significantly below the levels at which we repurchased
shares of stock. Our stock purchase program is intended to
deliver stockholder value over the long-term, but short-term
stock price fluctuations can reduce the programs
effectiveness.
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.
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Item 1B.
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Unresolved
Staff Comments.
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None.
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.
17
Listed below are the principal manufacturing and distribution
facilities we operated as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Square
|
|
|
Owned/
|
|
|
|
Location
|
|
Feet
|
|
|
Leased
|
|
|
Primary Products/End Use
|
|
BARE WIRE SEGMENT
|
|
|
|
|
|
|
|
|
|
|
Camden, New York
|
|
|
408,000
|
|
|
|
Owned
|
|
|
Single end, bunched, stranded, cabled and electroplated wire
|
Williamstown, New York
|
|
|
183,000
|
|
|
|
Owned
|
|
|
Single end, bunched, stranded and cabled wire
|
Camden, New York
|
|
|
159,000
|
|
|
|
Leased
|
(1)
|
|
Single end, bunched, stranded and cabled wire
|
Bremen, Indiana
|
|
|
153,000
|
|
|
|
Owned
|
|
|
Bunched wire
|
Jordan, New York
|
|
|
117,000
|
|
|
|
Leased
|
(1)
|
|
Single end, bunched, stranded, shielding and cabled wire
|
Rome, New York
|
|
|
107,000
|
|
|
|
Owned
|
|
|
Bunched, stranded, cabled and electroplated wire
|
El Paso, Texas
|
|
|
100,000
|
|
|
|
Owned
|
|
|
Bunched wire
|
Sherrill, New York
|
|
|
80,000
|
|
|
|
Owned
|
|
|
Single end, bunched, stranded, cabled and electroplated wire
|
Cazenovia, New York
|
|
|
74,000
|
|
|
|
Owned
|
|
|
Braided wire
|
ENGINEERED WIRE PRODUCTS EUROPE SEGMENT
|
|
|
|
|
|
|
|
|
|
|
Saint-Chamond, France
|
|
|
60,000
|
|
|
|
Owned
|
|
|
Specialty braids, rope and cable products
|
Saint-Chamond, France
|
|
|
30,000
|
|
|
|
Owned
|
|
|
Specialty braids, rope and cable products
|
Vinovo, Italy
|
|
|
25,000
|
|
|
|
Owned
|
|
|
Braided wire
|
HIGH PERFORMANCE CONDUCTORS SEGMENT
|
|
|
|
|
|
|
|
|
|
|
Inman, South Carolina
|
|
|
315,000
|
|
|
|
Owned
|
|
|
Silver, nickel and tin plated continuous cast copper rod and
oxygen free wire
|
Trenton, Georgia
|
|
|
100,000
|
|
|
|
Owned
|
|
|
Ultra fine wire for tubing and wire components
|
Purrs, Belgium
|
|
|
7,600
|
|
|
|
Leased
|
(2)
|
|
Distribution
|
|
|
|
(1) |
|
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. On February 5,
2008, we exercised our option to purchase these properties. |
|
(2) |
|
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.
|
|
Item 3.
|
Legal
Proceedings.
|
We are party to numerous lawsuits and have product liability
claims made against us involving water inlet hoses previously
assembled and supplied by one of our former subsidiaries to
various OEMs and other
18
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. 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 a majority of
the domestic homeowner insurance market.
For the lawsuits and claims prior to April 1, 2002 relating
to washing machine water inlet hoses, we had product liability
coverage is in excess of the insured claims. For the lawsuits
and claims relating to the period on or after April 1, 2002
relating to washing machine water inlet hoses, we have no
insurance coverage. As of December 31, 2007, there were 519
uninsured claims with a value of alleged damages of
$2.8 million. Given that the minimum age of the product is
11 years old (with the majority of the product more than
15 years old), the continual decline in the number of new
claims filed against us and our historical settlement rates for
these claims, we had a reserve of $1.0 million recorded as
of December 31, 2007 related to the uninsured claims. 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 16 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.
19
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 2007 and 2006.
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
|
|
|
2007
|
|
|
|
|
|
|
|
|
Fourth quarter
|
|
$
|
22.50
|
|
|
$
|
20.00
|
|
Third quarter
|
|
|
28.00
|
|
|
|
17.00
|
|
Second quarter
|
|
|
25.04
|
|
|
|
21.00
|
|
First quarter
|
|
|
18.45
|
|
|
|
18.25
|
|
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
|
|
As of March 7, 2008, 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.
Issuer
Purchases of Equity Securities
The following is a summary of our share repurchase activity for
the quarter ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Approximate Dollar Value
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
of Shares that May Yet Be
|
|
|
|
Total Number of
|
|
|
Average Price
|
|
|
Part of Publicly
|
|
|
Purchased Under the
|
|
Period
|
|
Shares Purchased(1)
|
|
|
Paid per Share
|
|
|
Announced Plan(2)
|
|
|
Plans or Programs(2)
|
|
|
October 1, 2007 to October 31, 2007
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
1,975,480
|
|
November 1, 2007 to November 30, 2007
|
|
|
10,000
|
|
|
$
|
21.03
|
|
|
|
10,000
|
|
|
$
|
1,765,180
|
|
December 1, 2007 to December 31, 2007
|
|
|
50,000
|
|
|
$
|
22.03
|
|
|
|
50,000
|
|
|
$
|
663,680
|
|
|
|
|
(1) |
|
Share repurchases under the program were made pursuant to
open-market purchases. |
|
(2) |
|
On September 4, 2007, we publicly announced a
$3.7 million stock repurchase program. The program may be
terminated at any time without prior notice. |
20
Performance
Graph
The chart below shows the cumulative total stockholder return
assuming the investment of $100 from October 20, 2004 to
December 31, 2007 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
|
|
|
12/31/07
|
ITWG
|
|
|
|
100.0
|
|
|
|
|
104.6
|
|
|
|
|
62.3
|
|
|
|
|
113.7
|
|
|
|
|
148.3
|
|
S&P 500
|
|
|
|
100.0
|
|
|
|
|
101.8
|
|
|
|
|
104.9
|
|
|
|
|
119.2
|
|
|
|
|
123.4
|
|
Peer Group
|
|
|
|
100.0
|
|
|
|
|
103.5
|
|
|
|
|
122.7
|
|
|
|
|
281.4
|
|
|
|
|
308.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes securities authorized for
issuance under our equity compensation plans as of
December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
1,114,400
|
|
|
$
|
15.53
|
|
|
|
445,600
|
|
Equity compensation plans not approved by security holders(1)
|
|
|
10,000
|
|
|
$
|
11.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,124,400
|
|
|
$
|
15.49
|
|
|
|
445,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
(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.
During 2007, he exercised options to purchase
15,000 shares. The remaining options to purchase
10,000 shares expire 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.
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
|
|
|
Year Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 19,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
2004
|
|
|
2003
|
|
Consolidated Statements of Operations Data (in thousands,
except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
730,805
|
|
|
$
|
748,925
|
|
|
$
|
424,729
|
|
|
$
|
68,339
|
|
|
|
$
|
271,300
|
|
|
$
|
216,548
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of goods sold, exclusive of depreciation expense and
amortization shown below
|
|
|
636,262
|
|
|
|
661,182
|
|
|
|
363,878
|
|
|
|
57,983
|
|
|
|
|
220,087
|
|
|
|
160,259
|
|
Selling, general and administrative expenses(1)
|
|
|
44,537
|
|
|
|
44,883
|
|
|
|
31,508
|
|
|
|
6,006
|
|
|
|
|
21,027
|
|
|
|
24,093
|
|
Depreciation
|
|
|
13,693
|
|
|
|
10,838
|
|
|
|
8,063
|
|
|
|
2,067
|
|
|
|
|
8,917
|
|
|
|
11,364
|
|
Amortization
|
|
|
3,007
|
|
|
|
3,164
|
|
|
|
3,169
|
|
|
|
712
|
|
|
|
|
1,288
|
|
|
|
2,016
|
|
Plant closing charges(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,632
|
|
|
|
|
262
|
|
|
|
1,188
|
|
Reorganization expenses(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,062
|
|
|
|
2,172
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,973
|
|
(Gain)/loss on sale of property, plant and equipment
|
|
|
(449
|
)
|
|
|
24
|
|
|
|
(721
|
)
|
|
|
(10
|
)
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss)
|
|
|
33,755
|
|
|
|
28,834
|
|
|
|
18,832
|
|
|
|
(51
|
)
|
|
|
|
16,758
|
|
|
|
12,483
|
|
Bankruptcy reorganization items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankruptcy reorganization expenses(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,710
|
)
|
|
|
|
|
Gain from debt forgiveness(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259,252
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
|
Predecessor Company
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
For the Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 20
|
|
|
|
January 1
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 19,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
2004
|
|
|
2003
|
|
Other income/(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (excluding interest of $20,959 on liabilities
subject to compromise at October 19, 2004)
|
|
|
(9,919
|
)
|
|
|
(13,491
|
)
|
|
|
(11,455
|
)
|
|
|
(2,280
|
)
|
|
|
|
(12,088
|
)
|
|
|
(34,222
|
)
|
Amortization of deferred financing costs
|
|
|
(634
|
)
|
|
|
(1,151
|
)
|
|
|
(646
|
)
|
|
|
(127
|
)
|
|
|
|
(6,813
|
)
|
|
|
(4,873
|
)
|
Other, net
|
|
|
(43
|
)
|
|
|
96
|
|
|
|
20
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations before income tax
provision/(benefit)
|
|
|
23,159
|
|
|
|
14,288
|
|
|
|
6,751
|
|
|
|
(2,392
|
)
|
|
|
|
244,399
|
|
|
|
(26,612
|
)
|
Income tax provision/(benefit)
|
|
|
7,954
|
|
|
|
4,401
|
|
|
|
(179
|
)
|
|
|
|
|
|
|
|
335
|
|
|
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations
|
|
|
15,205
|
|
|
|
9,887
|
|
|
|
6,930
|
|
|
|
(2,392
|
)
|
|
|
|
244,064
|
|
|
|
(26,848
|
)
|
Income/(loss) from discontinued operations, net of income taxes
of ($749), ($137), ($2,407), ($34), $331 and $55, respectively
|
|
|
656
|
|
|
|
121
|
|
|
|
(17,749
|
)
|
|
|
(8,370
|
)
|
|
|
|
(6,756
|
)
|
|
|
(19,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
15,861
|
|
|
$
|
10,008
|
|
|
$
|
(10,819
|
)
|
|
$
|
(10,762
|
)
|
|
|
$
|
237,308
|
|
|
$
|
(46,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
1.52
|
|
|
$
|
0.99
|
|
|
$
|
0.69
|
|
|
$
|
(0.24
|
)
|
|
|
$
|
244,064
|
|
|
$
|
(26,848
|
)
|
Income/(loss) from discontinued operations
|
|
|
0.07
|
|
|
|
0.01
|
|
|
|
(1.77
|
)
|
|
|
(0.84
|
)
|
|
|
|
(6,756
|
)
|
|
|
(19,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) per basic share
|
|
$
|
1.59
|
|
|
$
|
1.00
|
|
|
$
|
(1.08
|
)
|
|
$
|
(1.08
|
)
|
|
|
$
|
237,308
|
|
|
$
|
(46,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations
|
|
$
|
1.49
|
|
|
$
|
0.99
|
|
|
$
|
0.69
|
|
|
$
|
(0.24
|
)
|
|
|
$
|
244,064
|
|
|
$
|
(26,848
|
)
|
Income/(loss) from discontinued operations
|
|
|
0.06
|
|
|
|
0.01
|
|
|
|
(1.77
|
)
|
|
|
(0.84
|
)
|
|
|
|
(6,756
|
)
|
|
|
(19,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) per diluted share
|
|
$
|
1.55
|
|
|
$
|
1.00
|
|
|
$
|
(1.08
|
)
|
|
$
|
(1.08
|
)
|
|
|
$
|
237,308
|
|
|
$
|
(46,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
|
Predecessor
|
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
|
As of
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
2003
|
|
Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,991
|
|
|
$
|
3,315
|
|
|
$
|
5,422
|
|
|
$
|
15,192
|
|
|
|
$
|
25,981
|
|
Working capital
|
|
|
107,004
|
|
|
|
110,198
|
|
|
|
123,540
|
|
|
|
122,503
|
|
|
|
|
(298,649
|
)
|
Total assets
|
|
|
369,137
|
|
|
|
375,565
|
|
|
|
368,686
|
|
|
|
394,207
|
|
|
|
|
392,335
|
|
Total debt
|
|
|
93,148
|
|
|
|
113,555
|
|
|
|
135,416
|
|
|
|
166,649
|
|
|
|
|
397,135
|
|
Total stockholders equity/(deficit)
|
|
|
186,852
|
|
|
|
171,257
|
|
|
|
152,813
|
|
|
|
166,381
|
|
|
|
|
(88,628
|
)
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
|
Predecessor Company
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
For the Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 20
|
|
|
|
January 1
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 19,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
2004
|
|
|
2003
|
|
Other Financial Data(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
16,700
|
|
|
$
|
15,179
|
|
|
$
|
15,144
|
|
|
$
|
3,594
|
|
|
|
$
|
18,786
|
|
|
$
|
25,138
|
|
Capital expenditures
|
|
|
18,371
|
|
|
|
11,879
|
|
|
|
6,973
|
|
|
|
2,088
|
|
|
|
|
7,775
|
|
|
|
13,970
|
|
|
|
|
(a) |
|
Information based on total cash flows. |
|
(1) |
|
Includes stock-based compensation expense under
SFAS No. 123(R) in the amount of $2,770 for the year
ended December 31, 2007 and $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. |
|
(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. |
|
|
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.
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, distributors 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 15 facilities located in the
United States, Belgium, France and Italy. For the period year
ended December 31, 2007, 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, electronics
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.
|
24
|
|
|
|
|
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. These products are used by a variety of customers in
the commercial and military aerospace and defense, electronics
and data communication, industrial and automotive and medical
electronics and device markets.
|
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, 2007, automotive industry
production volumes decreased 3.0% compared to the same period
for 2006. In addition, major OEMs have announced first and
second quarter 2008 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 2007 increased by 30% and 12%,
respectively, from 2006. Demand for medical devices was also
strong in 2007 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 so that we can continue to provide our
customers with the array of products and features they demand.
Finally, we have located our production facilities near many of
our customers manufacturing facilities which allows us to
meet our customers delivery demands, including assisting
with inventory management for
just-in-time
production techniques.
A portion of our 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. The main factor that causes fluctuations in
the proportion of tolled copper from one period to the next is
the decision by our customers on a sales order by sales order
basis whether to use their copper or purchase our owned copper.
We have some customers who only use their own tolled copper,
others who only purchase our owned copper and others who use
some tolled and some owned copper purchased from us. This
decision is based on each customers internal factors which
are unknown to us and out of our control.
Our costs and 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. The average price of copper based
upon The New York Mercantile Exchange, Inc. (COMEX)
increased to $3.22 per pound for the year ended
December 31, 2007 from $3.09 per pound
25
for the year ended December 31, 2006, or 4%. 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. Other raw materials used include
silver, nickel and tin. The cost of silver, nickel and tin are
generally passed-through to our customers through a variety of
pricing mechanisms. Our price of silver includes a margin and
consequently market fluctuations in the price of silver can
result in an increase or decrease in profitability at a given
volume. For the year ended December 31, 2007, the average
price of silver increased by 16%, the average price of nickel
increased by 54% and the average price of tin increased by 62%
compared to the year ended December 31, 2006.
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
Through the sales to Copperfield, LLC (Copperfield)
in 2005 and Draka Holdings N.V. (Draka) in 2006, the
Company exited from its Insulated Wire business. Accordingly,
the entire Insulated Wire business has been presented as a
discontinued operation in the accompanying consolidated
statements of operations.
Acquisitions
and Other
On March 4, 2006, we entered into a Stock Purchase
Agreement (HPC Purchase Agreement) to acquire HPC
from Phelps Dodge Corporation (PD). 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 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 $3.0 million was 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.
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. This facility, which is approximately
80,000 square feet, was purchased for approximately
$0.6 million and is being used to expand and move current
bare wire production in the central New York region. The City of
Sherrill, New York provides favorable hydroelectric power rates
which should result in lower production costs. Production at
this facility began in the fourth quarter 2007.
In late 2007, the Company completed an expansion of its braided
wire facility located in Cazenovia, New York. The facility was
expanded from 54,000 square feet to 74,000 square feet
with related capital expenditures of approximately
$1.2 million. The expanded space became operational in the
fourth quarter of 2007.
26
Additionally, on January 2, 2008, the Company announced
that it acquired the assets and operations of Hamilton Products,
Inc. and the related real estate owned by JPS Holdings, LLC
(collectively Hamilton Products). Hamilton Products
was formed in 1994 and is a manufacturer and marketer of copper
braided wire products serving the aerospace and industrial
markets. Under the asset purchase agreement, the Company
purchased the assets, operations and certain liabilities for
$9.3 million in cash, subject to a working capital
adjustment. Hamiltons manufacturing facility is located in
Sherburne, New York.
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
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.
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, 2006 and 2007, 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. During 2007, we also expanded our
braided wire operation located in Cazenovia, New York and
started a new low cost plant site in Sherrill, New York.
Additionally, on January 2, 2008, the Company announced
that it acquired the assets and operations of Hamilton Products,
Inc. and the related real estate owned by JPS Holdings, LLC
(collectively Hamilton Products). This acquisition
also continues the execution of our strategy to expand our
product offerings and increase our sales into the aerospace and
industrial markets.
We will continue to seek attractive acquisition candidates and
use excess cash flow to pay down debt.
27
Results
of Operations
The following table sets forth certain statement of operations
data in millions of dollars and percentage of net sales for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
For the Year Ended December 31,
|
|
|
For the Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net sales
|
|
$
|
730.8
|
|
|
|
100.0
|
%
|
|
$
|
748.9
|
|
|
|
100.0
|
%
|
|
$
|
424.7
|
|
|
|
100.0
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold, exclusive of depreciation and amortization
expense shown below
|
|
|
636.3
|
|
|
|
87.1
|
%
|
|
|
661.2
|
|
|
|
88.3
|
%
|
|
|
363.9
|
|
|
|
85.7
|
%
|
Selling, general and administrative expenses
|
|
|
44.5
|
|
|
|
6.1
|
%
|
|
|
44.9
|
|
|
|
6.0
|
%
|
|
|
31.5
|
|
|
|
7.4
|
%
|
Depreciation and amortization
|
|
|
16.7
|
|
|
|
2.3
|
%
|
|
|
14.0
|
|
|
|
1.9
|
%
|
|
|
11.2
|
|
|
|
2.6
|
%
|
Gain on sale of property, plant and equipment
|
|
|
(0.5
|
)
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
%
|
|
|
(0.7
|
)
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
33.8
|
|
|
|
4.6
|
%
|
|
|
28.8
|
|
|
|
3.8
|
%
|
|
|
18.8
|
|
|
|
4.4
|
%
|
Other income/(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(9.9
|
)
|
|
|
(1.3
|
)%
|
|
|
(13.4
|
)
|
|
|
(1.8
|
)%
|
|
|
(11.4
|
)
|
|
|
(2.7
|
)%
|
Amortization of deferred financing costs
|
|
|
(0.7
|
)
|
|
|
(0.1
|
)%
|
|
|
(1.2
|
)
|
|
|
(0.1
|
)%
|
|
|
(0.6
|
)
|
|
|
(0.1
|
)%
|
Other, net
|
|
|
|
|
|
|
|
%
|
|
|
0.1
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax provision/
(benefit)
|
|
|
23.2
|
|
|
|
3.2
|
%
|
|
|
14.3
|
|
|
|
1.9
|
%
|
|
|
6.8
|
|
|
|
1.6
|
%
|
Income tax provision/ (benefit)
|
|
|
8.0
|
|
|
|
1.1
|
%
|
|
|
4.4
|
|
|
|
0.6
|
%
|
|
|
(0.1
|
)
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
15.2
|
|
|
|
2.1
|
%
|
|
|
9.9
|
|
|
|
1.3
|
%
|
|
|
6.9
|
|
|
|
1.6
|
%
|
Income/(loss) from discontinued operations, net of income tax
benefit of $0.8, $0.1 and $2.4, respectively
|
|
|
0.7
|
|
|
|
0.1
|
%
|
|
|
0.1
|
|
|
|
|
%
|
|
|
(17.7
|
)
|
|
|
(4.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/ (loss)
|
|
$
|
15.9
|
|
|
|
2.2
|
%
|
|
$
|
10.0
|
|
|
|
1.3
|
%
|
|
$
|
(10.8
|
)
|
|
|
(2.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
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 for
the periods presented in millions of dollars and percentages of
totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2007
|
|
|
For the Year Ended December 31,
|
|
|
For the Year Ended December 31,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bare Wire
|
|
$
|
543.2
|
|
|
|
74
|
%
|
|
$
|
611.3
|
|
|
|
82
|
%
|
|
$
|
391.8
|
|
|
|
92
|
%
|
Engineered Wire Products Europe
|
|
|
67.4
|
|
|
|
9
|
%
|
|
|
55.2
|
|
|
|
7
|
%
|
|
|
38.8
|
|
|
|
9
|
%
|
High Performance Conductors
|
|
|
122.2
|
|
|
|
17
|
%
|
|
|
83.0
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
%
|
Elimination
|
|
|
(2.0
|
)
|
|
|
|
%
|
|
|
(0.6
|
)
|
|
|
|
%
|
|
|
(5.9
|
)
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
730.8
|
|
|
|
100
|
%
|
|
$
|
748.9
|
|
|
|
100
|
%
|
|
$
|
424.7
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bare Wire
|
|
$
|
19.7
|
|
|
|
53
|
%
|
|
$
|
23.6
|
|
|
|
68
|
%
|
|
$
|
20.1
|
|
|
|
94
|
%
|
Engineered Wire Products Europe
|
|
|
4.5
|
|
|
|
12
|
%
|
|
|
3.6
|
|
|
|
10
|
%
|
|
|
1.4
|
|
|
|
6
|
%
|
High Performance Conductors
|
|
|
12.8
|
|
|
|
35
|
%
|
|
|
7.6
|
|
|
|
22
|
%
|
|
|
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
37.0
|
|
|
|
100
|
%
|
|
|
34.8
|
|
|
|
100
|
%
|
|
|
21.5
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
(3.2
|
)
|
|
|
|
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
33.8
|
|
|
|
|
|
|
$
|
28.8
|
|
|
|
|
|
|
$
|
18.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2007 versus Year Ended December 31,
2006
Net sales were $730.8 million and $748.9 million for
the years ended December 31, 2007 and 2006, respectively.
Sales for the year ended December 31, 2007 were
$18.1 million, or 2.4%, below comparable 2006 levels,
primarily as a result of a higher proportion of tolled copper
shipped in the 2007 period than in the 2006 period
($96.3 million). For sales of product comprised of
customer-owned (tolled) copper, the value of the
copper material processed is excluded from sales. Accordingly,
as the proportion of tolled sales increases, sales decrease. The
tolled copper effect was partially offset by an increase in the
average cost and selling price of copper ($35.4 million),
higher customer pricing/mix ($4.8 million), the impact of a
stronger euro versus the U.S. dollar ($5.0 million),
higher sales volume ($1.8 million) and the acquisition of
HPC ($31.2 million) on March 31, 2006. The average
price of copper based upon COMEX increased to $3.22 per pound
for the year ended December 31, 2007 from $3.09 per pound
for the year ended December 31, 2006.
Bare Wire segment net sales for the year ended December 31,
2007 were $543.2 million, a decrease of $68.1 million
or 11.1% from net sales of $611.3 million for the year
ended December 31, 2006. This decrease was primarily the
result of lower volume sold to customers supplying the
electronic/data communications and appliance markets
($7.3 million) and the impact of a higher proportion of
tolled copper shipped in the 2007 period compared to the 2006
period ($96.3 million). These decreases were partially
offset by the impact of an increase in the average cost and
selling price of copper ($30.7 million) and increased
customer pricing/mix, including higher tin prices
($4.8 million). Of the total pounds processed for the year
ended December 31, 2007 and 2006, respectively, 51.1% and
42.5% were from customers tolled copper. The increase in
this percentage from 2006 to 2007 was due primarily to an
increase in the proportion of tolled copper used by our largest
customer.
Engineered Wire Products Europe net sales of
$67.4 million for the year ended December 31, 2007
were $12.2 million or 22.1% higher than sales of
$55.2 million for the 2006 year. This increase was the
result of $3.7 million from the increase in the average
cost and selling price of copper, $5.0 million from the
impact of a stronger euro versus the U.S. dollar and
$3.5 million from increased volume from improved customer
demand in all major markets.
29
High Performance Conductor sales of $122.2 million for the
year ended December 31, 2007 were $39.2 million, or
47.2%, higher than sales of $83.0 million for the
2006 year. This increase was the result of
$1.0 million of increase in the average cost and selling
price of copper, $7.0 million of increased volume from
improved customer demand in the aerospace and medical device
markets, higher silver, nickel and tin prices and
$31.2 million of HPC results for the three months ended
March 31, 2007 with no similar sales for the three months
ended March 31, 2006 as HPC was acquired on March 31,
2006.
Cost of goods sold, exclusive of depreciation and amortization,
as a percentage of sales decreased to 87.1% for the year ended
December 31, 2007 from 88.3% for the year 2006. The
decrease of 1.2 percentage points was due to the impact of
a higher proportion of toll copper sales in 2007 compared to
2006 (1.6 percentage points), higher customer pricing/mix
(0.6 percentage points) and the favorable contribution of
HPC sales (0.4 percentage points) partially offset by the
increase in the average cost and selling price of copper
(0.7 percentage points), a reduced LIFO liquidation impact
in 2007 compared to 2006 (0.5 percentage points), and
increased tin costs and lower overhead absorption
(0.2 percentage points). For sales of product comprised of
customer-owned (tolled) copper, the value of the
copper material processed is excluded from sales and cost of
sales. Therefore, as the proportion of the tolled copper sales
increase, as in the year 2007 compared to 2006, sales and cost
of sales decrease and the cost of goods sold as a percentage of
sales decreases.
Selling, general and administrative expenses were
$44.5 million for the year ended December 31, 2007 and
$44.9 million for the year ended December 31, 2006.
This decrease of $0.4 million was the result of
$3.2 million of lower stock-based compensation and
$0.7 million lower bad debts, which were partially offset
by $1.0 million of increased professional fees,
$2.4 million for the HPC acquisition on March 31,
2006, and $0.1 million other, net. These expenses, as a
percent of net sales, increased to 6.1% for the year ended
December 31, 2007 from 6.0% for the year ended
December 31, 2006, primarily from the impact of the effect
of a higher proportion of tolled copper in 2007 as compared to
2006.
Depreciation and amortization was $16.7 million for the
year ended December 31, 2007 compared to $14.0 million
for the year 2006. This increase of $2.7 million was the
result of depreciation from the HPC acquisition
($1.4 million) and higher depreciation on other property,
plant and equipment additions net of disposals
($1.3 million).
Operating income for the year ended December 31, 2007 was
$33.8 million compared to $28.8 million for the year
ended December 31, 2006, an increase of $5.0 million,
primarily due to the contribution of the HPC acquisition. Bare
Wire segments operating income of $19.7 million for
the year 2007 decreased by $3.9 million, or 16.5%, from
$23.6 million for the year 2006, primarily from lower sales
volume, a reduced LIFO liquidation impact, lower overhead
absorption and higher depreciation expense partially offset by
higher customer pricing/mix. Engineered Wire Products-Europe
operating income was $4.5 million, or an increase of
$0.9 million, from the year 2006 of $3.6 million due
to increased sales volume to all major markets and the impact of
a stronger euro versus the U.S. dollar. High Performance
Conductors operating income was $12.8 million, or an
increase of $5.2 million, from the year 2006 of
$7.6 million due to increased sales levels and no similar
results for the three months ended March 31, 2006.
Operating income in the 2007 year also increased by
$2.8 million from reduced charges for stock-based
compensation, partially offset by higher professional fees.
Interest expense was $9.9 million for the year ended
December 31, 2007 compared to $13.4 million for the
year ended December 31, 2006. This decrease of
$3.5 million was the result of the impact of lower levels
of borrowings due to improved operating cashflows and a lower
cost debt structure.
Amortization of deferred financing fees was $0.7 million
for the year ended December 31, 2007 and $1.2 million
for the year ended December 31, 2006. This decrease of
$0.5 million was the result of the write-off fees
associated with the Term Credit Facility that was terminated in
August 2006.
Income tax provision was $8.0 million and $4.4 million
for the years ended December 31, 2007 and 2006,
respectively. The Companys effective tax rate for the
years ended December 31, 2007 and 2006 was
30
34.3% and 30.8%, respectively. The higher effective tax rate in
2007 was the result of increased valuation allowance for certain
states partially offset by certain changes in state tax law.
Income from continuing operations was $15.2 million, or
$1.52 per basic share and $1.49 per diluted share, for the year
2007 and $9.9 million, or $0.99 per basic and diluted
share, for the year ended December 31, 2006. This increase
of $5.3 million was the result of higher operating income
and reduced interest expense partially offset by a higher
effective tax rate.
Income from discontinued operations was $0.7 million and
$0.1 million for the years ended December 31, 2007 and
2006, respectively. The year 2007 included $0.2 million
from the gain on the sale of property, plant, and equipment of
the former Insulated Wire business and adjustments to the
effective tax rate partially offset by interest accrued under
FIN 48. The 2006 amount included the results of the
Insulated Wire business that was sold in July 2006.
As a result of the aforementioned changes, net income was
$15.9 million, or $1.59 per basic share and $1.55 per
diluted share, and $10.0 million, or $1.00 per basic and
diluted share, for the years ended December 31, 2007 and
2006, respectively.
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 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
31
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 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 affected
by the U.S. Insulated Wire business, since it was sold in
December of 2005.
32
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.
Liquidity
and Capital Resources
Working
Capital and Cash Flows
Net cash provided by operating activities was $41.3 million
for the year ended December 31, 2007 compared to net cash
operating activities of $46.0 million for the year ended
December 31, 2006. This decrease of $4.7 million was
primarily the result of a lower impact from inventories of
$6.3 million, non-cash stock based compensation of
$3.2 million and $2.5 million from income taxes. These
factors were partially offset by increased net income of
$5.9 million, and $1.4 million of other, net. At the
end of 2007, total cash and cash equivalents were
$4.0 million, up $0.7 million from the year ended
2006. During 2007, cash levels were relatively constant
throughout the period as we used excess cash to reduce long-term
debt borrowings.
Accounts receivable decreased $4.4 million, or 4.5%, from
the year ended 2006. This decrease was primarily due to a
decrease in net sales of $4.6 million in the month of
December 2007 as compared to December 2006, from lower pounds
shipped. Partially offsetting the sales decrease was an increase
in the number of days sales outstanding as of December 31,
2007. The number of days sales outstanding increased slightly to
56 days as of December 31, 2007 from 52 days as
of December 31, 2006. The allowances as a percentage of
accounts receivable decreased from 1.8% at December 31,
2006 to 1.4% as of December 31, 2007 reflecting primarily
the write-off of remaining Insulated Wire accounts deemed
uncollectible against the allowance in the first quarter of 2007.
Inventories of $57.3 million as of December 31, 2007
decreased by $1.5 million from December 31, 2006. This
decrease was the result of a decrease in pounds of copper and
other inventory held in the Bare Wire segment
($1.6 million), increase in the LIFO reserve
($1.1 million) and lower quantities in the Engineered Wire
Products-Europe segment of ($1.5 million), partially offset
by an increase in inventory level and metal costs at HPC
($2.7 million). Inventory turns in the year 2007 were
slightly lower than compared to 2006 levels.
Accounts payable were $28.7 million as of December 31,
2007, a decrease of $4.8 million from December 31,
2006 levels, as fewer pounds were purchased in December 2007 as
compared to December 2006 and the timing of payments differed.
Net cash used in investing activities was $18.2 million for
the year ended December 31, 2007, compared to
$24.9 million for the year ended December 31, 2006.
2007 includes the $3.0 million of final consideration paid
for the HPC acquisition. 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
$18.4 million in 2007, including $8.9 million for the
new plant site in Sherrill, New York, compared to
$11.9 million in 2006, of which $8.0 million were for
normal replacement and cost reduction expenditures and
$3.9 million were for the new plant in Sherrill, New York.
Proceeds from the sale of fixed assets were $3.1 million in
2007. These proceeds were $1.3 million greater than in
2006. Restricted cash reductions provided cash of
$0.1 million in 2007 compared to $0.4 million in 2006.
Net cash used in financing activities was $22.7 million for
the year ended December 31, 2007 compared to
$23.5 million for the year ended December 31, 2006. In
2007, we repurchased $3.0 million of common stock and
received $0.7 million from the issuance of common stock
options exercised. There were no similar amounts in 2006. In
2006, we incurred $1.6 million of financing fees related to
the extension of our Revolver Credit facility. There were no
similar amounts in 2007. During the years 2007 and 2006, we had
net reduction of long-term debt of $20.4 million and
$21.9 million, respectively.
33
Financing
Arrangements
On October 26, 2007, the Company amended the Revolver
Credit Facility, such that the Company was made an additional
Borrower (as defined in the Amendment documents).
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 10 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 increases or when copper,
copper premiums or silver, nickel and tin 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 $3.22 per pound
for the year ended December 31, 2007 from $3.09 per pound
for the year ended December 31, 2006.
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, 2007, we had $4.0 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, 2007, our borrowing base was
$129.3 million and our outstanding indebtedness under the
Revolver Credit Facility (including outstanding letters of
credit) was $32.5 million, resulting in a remaining
availability as of such date of $96.8 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 other metals, or
adverse changes in economic conditions in the United States or
worldwide could impact our ability to generate sufficient cash
flow to fund operations.
Stock
Repurchase Program
On September 4, 2007, the Company announced that its Board
of Directors approved a stock repurchase program whereby the
Company was authorized to repurchase $3.7 million of its
common stock through open market or privately negotiated
transactions from time to time. The stock repurchase program may
be terminated at any time without prior notice. Through
December 31, 2007, we repurchased approximately
144,000 shares of our common stock for an aggregate price
of $3.0 million.
Off-Balance
Sheet Arrangements
We have not historically utilized off-balance sheet financing
arrangements and had no such arrangements as of
December 31, 2007. However, we do finance the use of
certain facilities and equipment under lease
34
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, 2007,
the future minimum lease payments under these arrangements
totaled $6.4 million.
Contractual
Obligations
The following table sets forth our contractual obligations as of
December 31, 2007 for the periods shown (dollars in
millions):
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Less Than
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More Than
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Contractual Obligations(3)
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Total
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1 year
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1-3 Years
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3-5 Years
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5 Years
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Debt(1)
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$
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93.1
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$
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1.1
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$
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0.0
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$
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92.0
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$
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0.0
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Estimated interest on debt(2)
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29.3
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8.4
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15.0
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5.9
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0.0
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Open purchase orders
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18.2
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18.2
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0.0
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0.0
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0.0
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Operating leases
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6.4
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1.8
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2.8
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1.6
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0.2
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Total contractual cash obligations
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$
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147.0
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$
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29.5
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$
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17.8
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$
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99.5
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$
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0.2
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(1) |
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Debt obligations are exclusive of interest. |
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(2) |
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Interest was estimated using the debt balance outstanding at
December 31, 2007 and the interest rates in effect on
December 31, 2007. |
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(3) |
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Deferred compensation of $2.1 million was excluded from the
contractual obligations table as the timing of the payments is
dependent on the employees termination date. FIN 48
reserve of $4.7 million was excluded from the contractual
obligations table as the timing of the payments is uncertain. |
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 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 collectibility is reasonably assured. A
provision for product returns is recorded based on historical
experience and any notification received of pending returns.
Such returns have historically been within our expectations and
the provisions established.
We recognize revenue from services performed to process
customer-owned (tolled) copper. Such revenue is
recognized at the time the product is received by the customer.
The value of tolled copper is excluded from both sales and cost
of goods sold, as title to these materials and the related risks
of ownership do not pass to us at any time.
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
35
guarantee that the historical credit loss rates will continue in
the future. Since we have a number of relatively large
customers, a significant change in the liquidity or financial
position of one of these customers could have a material adverse
impact on the collectibility of our accounts receivables and our
future operating results.
Inventories
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
change 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 2007 and 2006, inventory quantities were
reduced. These reductions resulted in liquidations of LIFO
quantities carried at lower costs prevailing in the prior year
as compared to the cost of 2007 and 2006 purchases.
Long-Lived
Assets, Intangible Assets and Goodwill
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 2007 as of December 31, 2007.
Stock-based
Compensation
Effective January 1, 2006, the Company adopted Statement of
Financial Accounting Standards (SFAS)
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 2007 and 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 book
and tax basis differences of our assets and liabilities and
carry-forwards for tax purposes 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,
36
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 $0.6 million and
$0.2 million in 2007 and 2006, respectively.
The Company has federal NOL carryforwards of approximately
$21.3 million as of December 31, 2007, available to
offset future federal taxable income. These NOL carryforwards
expire in varying amounts in the years 2023 to 2026 if not
utilized.
On January 1, 2007, the Company adopted Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement
No. 109 (FIN 48) issued by the
Financial Accounting Standards Board (see Note 11).
FIN 48 prescribes a recognition threshold and a measurement
attribute for the financial statement recognition and
measurement of tax positions taken or expected to be taken in a
tax return. For those benefits to be recognized, a tax position
must be more-likely-than-not to be sustained upon examination by
taxing authorities.
Recently
Issued Accounting Standards
In July 2006, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109
(FIN 48), to be effective for fiscal years
beginning after December 15, 2006. This interpretation
adopts a two-step approach for recognizing and measuring tax
benefits and requires certain disclosures about uncertainties in
income tax positions. Under FIN 48, the impact of an
uncertain income tax position on an income tax return must be
recognized at the largest amount that is more-likely-than-not to
be sustained upon audit by the relevant taxing authority. An
uncertain income tax position will not be recognized if it has
less than a 50% likelihood of being sustained. Additionally,
FIN 48 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods,
disclosure and transition. On January 1, 2007, the Company
adopted the provisions of FIN 48. As a result of the
adoption of FIN 48, the Company recognized a increase of
$3,322 to the opening balance of accumulated deficit. See
Note 11.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157). This statement defines
fair value, establishes 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 does not expect the adoption of
SFAS No. 157 to have a material impact on its
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 (SFAS No. 159). This
statement permits entities to choose to measure many financial
instruments and certain other items at fair value in order to
mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently.
SFAS No. 159 is effective for the Companys
fiscal year beginning January 1, 2008. The Company has not
adopted the fair value option for its current financial assets
or liabilities. Accordingly, the adoption of
SFAS No. 159 did not have an impact on its
consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS No. 141R).
SFAS No. 141R establishes principles and requirements
for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities
assumed, any noncontrolling interest in the acquiree and the
goodwill acquired. SFAS No. 141R also establishes
disclosure requirements to enable the evaluation of the nature
and financial effects of the business combination. This
statement is effective for the Companys fiscal year
beginning January 1, 2009. The Company is currently
evaluating the potential impact of the adoption of
SFAS No. 141R on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51,
(SFAS No. 160). SFAS No. 160
establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the retained
interest and gain or loss when a subsidiary is deconsolidated.
This statement is effective for financial statements issued for
fiscal years beginning on or after December 15, 2008 with
earlier adoption prohibited. The Company is evaluating the
impact the adoption of SFAS No. 160 will have on its
consolidated financial statements.
37
In December 2007, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 110
(SAB No. 110). SAB No. 110
provides guidance on the use of a simplified method,
as discussed in SAB No. 107, in developing an estimate
of expected term of plain vanilla share options in
accordance with SFAS No. 123(R). SAB No. 107
did not expect a company to use the simplified method for share
option grants after December 31, 2007. At the time
SAB No. 107 was issued, the staff believed that more
detailed external information about employee exercise behavior
(e.g., employee exercise patterns by industry
and/or other
categories of companies) would, over time, become readily
available to companies. The staff understands that such detailed
information about employee exercise behavior may not be widely
available by December 31, 2007. Accordingly, the staff will
continue to accept, under certain circumstances, the use of the
simplified method beyond December 31, 2007.
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Item 7A.
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Quantitative
and Qualitative Disclosures about Market Risk.
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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, 2007, approximately $18.1 million of
$93.1 million of long-term debt, specifically,
$17.0 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 $0.2 million based on the debt outstanding
as of December 31, 2007. 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, 2007 and 2006 was $28.4 million and
$22.0 million, respectively.
At December 31, 2007, we had no financial instruments
outstanding that were sensitive to changes in foreign currency
rates.
Commodity
Price Risk
The principal raw material used in our products is 5/16 inch
copper rod, which is sourced either directly from world copper
producers or through rod mill operators in North America and
Europe. A significant percentage of total copper is purchased
from four major suppliers. 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.
Tin is also a component in our products in the Bare Wire and HPC
segments. The HPC segment also uses silver and nickel. The cost
of silver, nickel and tin is generally passed-through to our
customers through a variety of pricing mechanisms. Our price of
silver includes a margin and consequently market fluctuations in
the price of silver can result in an increase or decrease in
profitability at a given volume.
38
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Item 8.
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Financial
Statements and Supplementary Data.
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INTERNATIONAL
WIRE GROUP, INC.
INDEX
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Consolidated Financial Statements
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40
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42
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43
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44
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45
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46
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39
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 sheets of
International Wire Group, Inc. and subsidiaries (the
Company) as of December 31, 2007 and 2006, and
the related consolidated statements of operations,
stockholders equity, and cash flows for the years then
ended. Our audits also included the financial statement schedule
listed in the Index at Item 15. 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 audits.
We conducted our audits 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. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such 2007 and 2006 consolidated financial
statements present fairly, in all material respects, the
financial position of International Wire Group, Inc. and
subsidiaries at December 31, 2007 and 2006, and the results
of their operations and their cash flows for the years then
ended in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion,
such 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.
As discussed in Note 2 to the consolidated financial
statements, effective January 1, 2007, the Company adopted
Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2007, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 14, 2008 expressed an
unqualified opinion on the Companys internal control over
financial reporting.
/s/ Deloitte &
Touche LLP
Rochester, New York
March 14, 2008
40
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of International Wire
Group, Inc.
Camden, New York
In our opinion, the accompanying consolidated statements of
operations, stockholders equity, and cash flows present
fairly, in all material respects, the results of operations and
cash flows of International Wire Group, Inc. and its
subsidiaries for the year ended December 31, 2005, 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 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.
/s/ PricewaterhouseCoopers
LLP
Rochester, New York
April 11, 2006, except as to Note 8 to the
consolidated financial statements
as to which the date is April 27, 2007.
41
INTERNATIONAL
WIRE GROUP, INC.
CONSOLIDATED
BALANCE SHEETS
December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,991
|
|
|
$
|
3,315
|
|
Accounts receivable, less allowances of $1,282 and $1,738
|
|
|
93,456
|
|
|
|
97,896
|
|
Refundable income taxes
|
|
|
3,283
|
|
|
|
|
|
Inventories
|
|
|
57,346
|
|
|
|
58,808
|
|
Prepaid expenses and other
|
|
|
6,446
|
|
|
|
7,135
|
|
Deferred income taxes
|
|
|
11,782
|
|
|
|
16,701
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
176,304
|
|
|
|
183,855
|
|
Property, plant and equipment, net
|
|
|
107,354
|
|
|
|
103,889
|
|
Goodwill
|
|
|
61,560
|
|
|
|
62,148
|
|
Identifiable intangibles, net
|
|
|
16,488
|
|
|
|
18,369
|
|
Deferred financing costs, net
|
|
|
2,321
|
|
|
|
2,955
|
|
Restricted cash
|
|
|
1,486
|
|
|
|
1,559
|
|
Other assets
|
|
|
3,624
|
|
|
|
2,790
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
369,137
|
|
|
$
|
375,565
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
1,126
|
|
|
$
|
535
|
|
Accounts payable and other
|
|
|
28,705
|
|
|
|
33,513
|
|
Accrued and other liabilities
|
|
|
8,757
|
|
|
|
8,157
|
|
Accrued workers compensation costs
|
|
|
5,775
|
|
|
|
6,107
|
|
Accrued payroll and payroll related items
|
|
|
10,701
|
|
|
|
10,401
|
|
Customers deposits
|
|
|
12,445
|
|
|
|
12,086
|
|
Accrued income taxes
|
|
|
|
|
|
|
1,011
|
|
Accrued interest
|
|
|
1,791
|
|
|
|
1,847
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
69,300
|
|
|
|
73,657
|
|
Long-term debt, less current maturities
|
|
|
92,022
|
|
|
|
113,020
|
|
Other long-term liabilities
|
|
|
8,006
|
|
|
|
4,029
|
|
Deferred income taxes
|
|
|
12,957
|
|
|
|
13,602
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
182,285
|
|
|
|
204,308
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 20,000,000 shares
authorized, 10,055,002 and 10,000,002 issued
|
|
|
101
|
|
|
|
100
|
|
Contributed capital
|
|
|
185,076
|
|
|
|
181,566
|
|
Retained earnings/(accumulated deficit)
|
|
|
966
|
|
|
|
(11,573
|
)
|
Treasury stock at cost, 144,000 shares at December 31,
2007
|
|
|
(3,036
|
)
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
3,745
|
|
|
|
1,164
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
186,852
|
|
|
|
171,257
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
369,137
|
|
|
$
|
375,565
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
42
INTERNATIONAL
WIRE GROUP, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
Years Ended December 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except share data)
|
|
|
Net sales
|
|
$
|
730,805
|
|
|
$
|
748,925
|
|
|
$
|
424,729
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold, exclusive of depreciation and amortization
expense shown below
|
|
|
636,262
|
|
|
|
661,182
|
|
|
|
363,878
|
|
Selling, general and administrative expenses
|
|
|
44,537
|
|
|
|
44,883
|
|
|
|
31,508
|
|
Depreciation
|
|
|
13,693
|
|
|
|
10,838
|
|
|
|
8,063
|
|
Amortization
|
|
|
3,007
|
|
|
|
3,164
|
|
|
|
3,169
|
|
(Gain)/loss on sale of property, plant and equipment
|
|
|
(449
|
)
|
|
|
24
|
|
|
|
(721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
33,755
|
|
|
|
28,834
|
|
|
|
18,832
|
|
Other income/(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(9,919
|
)
|
|
|
(13,491
|
)
|
|
|
(11,455
|
)
|
Amortization of deferred financing costs
|
|
|
(634
|
)
|
|
|
(1,151
|
)
|
|
|
(646
|
)
|
Other income, net
|
|
|
(43
|
)
|
|
|
96
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax
provision/(benefit)
|
|
|
23,159
|
|
|
|
14,288
|
|
|
|
6,751
|
|
Income tax provision/(benefit)
|
|
|
7,954
|
|
|
|
4,401
|
|
|
|
(179
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
15,205
|
|
|
|
9,887
|
|
|
|
6,930
|
|
Income/(loss) from discontinued operations, net of income tax
benefit of $749, $137, and $2,407 respectively
|
|
|
656
|
|
|
|
121
|
|
|
|
(17,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
15,861
|
|
|
$
|
10,008
|
|
|
$
|
(10,819
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.52
|
|
|
$
|
0.99
|
|
|
$
|
0.69
|
|
Income/(loss) from discontinued operations
|
|
|
0.07
|
|
|
|
0.01
|
|
|
|
(1.77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
1.59
|
|
|
$
|
1.00
|
|
|
$
|
(1.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.49
|
|
|
$
|
0.99
|
|
|
$
|
0.69
|
|
Income/(loss) from discontinued operations
|
|
|
0.06
|
|
|
|
0.01
|
|
|
|
(1.77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
1.55
|
|
|
$
|
1.00
|
|
|
$
|
(1.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average basic shares outstanding
|
|
|
9,983,015
|
|
|
|
10,000,002
|
|
|
|
10,000,002
|
|
Weighted-average diluted shares outstanding
|
|
|
10,200,393
|
|
|
|
10,003,973
|
|
|
|
10,000,002
|
|
See accompanying notes to the consolidated financial statements.
43
INTERNATIONAL
WIRE GROUP, INC.
Years
Ended December 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings/
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
Common
|
|
|
Contributed
|
|
|
(Accumulated
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit)
|
|
|
Stock
|
|
|
Income/(Loss)
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance January 1, 2005
|
|
$
|
100
|
|
|
$
|
175,600
|
|
|
$
|
(10,762
|
)
|
|
$
|
|
|
|
$
|
1,443
|
|
|
$
|
166,381
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(10,819
|
)
|
|
|
|
|
|
|
|
|
|
|
(10,819
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,749
|
)
|
|
|
(2,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2005
|
|
|
100
|
|
|
|
175,600
|
|
|
|
(21,581
|
)
|
|
|
|
|
|
|
(1,306
|
)
|
|
|
152,813
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
10,008
|
|
|
|
|
|
|
|
|
|
|
|
10,008
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,470
|
|
|
|
2,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,478
|
|
Stock-based compensation
|
|
|
|
|
|
|
5,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006
|
|
|
100
|
|
|
|
181,566
|
|
|
|
(11,573
|
)
|
|
|
|
|
|
|
1,164
|
|
|
|
171,257
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
15,861
|
|
|
|
|
|
|
|
|
|
|
|
15,861
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,581
|
|
|
|
2,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,442
|
|
Issuance of common stock
|
|
|
1
|
|
|
|
740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
741
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,036
|
)
|
|
|
|
|
|
|
(3,036
|
)
|
Adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
(3,322
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,322
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
2,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
$
|
101
|
|
|
$
|
185,076
|
|
|
$
|
966
|
|
|
$
|
(3,036
|
)
|
|
$
|
3,745
|
|
|
$
|
186,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
44
INTERNATIONAL
WIRE GROUP, INC.
Years
Ended December 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Cash flows provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
15,861
|
|
|
$
|
10,008
|
|
|
$
|
(10,819
|
)
|
Adjustments to reconcile net income/(loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
13,693
|
|
|
|
11,684
|
|
|
|
10,531
|
|
Amortization
|
|
|
3,007
|
|
|
|
3,495
|
|
|
|
4,613
|
|
Amortization of deferred financing costs
|
|
|
634
|
|
|
|
1,151
|
|
|
|
646
|
|
Accounts receivable allowances provision/(benefit)
|
|
|
(251
|
)
|
|
|
1,024
|
|
|
|
417
|
|
Stock based compensation expense
|
|
|
2,770
|
|
|
|
5,966
|
|
|
|
|
|
Gain on sale of business
|
|
|
|
|
|
|
(787
|
)
|
|
|
|
|
Gain on sale of property, plant and equipment
|
|
|
(699
|
)
|
|
|
(526
|
)
|
|
|
(721
|
)
|
Impairment of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
11,846
|
|
Deferred income taxes
|
|
|
5,028
|
|
|
|
2,414
|
|
|
|
(3,396
|
)
|
Change in operating assets and liabilities, net of acquisition
and divestitures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
6,609
|
|
|
|
4,213
|
|
|
|
(29,767
|
)
|
Inventories
|
|
|
2,332
|
|
|
|
8,667
|
|
|
|
25,561
|
|
Prepaid expenses and other assets
|
|
|
(1,424
|
)
|
|
|
(1,290
|
)
|
|
|
568
|
|
Accounts payable
|
|
|
(2,678
|
)
|
|
|
(2,115
|
)
|
|
|
21,770
|
|
Accrued and other liabilities and workers compensation
costs
|
|
|
30
|
|
|
|
342
|
|
|
|
484
|
|
Accrued payroll and payroll related items
|
|
|
89
|
|
|
|
1,968
|
|
|
|
(1,249
|
)
|
Customers deposits
|
|
|
359
|
|
|
|
(964
|
)
|
|
|
(948
|
)
|
Accrued interest
|
|
|
(56
|
)
|
|
|
9
|
|
|
|
135
|
|
Accrued/refundable income taxes
|
|
|
(4,329
|
)
|
|
|
759
|
|
|
|
|
|
Other long-term liabilities
|
|
|
326
|
|
|
|
2
|
|
|
|
(767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities before reorganization
activities
|
|
|
41,301
|
|
|
|
46,020
|
|
|
|
28,904
|
|
Cash flows used in reorganization activities
|
|
|
|
|
|
|
|
|
|
|
(6,439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
41,301
|
|
|
|
46,020
|
|
|
|
22,465
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(18,371
|
)
|
|
|
(11,879
|
)
|
|
|
(6,973
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
3,070
|
|
|
|
1,758
|
|
|
|
875
|
|
Restricted cash
|
|
|
73
|
|
|
|
363
|
|
|
|
1,186
|
|
Proceeds from sale of business
|
|
|
|
|
|
|
36,959
|
|
|
|
4,225
|
|
Acquisition of Phelps Dodge High Performance Conductors of
SC & GA, Inc., net of $45 cash received in 2006
|
|
|
(3,000
|
)
|
|
|
(52,143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(18,228
|
)
|
|
|
(24,942
|
)
|
|
|
(687
|
)
|
Cash flows used in financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under long-term obligations
|
|
|
367,071
|
|
|
|
453,583
|
|
|
|
61,091
|
|
Repayment under long-term obligations
|
|
|
(387,478
|
)
|
|
|
(475,444
|
)
|
|
|
(92,324
|
)
|
Proceeds from issuance of common stock
|
|
|
741
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
(3,036
|
)
|
|
|
|
|
|
|
|
|
Financing fees
|
|
|
|
|
|
|
(1,649
|
)
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(22,702
|
)
|
|
|
(23,510
|
)
|
|
|
(31,261
|
)
|
Effects of exchange rate changes on cash and cash equivalents
|
|
|
305
|
|
|
|
325
|
|
|
|
(287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
676
|
|
|
|
(2,107
|
)
|
|
|
(9,770
|
)
|
Cash and cash equivalents at beginning of the period
|
|
|
3,315
|
|
|
|
5,422
|
|
|
|
15,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the period
|
|
$
|
3,991
|
|
|
$
|
3,315
|
|
|
$
|
5,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of capitalized interest of $422, $0 and $0
|
|
$
|
9,975
|
|
|
$
|
14,377
|
|
|
$
|
13,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes paid, net of refunds of $6, $129 and $186
|
|
$
|
5,961
|
|
|
$
|
738
|
|
|
$
|
810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount included in accounts payable and other for acquisition
and capital expenditures
|
|
$
|
777
|
|
|
$
|
3,185
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
45
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
|
|
1.
|
Business
Organization and Basis of Presentation
|
International Wire Group, Inc., a Delaware corporation (the
Company), together with its subsidiaries,
manufacture and market wire products (including bare,
tin-plated, nickel-plated and silver-plated copper wire) for
other wire suppliers, distributors 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 aerospace,
appliance, automotive, electronics and data communications,
general industrial/energy and medical device industries. The
Company manufactures and distributes its products at 15
facilities located in the United States, Belgium, France and
Italy.
Prior to 2007 and over the last several preceding years, the
Companys Insulated Wire business operating results were
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 customer contracts. In addition, in the second and fourth
quarters of 2005, we were notified that significant volume with
two large customers, Viasystems International, Inc.
(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 selected
assets of the U.S. Insulated Wire business to Copperfield,
LLC and ceased operations. On July 3, 2006, the Company
sold its 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.
|
|
2.
|
Summary
of 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.
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. A
provision for product returns is recorded based on historical
experience and any notification received of pending returns.
46
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 $14,597, $13,882 and $11,074
for the years ended December 31, 2007, 2006 and 2005,
respectively.
Cash and
Cash Equivalents
For purposes of the consolidated statement of cash flows, the
Company considers all highly liquid investments purchased with
maturities of three months or less to be cash equivalents.
Restricted
Cash
At December 31, 2007 and 2006, the Company maintained
restricted cash in the amount of $1,486 and $1,559,
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 in excess of the FDIC
insurance limits 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 current 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
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
47
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 Companys
reorganization value at October 20, 2004 over the fair
value of net assets and, for acquired businesses, costs in
excess of fair values assigned to the underlying net assets.
Under the provisions of Statement of Financial Accounting
Standards (SFAS) 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 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,
2007, 2006, and 2005.
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.
48
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock-based
Compensation
Effective January 1, 2006, the Company adopted
SFAS 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 2007 and 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.
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, 2007, there was
$1,291 of total unrecognized compensation expense related to
stock options which is expected to be recognized over a
weighted-average period of 1.8 years. The Company recorded
stock-based compensation expense of $2,770 and $5,966, which is
included in selling, general and administrative expenses in the
accompanying consolidated statements of operations, and a
related income tax benefit of $981 and $2,333 in 2007 and 2006,
respectively. 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, 2007, 55,000 awards
have been exercised.
The fair values of the options under SFAS No. 123(R)
in 2007 and 2006 were estimated at the date of the grants using
the Black-Scholes option pricing model with the following
weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Stock Options and Awards:
|
|
|
|
|
|
|
|
|
Expected life employees
|
|
|
6 years
|
|
|
|
6 years
|
|
Expected life non-employee directors
|
|
|
5.5 years
|
|
|
|
6 years
|
|
Expected volatility
|
|
|
50.0
|
%
|
|
|
58.0
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-free interest rate
|
|
|
4.2
|
%
|
|
|
4.9
|
%
|
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 SAB No. 110.
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
49
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 accumulated 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 $76,500 and $75,750
at December 31, 2007 and 2006, respectively. The carrying
value of the borrowings under the Revolver Credit Facility
approximates fair value due to its variable interest rate.
Allocation
of Interest 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 $0,
$895 and $2,706, for the years ended December 31, 2007,
2006 and 2005, 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 the Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Weighted-average shares outstanding basic
|
|
|
9,983,015
|
|
|
|
10,000,002
|
|
|
|
10,000,002
|
|
Dilutive effect of stock options
|
|
|
217,378
|
|
|
|
3,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding dilutive
|
|
|
10,200,393
|
|
|
|
10,003,973
|
|
|
|
10,000,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding for the years ended
December 31, 2007, 2006, and 2005 exclude 64,984, 706,200,
and 10,417 options respectively, because they are anti-dilutive
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.
50
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant
Customers
The Company had sales to two significant customers in the
periods included in the accompanying consolidated statements of
operations. Sales to General Cable Corporation represented 12%
of net sales for the year ended December 31, 2007, and 23%
for each of the years ended December 31, 2006 and 2005.
Sales to AFL Automotive, LP were 10%, 10% and 12% of net sales
for the years ended December 31, 2007, 2006 and 2005,
respectively.
Concentration
of Copper Suppliers
The Companys principal raw material used in its products
is
5/16
inch copper rod, which is sourced either directly from world
copper producers or through rod mill operators in North America
and Europe. A significant percentage of total copper is
purchased from four major suppliers.
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 15.
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, 2007, 2006 and 2005, the Company had two
components of comprehensive income or loss: net income/(loss)
and foreign currency translation adjustments.
Recently
Issued Accounting Standards
In July 2006, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
an interpretation of FASB Statement
No. 109 (FIN 48), to be effective for
fiscal years beginning after December 15, 2006. This
interpretation adopts a two-step approach for recognizing and
measuring tax benefits and requires certain disclosures about
uncertainties in income tax positions. Under FIN 48, the
impact of an uncertain income tax position on an income tax
return must be recognized at the largest amount that is
more-likely-than-not to be sustained upon audit by the relevant
taxing authority. An uncertain income tax position will not be
recognized if it has less than a 50% likelihood of being
sustained. Additionally, FIN 48 provides guidance on
derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. On
January 1, 2007, the Company adopted the provisions of
FIN 48. As a result of the adoption of FIN 48, the
Company recognized an increase of $3,322 to the opening balance
of accumulated deficit. See Note 11.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157). This statement defines
fair value, establishes 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 does not expect the adoption of
SFAS No. 157 to have a material impact on its
consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Liabilities
(SFAS No. 159)
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 in
order to
51
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently.
SFAS No. 159 is effective for the Companys
fiscal year beginning January 1, 2008. The Company has not
adopted the fair value option for its current financial assets
or liabilities. Accordingly, the adoption of
SFAS No. 159 did not have an impact on its
consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS No. 141R).
SFAS No. 141R establishes principles and requirements
for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities
assumed, any noncontrolling interest in the acquiree and the
goodwill acquired. SFAS No. 141R also establishes
disclosure requirements to enable the evaluation of the nature
and financial effects of the business combination. This
statement is effective for the Companys fiscal year
beginning January 1, 2009. The Company is currently
evaluating the potential impact of the adoption of
SFAS No. 141R on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51,
(SFAS No. 160). SFAS No. 160
establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the retained
interest and gain or loss when a subsidiary is deconsolidated.
This statement is effective for financial statements issued for
fiscal years beginning on or after December 15, 2008 with
earlier adoption prohibited. The Company is evaluating the
impact the adoption of SFAS No. 160 will have on its
consolidated financial statements.
In December 2007, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 110
(SAB No. 110). SAB No. 110
provides guidance on the use of a simplified method,
as discussed in SAB No. 107, in developing an estimate
of expected term of plain vanilla share options in
accordance with SFAS No. 123(R). SAB No. 107
did not expect a company to use the simplified method for share
option grants after December 31, 2007. At the time
SAB No. 107 was issued, the staff believed that more
detailed external information about employee exercise behavior
(e.g., employee exercise patterns by industry
and/or other
categories of companies) would, over time, become readily
available to companies. The staff understands that such detailed
information about employee exercise behavior may not be widely
available by December 31, 2007. Accordingly, the staff will
continue to accept, under certain circumstances, the use of the
simplified method beyond December 31, 2007.
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,
the Company purchased the copper inventory held
52
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
on consignment by HPC from PD for $5,057. In addition, pursuant
to the Purchase Agreement, there was a contingency payment
capped at $3,000 based on performance, and in May 2007, the
$3,000 payment was made. Phelps Dodge High Performance
Conductors of SC & GA, Inc. changed it name to IWG
High Performance Conductors, Inc.
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.
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.
53
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 each 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
year 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 each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
For the Year Ended 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
|
)
|
The composition of inventories at December 31, is as
follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Raw materials
|
|
$
|
16,712
|
|
|
$
|
16,960
|
|
Work-in-process
|
|
|
11,198
|
|
|
|
13,827
|
|
Finished goods
|
|
|
29,436
|
|
|
|
28,021
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
57,346
|
|
|
$
|
58,808
|
|
|
|
|
|
|
|
|
|
|
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. Had Bare Wire and High
Performance Conductors inventories been valued using the
first-in,
first-out (FIFO) method, inventories would have been
$37,691 and $37,245 higher as of December 31, 2007 and
2006, 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 2007, inventory quantities were reduced at Bare
Wire which resulted in a liquidation of LIFO inventory
quantities carried at lower costs prevailing in the prior year
as compared with the cost of 2007 purchases. The effect of this
reduction in inventory decreased cost of goods sold by $979 and
increased the net income by $628 or $0.06 per share as of
December 31, 2007. 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 compared with the cost of
2006 purchases. The effect of this reduction in inventory in
2006 decreased cost of goods sold by $4,587 and increased the
net income by $2,793, or $0.28 per share.
54
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
Property,
Plant and Equipment
|
The composition of property, plant and equipment at December 31
is as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Land
|
|
$
|
5,152
|
|
|
$
|
5,356
|
|
Building and improvements
|
|
|
31,771
|
|
|
|
28,825
|
|
Machinery and equipment
|
|
|
101,934
|
|
|
|
83,832
|
|
Construction in progress
|
|
|
2,435
|
|
|
|
6,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141,292
|
|
|
|
124,506
|
|
Less: accumulated depreciation
|
|
|
(33,938
|
)
|
|
|
(20,617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
107,354
|
|
|
$
|
103,889
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense from continuing operations was $13,693,
$10,838, and $8,063 for the years ended December 31, 2007,
2006 and 2005, respectively.
|
|
6.
|
Goodwill
and Intangible Assets
|
The changes in the carrying amounts of goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Balance, beginning of year
|
|
$
|
62,148
|
|
|
$
|
62,307
|
|
Reduction of deferred income tax valuation allowance
|
|
|
(588
|
)
|
|
|
(159
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
61,560
|
|
|
$
|
62,148
|
|
|
|
|
|
|
|
|
|
|
All goodwill is included in the Bare Wire segment. The
reductions in the valuation allowance established in fresh-start
reporting upon emergence from bankruptcy of $588 and $159 in
2007 and 2006, respectively, have offset goodwill. The Company
completed its annual impairment test at December 31, 2007,
2006 and 2005 and concluded that goodwill was not impaired.
The components of identifiable intangible assets at December 31
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Accumulated
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Cost
|
|
|
Amortization
|
|
|
Customer contracts and relationships
|
|
$
|
9,534
|
|
|
$
|
2,035
|
|
|
$
|
9,534
|
|
|
$
|
1,400
|
|
Trade names and trademarks
|
|
|
10,568
|
|
|
|
1,663
|
|
|
|
10,568
|
|
|
|
1,135
|
|
Favorable leases
|
|
|
2,671
|
|
|
|
2,671
|
|
|
|
2,671
|
|
|
|
1,958
|
|
Alloys
|
|
|
92
|
|
|
|
8
|
|
|
|
92
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable intangible assets
|
|
$
|
22,865
|
|
|
$
|
6,377
|
|
|
$
|
22,865
|
|
|
$
|
4,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amortization expense for identifiable intangible assets from
continuing operations was $1,881, $2,054, and $2,036 for the
years ended December 31, 2007, 2006 and 2005, respectively.
The estimated amortization expense for identifiable intangible
assets held as of December 31, 2007 is as follows:
|
|
|
|
|
2008
|
|
$
|
1,169
|
|
2009
|
|
|
1,169
|
|
2010
|
|
|
1,169
|
|
2011
|
|
|
1,169
|
|
2012
|
|
|
1,169
|
|
Thereafter
|
|
|
10,643
|
|
7. Financing
Costs
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.
8. Discontinued
Operations
Prior to 2007 and over the last several preceding 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 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 paydown 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, August 2006, the
Company reimbursed Draka $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.
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 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.
56
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
The Insulated Wire business operating results included in
discontinued operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
53,195
|
|
|
$
|
238,819
|
|
|
|
|
|
Income/(loss) before income tax provision/(benefit)
|
|
|
(93
|
)
|
|
|
(16
|
)
|
|
|
(20,156
|
)
|
|
|
|
|
Income/(loss), net of income taxes
|
|
|
656
|
|
|
|
121
|
|
|
|
(17,749
|
)
|
|
|
|
|
9. Related
Party Transactions
The Company sells a portion of its production scrap to Prime
Materials Recovery, Inc. (Prime) and Prime also
performs certain scrap processing services for the Company.
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, 2007, 2006
and 2005, were $17,918, $24,059, and $8,828 respectively. The
Company had outstanding accounts receivable from Prime related
to those sales of $3,460 and $2,564 at December 31, 2007
and 2006, respectively. The Company incurred scrap conversion
costs from Prime of $797, $0 and $0 for the years ended
December 31, 2007, 2006 and 2005, respectively. The Company
has outstanding accounts payable to Prime related to those
purchases of $291 and $0 at December 31, 2007 and 2006,
respectively. Sales to Prime were made on terms comparable to
those of other companies in the industry.
10. Long-Term
Debt
The composition of long-term debt at December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Revolver Credit Facility
|
|
$
|
17,022
|
|
|
$
|
38,020
|
|
10% Secured Senior Subordinated Notes
|
|
|
75,000
|
|
|
|
75,000
|
|
Other
|
|
|
1,126
|
|
|
|
535
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
93,148
|
|
|
|
113,555
|
|
Less current maturities
|
|
|
1,126
|
|
|
|
535
|
|
|
|
|
|
|
|
|
|
|
Long-term portion of long-term debt
|
|
$
|
92,022
|
|
|
$
|
113,020
|
|
|
|
|
|
|
|
|
|
|
Senior
Revolver Credit Facility
The Company and its domestic subsidiaries are parties to a
credit agreement (the Revolver Credit Facility) with
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).
57
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. As of December 31,
2007, letters of credit in the amount of $15,472 were
outstanding and $17,022 was drawn under the Revolver Credit
Facility. Availability under the Revolver Credit Facility was
$96,792 as of December 31, 2007.
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 Company and its domestic subsidiaries are the primary
parties to 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. 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 second-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 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. Interest on overdue principal accrues at
2 percent per
58
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
annum in excess of the above rate and pay interest on overdue
installments of interest at such higher rate to the extent
lawful.
At any time after October 15, 2007, the Company may at its
option redeem all or part of the Notes at the redemption prices
(expressed percentages of the principal amount) set forth below,
plus accrued and unpaid interest thereon, if any, to the
applicable redemption date if redeemed during the twelve-month
period beginning on October 15 of the years indicated below:
|
|
|
|
|
|
|
Redemption
|
|
|
|
Price
|
|
|
2007
|
|
|
105.00
|
%
|
2008
|
|
|
102.50
|
%
|
2009
|
|
|
101.25
|
%
|
2010
|
|
|
100.00
|
%
|
2011
|
|
|
100.00
|
%
|
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.
Other
Debt
Other debt includes $1,126 and $535 of European debt
collaterized by accounts receivable as of December 31, 2007
and 2006, respectively.
Scheduled
Maturities of Debt
Scheduled maturities of debt at December 31, 2007 are as
follows:
|
|
|
|
|
2008
|
|
$
|
1,126
|
|
2009
|
|
|
|
|
2010
|
|
|
|
|
2011
|
|
|
92,022
|
|
|
|
|
|
|
Total
|
|
$
|
93,148
|
|
|
|
|
|
|
59
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
11. Income
Taxes
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
928
|
|
|
$
|
859
|
|
|
$
|
8,542
|
|
State
|
|
|
(345
|
)
|
|
|
198
|
|
|
|
1,223
|
|
Foreign
|
|
|
1,256
|
|
|
|
468
|
|
|
|
348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,839
|
|
|
|
1,525
|
|
|
|
10,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
5,904
|
|
|
|
2,826
|
|
|
|
(9,859
|
)
|
State
|
|
|
537
|
|
|
|
(109
|
)
|
|
|
(433
|
)
|
Foreign
|
|
|
(326
|
)
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,115
|
|
|
|
2,876
|
|
|
|
(10,292
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision/(benefit) for continuing operations
|
|
|
7,954
|
|
|
|
4,401
|
|
|
|
(179
|
)
|
Tax benefit on discontinued operations
|
|
|
(749
|
)
|
|
|
(137
|
)
|
|
|
(2,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision/(benefit)
|
|
$
|
7,205
|
|
|
$
|
4,264
|
|
|
$
|
(2,586
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The U.S. and foreign components of income from continuing
operations before income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Domestic
|
|
$
|
19,647
|
|
|
$
|
12,472
|
|
|
$
|
5,127
|
|
Foreign
|
|
|
3,512
|
|
|
|
1,816
|
|
|
|
1,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision/(benefit)
|
|
$
|
23,159
|
|
|
$
|
14,288
|
|
|
$
|
6,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Reconciliation between the statutory income tax rate and
effective tax rate in dollars is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Federal income tax at statutory rate of 35%
|
|
$
|
8,106
|
|
|
$
|
5,001
|
|
|
$
|
2,363
|
|
State income taxes, net of federal tax benefit
|
|
|
58
|
|
|
|
433
|
|
|
|
316
|
|
Foreign rate differential
|
|
|
(299
|
)
|
|
|
(9
|
)
|
|
|
439
|
|
Disregarded entity loss deductible in U.S.
|
|
|
(328
|
)
|
|
|
(713
|
)
|
|
|
(660
|
)
|
State tax credits
|
|
|
(790
|
)
|
|
|
(525
|
)
|
|
|
|
|
Non-deductible expenses
|
|
|
3
|
|
|
|
33
|
|
|
|
386
|
|
Change in valuation allowance
|
|
|
2,043
|
|
|
|
|
|
|
|
(3,692
|
)
|
Change in state effective rate on deferred income taxes
|
|
|
(521
|
)
|
|
|
181
|
|
|
|
975
|
|
Other
|
|
|
(318
|
)
|
|
|
|
|
|
|
(306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,954
|
|
|
$
|
4,401
|
|
|
$
|
(179
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects of significant temporary differences
representing deferred tax assets and liabilities at December 31
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accounts receivable allowances
|
|
$
|
370
|
|
|
$
|
480
|
|
Accrued liabilities not yet deductible
|
|
|
4,915
|
|
|
|
7,721
|
|
Net operating loss carryforward
|
|
|
9,881
|
|
|
|
15,934
|
|
Alternative minimum tax credit carryforward
|
|
|
1,876
|
|
|
|
859
|
|
State tax credits
|
|
|
1,315
|
|
|
|
525
|
|
Stock-based compensation
|
|
|
2,977
|
|
|
|
2,234
|
|
Other
|
|
|
431
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,765
|
|
|
|
27,841
|
|
Valuation allowance
|
|
|
(2,256
|
)
|
|
|
(1,530
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
19,509
|
|
|
|
26,311
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
19,737
|
|
|
|
21,549
|
|
Inventories
|
|
|
947
|
|
|
|
1,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,684
|
|
|
|
23,212
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax (liability)/asset
|
|
$
|
(1,175
|
)
|
|
$
|
3,099
|
|
|
|
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
$
|
11,782
|
|
|
$
|
16,701
|
|
Net non-current deferred liabilities
|
|
|
(12,957
|
)
|
|
|
(13,602
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred tax (liability)/asset
|
|
$
|
(1,175
|
)
|
|
$
|
3,099
|
|
|
|
|
|
|
|
|
|
|
The Company has federal NOL carryforwards of approximately
$21,300 as of December 31, 2007, available to offset future
federal taxable income. These NOL carryforwards expire in
varying amounts in the years 2023 to 2026 if not utilized. At
December 31, 2007, the Company has state net operating loss
carryforwards for Indiana, New York and Pennsylvania totaling
$19,763, $1,873 and $1,379, respectively.
61
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Additionally, the Company has foreign net operating loss
carryforwards of $2,871 and alternative minimum tax credit
carryforwards of $1,876 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. Any reversal of the valuation allowance
established in fresh-start reporting upon emergence from
bankruptcy remaining on net deferred tax assets will first
offset goodwill, then intangible assets and then increase
additional paid-in capital. During 2007, 2006 and 2005, a
portion of the valuation allowance on 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. The valuation allowance established in
fresh-start reporting upon emergence from bankruptcy of $588,
$159 and $9,052 has offset goodwill in 2007, 2006 and 2005,
respectively. The remaining change in the valuation allowance
established subsequent to October 20, 2004 of $3,692 was
released as a tax benefit in continuing operations in 2005.
Valuation allowances continue to be recorded against NOLs
and other deferred tax assets since it is not
more-likely-than-not the tax benefits will be realized.
The valuation allowance for deferred taxes was $2,256 and $1,530
at December 31, 2007 and 2006, respectively. The Company
recorded net changes to the valuation allowance of $726, ($963),
and ($12,214) for the years ended December 31, 2007, 2006
and 2005, respectively.
On January 1, 2007, the Company adopted FIN 48, which
resulted in a decrease in its liability for unrecognized tax
benefits and the January 1, 2007 balance of accumulated
deficit totaling $348. During the quarter ended
September 30, 2007, the Company determined that it had
understated the liability for unrecognized tax benefits that was
recorded upon adoption of FIN 48. This determination was
based on information that existed at the time the Company
adopted FIN 48, rather than new information or developments
subsequent to the adoption of FIN 48. Accordingly, the
Company corrected this error by increasing the liability for
unrecognized tax benefits and the balance of accumulated deficit
as of January 1, 2007 by $3,670. Therefore, as a result of
the adoption of FIN 48 in 2007, the Company recognized an
increase in the liability for unrecognized tax benefits, net of
deferred income taxes, with a corresponding increase in the
Companys accumulated deficit totaling $3,322. The
Companys unrecognized tax benefits at December 31,
2007 relate to federal and various state jurisdictions.
The following table summarizes the activity related to the
Companys unrecognized tax benefits:
|
|
|
|
|
Balance at January 1, 2007
|
|
$
|
4,260
|
|
Increases related to current year tax positions
|
|
|
146
|
|
Increases related to prior year tax positions
|
|
|
225
|
|
Decreases related to prior year tax positions
|
|
|
(262
|
)
|
Expiration of statute of limitations for the assessment of taxes
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
4,369
|
|
|
|
|
|
|
The total unrecognized tax benefits balance at December 31,
2007 is comprised of tax benefits that, if recognized, would
affect the effective rate.
The Company accrued interest and penalties of $177 related to
these unrecognized tax benefits during 2007, and in total, as of
December 31, 2007, the liability for potential penalties
and interest totals $185. The Company recognizes interest and
penalties accrued related to unrecognized tax benefits in income
tax expense. The Company does not expect its unrecognized tax
benefits to change significantly over the next twelve months.
62
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company is subject to taxation in the United States and
various state and foreign jurisdictions. The Companys tax
years from 2001 to 2006 are subject to examination by the taxing
authorities due to the Companys net operating loss
carryforwards.
|
|
12.
|
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, 2007, 2006 and 2005 amounted
to $1,093, $983, and $835, 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-based compensation expense of
approximately $3,632, ($2,506, net of tax) was recorded in the
fourth quarter of 2006. On September 14, 2007, the
Compensation Committee and the Board of Directors approved the
issuance of 42,000 options to employees at an exercise price of
$21.86 per share, a life of 10 years, and vesting over
three years. The weighted-average estimated grant date fair
value per option was $11.65 for the 42,000 options granted in
September 2007.
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
October 20, 2007, 23,100 options were issued to
non-employee directors at an exercise price of $22.25 per share,
a life of 10 years and vesting over one year. The
weighted-average estimated grant date fair value per option was
$11.24 for the 23,100 options granted in October 2007.
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 became exercisable
on August 1, 2007. The option expires on August 1,
2015.
63
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Shares issued upon exercise have been registered with the
Securities and Exchange Commission. 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(1)
|
|
|
Outstanding at January 1, 2007
|
|
|
1,114,300
|
|
|
$
|
15.03
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
65,100
|
|
|
$
|
22.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(55,000
|
)
|
|
$
|
13.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
1,124,400
|
|
|
$
|
15.49
|
|
|
|
8.6
|
|
|
$
|
7,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at December 31, 2007
|
|
|
1,068,180
|
|
|
$
|
15.49
|
|
|
|
8.6
|
|
|
$
|
7,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
|
|
953,300
|
|
|
$
|
15.60
|
|
|
|
8.3
|
|
|
$
|
6,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The aggregate intrinsic value was calculated using the
difference between the market price of the Companys common
stock at December 31 and the grant price for only those awards
that have a grant price less than the market price of the
Companys common stock at December 31. |
At December 31, 2007, there were options available for
grants to purchase 238,000 shares of common stock under the
2006 Management Stock Option Plan and 207,600 shares under
the 2006 Stock Option Plan for Non-Employee Directors. The
intrinsic value of stock options exercised during 2007 was $379.
Details regarding options to purchase common stock outstanding
as of December 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
Number of Options
|
|
|
Weighted-Average
|
|
|
Contractual
|
|
|
Options
|
|
Outstanding
|
|
|
Exercise Prices
|
|
|
Life in Years
|
|
|
Exercisable
|
|
|
|
10,000
|
|
|
$
|
11.00
|
|
|
|
7.6
|
|
|
|
10,000
|
|
|
1,001,300
|
|
|
$
|
15.00
|
|
|
|
8.3
|
|
|
|
927,300
|
|
|
48,000
|
|
|
$
|
17.83
|
|
|
|
8.8
|
|
|
|
16,000
|
|
|
42,000
|
|
|
$
|
21.86
|
|
|
|
9.7
|
|
|
|
|
|
|
23,100
|
|
|
$
|
22.25
|
|
|
|
9.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,124,400
|
|
|
|
|
|
|
|
|
|
|
|
953,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. Stock
Repurchase Program
On September 4, 2007, the Company announced that its Board
of Directors approved a $3,700 stock repurchase program. Under
this stock repurchase program, the Company was authorized to
repurchase up to $3,700 of its common stock through open market
and privately negotiated transactions from time to time. The
stock repurchase program may be terminated at any time without
prior notice. Through December 31, 2007, the Company
repurchased 144,000 shares of its common stock for an
aggregate price of $3,036 including broker commissions,
resulting in an average price of $21.09 per share.
14. Commitments
and Contingencies
The Company leases certain property, transportation vehicles and
other equipment under operating leases. Total rental expense
under operating leases was $4,107, $4,427, and $3,939 for the
years ended December 31,
64
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2007, 2006 and 2005, respectively. Future minimum lease payments
under operating leases for the years ended December 31 are as
follows:
|
|
|
|
|
2008
|
|
$
|
1,785
|
|
2009
|
|
|
1,502
|
|
2010
|
|
|
1,311
|
|
2011
|
|
|
928
|
|
2012
|
|
|
673
|
|
Thereafter
|
|
|
189
|
|
|
|
|
|
|
Total
|
|
$
|
6,388
|
|
|
|
|
|
|
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 16 to the Companys consolidated
financial statements included herein.
15. Business
Segment Information
The Company has three reportable segments: 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,
electronics 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 3,
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. These products are used by a variety
of customers in the commercial and military aerospace and
defense, electronics and data communication, industrial and
automotive and medical electronics and device markets.
65
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, 2007
|
|
$
|
543,231
|
|
|
$
|
67,408
|
|
|
$
|
122,234
|
|
|
$
|
|
|
|
$
|
(2,068
|
)
|
|
$
|
730,805
|
|
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
|
|
Operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2007
|
|
|
19,699
|
|
|
|
4,525
|
|
|
|
12,818
|
|
|
|
(3,287
|
)
|
|
|
|
|
|
|
33,755
|
|
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
|
|
Income from continuing operations before income tax
provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2007
|
|
|
19,699
|
|
|
|
4,468
|
|
|
|
12,818
|
|
|
|
(13,826
|
)
|
|
|
|
|
|
|
23,159
|
|
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
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
61,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,560
|
|
As of December 31, 2006
|
|
|
62,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,148
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
240,145
|
|
|
|
43,979
|
|
|
|
64,309
|
|
|
|
25,508
|
|
|
|
(4,804
|
)
|
|
|
369,137
|
|
As of December 31, 2006
|
|
|
247,778
|
|
|
|
40,115
|
|
|
|
62,863
|
|
|
|
32,161
|
|
|
|
(7,352
|
)
|
|
|
375,565
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2007
|
|
|
15,996
|
|
|
|
1,322
|
|
|
|
770
|
|
|
|
|
|
|
|
|
|
|
|
18,088
|
|
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
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2007
|
|
|
12,391
|
|
|
|
1,149
|
|
|
|
3,143
|
|
|
|
17
|
|
|
|
|
|
|
|
16,700
|
|
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
|
|
The following table presents net sales by period and by
geographic region based on the country or region in which the
legal subsidiary is domiciled.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
United States
|
|
$
|
657,512
|
|
|
$
|
681,549
|
|
|
$
|
385,884
|
|
Europe
|
|
|
73,293
|
|
|
|
67,376
|
|
|
|
38,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
730,805
|
|
|
$
|
748,925
|
|
|
$
|
424,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents property, plant and equipment at
December 31 by geographic region based on the location of the
asset:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
United States
|
|
$
|
96,916
|
|
|
$
|
94,568
|
|
Europe
|
|
|
10,438
|
|
|
|
9,321
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
107,354
|
|
|
$
|
103,889
|
|
|
|
|
|
|
|
|
|
|
16. Litigation
In connection with the sale of its former wire harness business
to Viasystems, the Company agreed to indemnify Viasystems for
certain claims and litigation including any claims related to
the claims for water inlet hoses previously assembled by the
Company. The Companys policy is to record the probable and
reasonably estimable loss related to the product liability
claims. Over time, the level of claims, insurance coverage and
settlements has varied. Accordingly, the Company has revised its
estimated liability outstanding, or balance sheet reserve, based
on actual claims reported and costs incurred and its estimate of
claims and cost incurred but not reported. The Company has
reached global settlements with various claimants related to
such claims which are also considered in determining the balance
sheet reserve. There are no recoveries from third parties
considered in the balance sheet reserve.
The Company is insured for all claims and damages that have
occurred prior to April 1, 2002. As of December 31,
2007, the Company had $75,000 of remaining insurance coverage
under its excess umbrella policies for each of the insured years
prior to April 1, 2002.
For claims arising subsequent to April 1, 2002, the Company
had a reserve of $965 and $1,250 as of December 31, 2007
and December 31, 2006, 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 Companys expense related to these
claims totaled $0, $267, and $0 for the years ended
December 31, 2007, 2006 and 2005, respectively. The
majority of payments are expected to be made over approximately
the next year. 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 Companys consolidated financial
statements.
On January 2, 2008, the Company announced that it acquired
the assets and operations of Hamilton Products, Inc. and the
related real estate owned by JPS Holdings, LLC (collectively
Hamilton Products). Hamilton Products was formed in
1994 and is a manufacturer and marketer of copper braided wire
products serving the aerospace and industrial markets. Under the
asset purchase agreement, the Company purchased the assets,
operations and certain liabilities for $9,250 in cash, subject
to a working capital adjustment. Hamiltons manufacturing
facility is located in Sherburne, New York.
67
INTERNATIONAL
WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
18.
|
Quarterly
Financial Information (unaudited)
|
Selected unaudited quarterly financial data for the years ended
December 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
4th Qtr.
|
|
|
3rd Qtr.
|
|
|
2nd Qtr.
|
|
|
1st Qtr.
|
|
|
|
(In thousands, except share data)
|
|
|
Net sales
|
|
$
|
176,656
|
|
|
$
|
179,994
|
|
|
$
|
200,030
|
|
|
$
|
174,125
|
|
Gross profit, exclusive of depreciation and amortization
|
|
|
23,787
|
|
|
|
23,541
|
|
|
|
23,850
|
|
|
|
23,365
|
|
Operating income
|
|
|
7,889
|
(a)
|
|
|
9,273
|
|
|
|
8,318
|
|
|
|
8,275
|
|
Income from continuing operations
|
|
|
2,472
|
|
|
|
4,599
|
|
|
|
4,224
|
|
|
|
3,910
|
|
Income from discontinued operations
|
|
|
24
|
|
|
|
492
|
|
|
|
73
|
|
|
|
67
|
|
Net income
|
|
|
2,496
|
|
|
|
5,091
|
|
|
|
4,297
|
|
|
|
3,977
|
|
Earnings per share Basic
|
|
$
|
0.25
|
|
|
|
0.51
|
|
|
|
0.43
|
|
|
|
0.40
|
|
Diluted
|
|
$
|
0.24
|
|
|
$
|
0.50
|
|
|
$
|
0.42
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
4th Qtr.
|
|
|
3rd Qtr.
|
|
|
2nd Qtr.
|
|
|
1st Qtr.
|
|
|
|
(In thousands, except share data)
|
|
|
Net sales
|
|
$
|
183,913
|
|
|
$
|
206,372
|
|
|
$
|
214,077
|
|
|
$
|
144,563
|
|
Gross profit, exclusive of depreciation and amortization
|
|
|
23,693
|
|
|
|
24,341
|
|
|
|
22,303
|
|
|
|
17,406
|
|
Operating income
|
|
|
4,443
|
(a)
|
|
|
8,439
|
|
|
|
8,892
|
|
|
|
7,060
|
|
Income from continuing operations
|
|
|
615
|
|
|
|
3,651
|
|
|
|
3,138
|
|
|
|
2,483
|
|
Income/(loss) from discontinued operations
|
|
|
323
|
|
|
|
294
|
|
|
|
126
|
|
|
|
(622
|
)
|
Net income
|
|
|
938
|
|
|
|
3,945
|
|
|
|
3,264
|
|
|
|
1,861
|
|
Earnings per share Basic and diluted
|
|
$
|
0.09
|
|
|
$
|
0.39
|
|
|
$
|
0.33
|
|
|
$
|
0.19
|
|
|
|
|
(a) |
|
Includes $979 and $4,587 of LIFO liquidation effect,
respectively. |
68
|
|
Item 9.
|
Changes
in and Disagreement with Accountants on Accounting and Financial
Disclosure.
|
Not applicable.
|
|
Item 9A.
|
Controls
and Procedures.
|
Disclosure
Controls and Procedures
Based on an evaluation of our disclosure controls and procedures
(as defined in
Rule 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934) as of the end of
the period covered by this
Form 10-K,
conducted under the supervision of and with the participation of
our chief executive officer (CEO) and chief financial officer
(CFO), such officers have concluded that our disclosure controls
and procedures are designed to ensure that information required
to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SECs
rules and forms, and are operating in an effective manner.
Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file or
submit under the Exchange Act is accumulated and communicated to
our management, including our CEO and CFO, to allow timely
decisions regarding required disclosure.
Managements
Annual Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Our internal
control system is a process designed by, or under the
supervision of, our principal executive officer and principal
financial officer, or persons performing similar functions, and
effected by our board of directors, management and other
personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
U.S. generally accepted accounting principles.
A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Because of the
inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues
and instances of fraud, if any, within our organization have
been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by
management override of the control. The design of any system of
controls also is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance
that any design will succeed in achieving our stated goals under
all potential future conditions; over time, controls may become
inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in the design of an internal
control system, misstatements due to error or fraud may occur
and not be detected. However, these inherent limitations are
known features of the financial reporting process. Therefore, it
is possible to design into the process safeguards to reduce,
though not eliminate, this risk.
Our management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2007.
In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control
Integrated Framework. Based on its assessment, our
management concluded that, as of December 31, 2007, our
internal control over financial reporting was effective based on
those criteria.
Our independent registered public accounting firm,
Deloitte & Touche LLP, has issued an attestation
report on our internal controls over financial reporting. This
report appears on page 70.
Changes
in Internal Control over Financial Reporting
We have made significant control improvements through multiple
initiatives in preparations for the adoption of Section 404
of the Sarbanes-Oxley Act. We have formalized our controls and
procedures around the income tax processes, increased our staff
in the accounting area, formalized our controls and procedures
69
surrounding the analysis and review of complex or non-routine
accounting matters, certain accrued liabilities, and related
expense accounts involving managements judgments and
estimates, and the overall financial statement close process.
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 internal control over financial reporting of
International Wire Group, Inc. and subsidiaries (the
Company) as of December 31, 2007, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Managements Annual Report on
Internal Control over Financial Reporting appearing under
Item 9A. Our responsibility is to express an opinion on the
Companys internal control over financial reporting 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 effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2007, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2007 of
the Company and our report dated March 14, 2008 expressed
an unqualified opinion on those financial statements and
financial statement schedule and included an explanatory
paragraph
70
regarding the adoption of Financial Accounting Standards Board
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement
No. 109, effective January 1, 2007.
/s/ Deloitte &
Touche LLP
Rochester, New York
March 14, 2008
|
|
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 2008 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 organization employees. The code of
ethics is publicly available on our website at
http://itwg.client.shareholder.com/conduct.cfm. If we make any
substantive amendments to the code of ethics or grant any waiver
from a provision of the code to our Chief Executive Officer and
Chief Financial Officer, we will disclose the nature of such
amendment or waiver on that website or in a report on
Form 8-K.
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., 12 Masonic Avenue, Camden, New York 13316.
|
|
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.
|
|
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.
71
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules.
|
1. See Index to Financial Statements and Financial
Schedules in Item 8. Financial Statements and
Supplementary Data on page 39 of this report.
2.
FINANCIAL
STATEMENT SCHEDULE
INTERNATIONAL WIRE GROUP, INC.
SCHEDULE II VALUATION AND QUALIFYING
ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collection of
|
|
|
|
|
Allowances Deducted from
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
Accounts Receivables in the
|
|
Beginning
|
|
|
Acquisition
|
|
|
|
|
|
|
|
|
Written
|
|
|
Balance at
|
|
Balance Sheet
|
|
of Period
|
|
|
of HPC
|
|
|
Provision
|
|
|
Write-Offs
|
|
|
off Accounts
|
|
|
End of Period
|
|
|
Year ended December 31, 2007
|
|
$
|
1,738
|
|
|
$
|
|
|
|
$
|
(251
|
)
|
|
$
|
(205
|
)
|
|
$
|
|
|
|
$
|
1,282
|
|
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
|
|
72
|
|
|
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
|
|
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).
|
10.3
|
|
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).
|
10.4
|
|
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).*
|
10.5
|
|
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).
|
10.6
|
|
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).*
|
10.7
|
|
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).*
|
73
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibit Description
|
|
10.8
|
|
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).*
|
10.9
|
|
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).
|
10.10
|
|
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).
|
10.11
|
|
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).
|
10.12
|
|
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).*
|
10.13
|
|
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).*
|
10.14
|
|
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).*
|
10.15
|
|
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).*
|
10.16
|
|
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).
|
10.17
|
|
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).
|
10.18
|
|
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).
|
10.19
|
|
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).*
|
10.20
|
|
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).*
|
10.21
|
|
Letter agreement, dated March 26, 2007, between
International Wire Group, Inc. and William Lane Pennington
(filed as Exhibit 10.39 to the Companys Annual Report
on
Form 10-K
filed April 30, 2007, and incorporated herein by
reference).*
|
10.22
|
|
Letter agreement regarding Amended and Restated Registration
Rights Agreement, dated April 24, 2007, 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 April 27, 2007, and incorporated herein by
reference).
|
74
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibit Description
|
|
10.23
|
|
Amendment No. 4 to Loan and Security Agreement, dated as of
October 26, 2007, 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 October 26, 2007, and incorporated herein by
reference).
|
21.1
|
|
Subsidiaries of International Wire Group, Inc. (filed herewith).
|
23.1
|
|
Consent of PricewaterhouseCoopers LLP (filed herewith).
|
23.2
|
|
Consent of Deloitte & Touche LLP (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), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (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), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (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. |
75
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, 2007 to be signed on
its behalf by the undersigned, thereunto duly authorized as of
March 14, 2008.
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 March 14, 2008.
|
|
|
|
|
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
|
76
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
|
|
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
|
.3
|
|
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
|
.4
|
|
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
|
.5
|
|
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).
|
|
10
|
.6
|
|
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
|
.7
|
|
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).*
|
77
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibit Description
|
|
|
10
|
.8
|
|
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
|
.9
|
|
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
|
.10
|
|
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
|
.11
|
|
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
|
.12
|
|
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
|
.13
|
|
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
|
.14
|
|
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
|
.15
|
|
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
|
.16
|
|
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
|
.17
|
|
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
|
.18
|
|
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
|
.19
|
|
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
|
.20
|
|
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
|
.21
|
|
Letter agreement, dated March 26, 2007, between
International Wire Group, Inc. and William Lane Pennington
(filed as Exhibit 10.39 to the Companys Annual Report
on
Form 10-K
filed April 30, 2007, and incorporated herein by
reference).*
|
|
10
|
.22
|
|
Letter agreement regarding Amended and Restated Registration
Rights Agreement, dated April 24, 2007, 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 April 27, 2007, and incorporated herein by reference)
|
78
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibit Description
|
|
|
10
|
.23
|
|
Amendment No. 4 to Loan and Security Agreement, dated as of
October 26, 2007, 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 October 26, 2007, and incorporated herein by
reference).
|
|
21
|
.1
|
|
Subsidiaries of International Wire Group, Inc. (filed herewith).
|
|
23
|
.1
|
|
Consent of PriceWaterhouseCoopers LLP (filed herewith).
|
|
23
|
.2
|
|
Consent of Deloitte & Touche LLP (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), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (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), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (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. |
79